Erickson-Hall Constr. Co. v. Scottsdale Ins. Co., Case No.: 18-CV-2462-GPC-MSB
| Decision Date | 20 February 2019 |
| Docket Number | Case No.: 18-CV-2462-GPC-MSB |
| Citation | 369 F.Supp.3d 1022 |
| Parties | ERICKSON-HALL CONSTRUCTION COMPANY, a California Corporation, Plaintiff, v. SCOTTSDALE INSURANCE COMPANY, an Ohio Corporation, and Hartford Fire Insurance Company, a Connecticut Corporation, Defendants. |
| Court | U.S. District Court — Southern District of California |
Benjamin R. Fliegel, Lilit Asadourian, Reed Smith LLP, Los Angeles, CA, for Plaintiff.
Paul S. White, David Simantob, Neal Kojima, Wilson Elser Moskowitz Edelman & Dicker LLP, Valerie Diane Rojas, Los Angeles, CA, for Defendants.
Pending before the Court are three motions related to an insurance dispute. The first motion is Defendant Scottsdale Insurance Company's ("Scottsdale's") motion to dismiss Plaintiff Erickson-Hall Construction Company ("EHCC's") first amended complaint ("FAC"). (ECF No. 14.)1 This motion has been fully briefed. (ECF Nos. 2, 24.) The second is Defendant Hartford Fire Insurance Company's ("Hartford's") motion to dismiss EHCC's FAC (ECF No. 17), which has also received the benefit of full briefing. (ECF Nos. 25, 26.) The final motion at issue is EHCC's ex parte motion for an order setting or amending the briefing schedule on the pending Rule 12(b) motions (ECF No. 18), which has been opposed by Scottsdale. (ECF No. 20.)
Pursuant to Civil Local Rule 7.1(d)(1), the Court finds the matter suitable for adjudication without oral argument. For the reasons set forth below, the Court GRANTS both motions to dismiss with leave to amend and DENIES as moot EHCC's ex parte motion.
Plaintiff Erickson-Hall Construction Company is a California Corporation with approximately 150 employees. EHCC "competes for highly talented employees by offering its employees certain employment benefits in addition to its compensation packages." (ECF No. 10, at 3.) One of the benefits EHCC offers is company paid Life Insurance, Accidental Death and Dismemberment Insurance and Long Term Disability Insurance (collectively, the "EHCC Benefit Plans"). (Id. ). The EHCC Benefit Plans are purchased by EHCC for its employees from a third-party insurance company.
EHCC employees are also presented with the option to purchase additional coverage under the EHCC Benefit Plans. Employees have been made to understand that the additional coverage would be paid for directly from their paychecks, and that payments would be administered by EHCC. (Id. )
EHCC employed a non-executive level Controller with a background in accounting to oversee the operation of the EHCC Benefit Plans. (Id. at 7.) The Controller was the primary person responsible for informing employees about their eligibility for, and the scope of any of the EHCC Benefit Plans which EHCC offered to purchase on the employees' behalf. The Controller was tasked with enrolling employees (by providing third party insurance companies the information required to enroll and maintain coverage), deducting from employees' paychecks moneys to pay premiums for the additional coverages which employees elected to purchase, as well as paying premiums for the ordinary coverage offered as part of the EHCC Benefit Plans. The financial part of the Controller's responsibilities included receiving and processing premium invoices from the third-party insurance companies and responding to any late payment notifications sent.
To guard against the incidents of its administration of the EHCC Benefits Plans, EHCC purchased a "Business and Management Indemnity Policy" from Scottsdale (the "Scottsdale Policy"), which was effective between August 15, 2016 to August 15, 2017. (Id. at 4.) Scottsdale is organized under the laws of Ohio, and is a subsidiary of Nationwide Mutual Insurance Company ("Nationwide"), also of Ohio.
The Scottsdale Policy included a Fiduciary Coverage Section that ensured that Scottsdale would indemnify EHCC for any "Loss" which EHCC "become[s] legally obligated by reason of a Claim ... for any Wrongful Act." (ECF No. 10-1, at 30, 96.). A "Claim" encompasses any "written demand for damages or other relief against [EHCC]," and a Wrongful Act is defined to include:
(ECF No. 10-1, at 32.) With respect to the third category of Wrongful Act, "Administration" is defined to include:
(Id. at 30.).
EHCC also secured a "Special Multi-Flex Business Insurance Policy" with Hartford that was effective between August 15, 2016 and August 15, 2017 (the "Hartford Policy"). Hartford is a company organized under the laws of Connecticut.
The Hartford Policy included an Employee Benefits Liability Coverage Endorsement, pursuant to which Hartford agreed to "pay those sums that [EHCC] shall become legally obligated to pay as damages because of ‘employee benefits injury’ to which this endorsement applies." (ECF No. 10-2, at 40.) "Employee benefits injury" is further defined as "any injury that arises out of any negligent act, error, or omission in the ‘administration’ of EHCC's ‘employee benefits program.’ "3 (Id. at 42.)
"Administration," as defined in relation to an employee benefits program, encompasses both:
(Id. at 42).
Unbeknownst to anyone else at EHCC, the Controller failed to make the premium payments required to maintain and renew the EHCC Benefit Plan and coverage terminated as of January 1, 2016. (ECF No. 10, at 8.) According to EHCC, the lapse in coverage resulted from the Controller's negligent administration of, and mishandling of records related to, the EHCC Benefit Plans—the Controller did not "adequately and timely transfer[ ] and administer[ ]" the "premium payments collected from employees." (Id. at 8.)
Even after the termination of coverage, the Controller did not notify anyone at EHCC that the EHCC Benefit Plans had lapsed, and did not inform EHCC employees that they were no longer enrolled or participating in the EHCC Benefit Plans. It is further alleged that, had the Controller taken reasonable steps to counsel and inform EHCC's employees about the lapse of their EHCC Benefit Plans, EHCC employees may have been able to take remedial actions to renew the EHCC Benefit Plans. In addition, it is alleged that, had the Controller taken reasonable steps to inform EHCC about the EHCC Benefit Plans, then EHCC would have had an opportunity to reinstate the EHCC Benefit Plans before incurring losses that would have been covered thereunder. EHCC maintains the Controller's actions were both unreasonable and negligent, but never "intentional." (Id. at 9.)
Thereafter, three of EHCC's employees (i.e., the "Employment Claimants") suffered injuries or death that the Employment Claimants and/or their beneficiaries claimed would have been covered by the EHCC Benefit Plans if the EHCC Benefit Plans had been properly administered. (Id. ). Upon being informed that their EHCC Benefit Plans were not in effect, each Employee Claimant submitted written demand letters (constituting the "Underlying Claims") to EHCC seeking payment of the benefits they would have been entitled to recover under the EHCC Benefit Plans had they been in effect.
EHCC settled all three Underlying Claims without litigation. One of the Underlying Claims was resolved by purchasing a cash value replacement plan that would provide an equivalent benefit to that which would have been due under the EHCC Benefit Plan, had it been in effect. The other two Underlying Claims were settled for payments of the anticipated values of the EHCC Benefit Plans, had they been in effect. The total cost of settling the three Underlying Claims was in excess of $ 200,000. In addition to that outlay, EHCC suffered losses arising from the defense and negotiation of the settlements.
On or about March 21, 2017, EHCC submitted a timely claim to Scottsdale seeking coverage and indemnification for the Underlying Claims. (Id. at 8.) In response, a representative from Scottsdale4 denied the claim by a letter dated May 23, 2017. After the denial, Scottsdale made a series of document requests to EHCC. EHCC alleges that these requests did not arise out of a genuine, good faith investigation into EHCC's claim, but were rather disguised attempts to create a record supporting its decision to deny.
EHCC submitted a similar claim to Hartford, which was denied by a letter dated April 26, 2017. (Id. at 9.) Following the denial, EHCC sought a reason for the denial and offered to provide additional information supporting coverage. On September 11, 2017, Hartford issued a letter which stated that it had forwarded EHCC's information on to another department for further review, but that its "coverage position remain[ed] unchanged at this time." (Id. at 11.) After several later attempts by EHCC to obtain further review of its coverage request, Hartford re-confirmed its decision...
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