Labertew v. Chartis Prop. Cas. Co.

• Citation: 363 F.Supp.3d 1031
• Decision Date: 20 February 2019
• Docket Number: No. CV-13-01785-PHX-DGC,CV-13-01785-PHX-DGC
• Parties: Marcus LABERTEW a/k/a Mark Labertew and Jane Doe Labertew, Husband and Wife; John McDermott a/k/a/ Jack McDermott and Jennifer McDermott, Husband and Wife, Plaintiff, v. CHARTIS PROPERTY CASUALTY COMPANY, Otherwise Known as AIG Casualty Company, and 21st Century North America Insurance Company f/k/a American International Insurance Company, Defendant.
• Court: U.S. District Court — District of Arizona

363 F.Supp.3d 1031

Marcus LABERTEW a/k/a Mark Labertew and Jane Doe Labertew, Husband and Wife; John McDermott a/k/a/ Jack McDermott and Jennifer McDermott, Husband and Wife, Plaintiff,

v.CHARTIS PROPERTY CASUALTY COMPANY, Otherwise Known as AIG Casualty Company, and 21st Century North America Insurance Company f/k/a American International Insurance Company, Defendant.

No. CV-13-01785-PHX-DGC

United States District Court, D. Arizona.

Signed February 20, 2019

Dona Ann Nutini, Ekaterina Sokolova, Philip Jeffrey Nathanson, Nathanson Law Firm, Scottsdale, AZ, for Plaintiff.

Kelly Ann Hedberg, Randy Lee Kingery, Steven G. Mesaros, Renaud Cook Drury Mesaros PA, Phoenix, AZ, for Defendant.

ORDER

David G. Campbell, Senior United States District Judge

Plaintiffs Marcus Labertew and John and Jennifer McDermott seek to enforce a judgment against Defendant Chartis Property Casualty Company, otherwise known as AIG Casualty Company and 21st Century North America Insurance Company, formerly known as American International Insurance Company. Doc. 42. Plaintiffs have filed a partial motion for summary judgment (Doc. 96) and Defendant has filed a motion for summary judgment (Doc. 94). The motions are fully briefed (Docs. 100, 102, 108, 109), and although Defendant requests oral argument, the Court concludes that such argument will not aid its decision. See Fed. R. Civ. P. 78(b) ; LRCiv 7.2(f). For reasons stated below, the Court will deny Plaintiffs' motion and grant Defendant's motion.

I. Background.

The following facts are undisputed unless otherwise noted.

Plaintiffs Marcus Labertew and John McDermott were former employees and officers of BioNovix, Inc., a business engaged in the distribution and sale of health products. Doc. 95-3 at 3 ¶¶ 2, 6. Loral Langemeier was a BioNovix investor and director. Id. ¶ 2. Ms. Langemeier held a homeowner's insurance policy and an excess insurance policy issued by Defendant for the period from June 26, 2009 to June 26, 2010, both of which included personal liability coverage. Doc. 95 ¶ 1.

Plaintiffs sued Ms. Langemeier and Fred Auzenne in state court, asserting breach of contract, defamation, fraud, and other claims arising out of their employment with BioNovix. Doc. 95-3; see Labertew v. Auzenne , No. CV2010-051209 (Ariz. Super. Ct. Mar. 11, 2010). This lawsuit will be referred to in this order as the "underlying lawsuit." Plaintiffs alleged that Ms. Langemeier and Mr. Auzenne committed the wrongful acts in their personal capacity and not on behalf of BioNovix. Id. at 3 ¶ 3. After more than two years of litigation, Ms. Langemeier tendered the defense of the underlying lawsuit to Defendant. Her tender letter cited Arizona case law and included a copy of Plaintiffs' first amended complaint, eight pages of deposition from Mr. McDermott, and seven pages of an oral argument transcript. Doc. 95 ¶ 6. In a letter dated February 4, 2013, Defendant informed Ms. Langemeier that the claims in the underlying lawsuit were excluded by the director's errors or omission exclusion and the business pursuits exclusion of her insurance policies. Doc. 48 at 11-15. The letter stated that if Ms. Langemeier disagreed, she should provide additional materials including transcripts of all depositions, pleadings, summary judgment motions, pleadings for other related cases, and any other documents that may be helpful. Id.

The underlying lawsuit went to trial in state court, and, on the third day of trial, Plaintiffs and Ms. Langemeier entered into a stipulated judgment against Ms. Langemeier for $ 1.5 million. Doc. 1-16 at 27-28. The judgment was part of what is commonly called a " Damron agreement" under Arizona law. It included a covenant not to execute on the judgment against Ms. Langemeier and an assignment to Plaintiffs of Ms. Langemeier's insurance coverage and bad faith claims against Defendant. See Doc. 103-1; see also Damron v. Sledge , 105 Ariz. 151, 460 P.2d 997 (1969).

Rather than filing a new action against Defendant asserting the claims assigned by Ms. Langemeier, Plaintiffs chose to attempt to collect the stipulated judgment through a garnishment action against Defendant. Doc. 1-16 at 41-45. Plaintiffs initiated the garnishment action in state court, and Defendant removed it to this Court and answered the writs of garnishment, denying that it owed any funds to Plaintiffs. Docs. 6, 7. Plaintiffs did not file timely objections to the answers, and Defendant requested that the Court enter judgment in its favor. Doc. 9. The Court did so, finding that under Federal Rule of Civil Procedure 69(a), Arizona procedures governed the removed garnishment proceeding and Plaintiffs had failed to comply with Arizona's ten-day objection requirement. Docs. 26; 27. On appeal, the Ninth Circuit reversed, holding that Rule 69 did not apply to this case because there was no federal judgment. Doc. 38. The court of appeals remanded the case with instructions to allow re-pleading. Doc. 38.

After remand, Plaintiffs filed an amended complaint asserting the insurance coverage and bad faith claims assigned to them by Ms. Langemeier and seeking to recover the $ 1.5 million stipulated judgment, as well as damages for insurance bad faith. Doc. 42 at 3-4. Plaintiffs now move for summary judgment on the choice of law in this case, arguing that California law should apply. Doc. 96. Defendant moves for summary judgment on Plaintiffs' claims. Doc. 94.

II. Legal Standard.

A party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment is also appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex , 477 U.S. at 322, 106 S.Ct. 2548. Only disputes over facts that might affect the outcome of the suit will preclude summary judgment, and the disputed evidence must be "such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

III. Discussion.

A. Plaintiff's Motion for Partial Summary Judgment.

1. Choice of Law for Contracts.

In diversity cases, "the district court must apply the choice-of-law rules of the state in which it sits." Abogados v. AT & T, Inc. , 223 F.3d 932, 934 (9th Cir. 2000). Arizona follows the Restatement's "most significant relationship" test. See Bates v. Super. Ct. , 156 Ariz. 46, 749 P.2d 1367, 1369 (1988) ; Magellan Real Estate Inv. Tr. v. Losch , 109 F.Supp.2d 1144, 1155 (D. Ariz. 2000). The Restatement contains general principles to be applied to all conflicts, general principles to apply to contracts, and specific principles to apply to insurance contracts. Restatement (Second) of Conflict of Laws §§ 6, 188, 193.

Section 193 provides that the rights created by a contract of fire, surety, or casualty insurance "are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy." That is "unless with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the transaction and the parties, in which event the local law of the other state will be applied." Restatement (Second) of Conflicts § 193 ; see also Beckler v. State Farm Mut. Auto Ins. , 195 Ariz. 282, 987 P.2d 768, 772 (Ariz. Ct. App. 1999). Courts should consider the choice-of-law principles in § 6 when considering if another state has a more significant relationship to the insurance contract and the parties. The Court may also look to § 188 to inform the § 6 analysis. Id. cmt. c.

Plaintiffs argue that California law applies because one of Ms. Langemeier's insured risks is located there, and it has the most significant relationship to the transaction and the parties. Doc. 96 at 3-4. Defendant asserts that Arizona law applies because it governs the underlying Damron agreement, the insured risk is located in Arizona, and Arizona has the most significant relationship to the parties. Doc. 100 at 7-12.

a. The Insured Risk.

The insured risk is the object or activity that is the subject matter of the insurance policy, and its principal location is in the "state where it will be during at least the major portion of the insurance period." Restatement (Second) of Conflicts § 193 cmt. b. Under § 193, the location of the insured risk should be given the greatest weight when determining which state's law applies, so long as the risk can be located, at least principally, in a single state. Id. But the importance of the location of the insured risk varies from case to case. Id. Plaintiffs argue that the insured risks in this case are located in Nevada and California because those are the locations of the properties covered by Ms. Langemeier's homeowner's and excess liability insurance policies. Doc. 96 at 3.

Courts are split on whether an "insured risk" under a homeowner's policy would continue to be the home when the suit is filed under the policy's personal liability coverage. Compare Metropolitan Prop. & Cas. Ins. v. Gilson , No. CV-09-01874-PHX-GMS, 2010 WL 2721906, at *2 (D. Ariz. July 7, 2010) (location of the home is the location of the insured risk), with AIG Prop. Casualty Ins. v. Green , 217 F.Supp.3d 415, 425 n.11 (D. Mass. 2016) (noting that the insured's personal liability is the insured risk, so the proper location should be the...