Rupp v. Transcontinental Ins. Co.

• Decision Date: 17 November 2008
• Docket Number: Case No. 2:07-CV-333-TC.
• Citation: Rupp v. Transcontinental Ins. Co., 627 F.Supp.2d 1304 (D. Utah 2008)
• Parties: Analee RUPP and Blair Rupp, Plaintiffs & Counterclaim Defendants, v. TRANSCONTINENTAL INSURANCE COMPANY; American Casualty Company of Reading, Pennsylvania; Continental Casualty Company; and CNA Insurance Company Limited, Defendants & Counterclaimants. American Casualty Company of Reading, Pennsylvania; and Continental Casualty Company, Third-Party Plaintiffs, v. Granite Construction Incorporated; and Westchester Fire Insurance Company, Third-Party Defendants.
• Court: U.S. District Court — District of Utah

627 F.Supp.2d 1304

Analee RUPP and Blair Rupp, Plaintiffs& CounterclaimDefendants, v.TRANSCONTINENTAL INSURANCE COMPANY; American Casualty Company of Reading, Pennsylvania; Continental Casualty Company; and CNA Insurance Company Limited, Defendants & Counterclaimants.

American Casualty Company of Reading, Pennsylvania; and Continental Casualty Company, Third-Party Plaintiffs, v.Granite Construction Incorporated; and Westchester Fire Insurance Company, Third-Party Defendants.

Case No. 2:07-CV-333-TC.

United States District Court, D. Utah, Central Division.

November 17, 2008.

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David R. Olsen, John C. Hansen, Paul M. Simmons, Dewsnup King & Olsen, Salt Lake City, UT, for Plaintiffs & Counterclaim Defendants/Third-Party Defendant.

Bryon J. Benevento, James Delos Gardner, Elisabeth M. McOmber, Snell & Wilmer, Briant S. Platt, Strong & Hanni, Salt Lake City, UT, Patrick A. Cathcart, Addorno Yoss Alvarado & Smith, Los Angeles, CA, Colin G. Martin, David H. Timmins, Gardere Wynne Sewell LLP, Dallas, TX, for Defendants & Counterclaimants/Third-PartyPlaintiffs.

ORDER AND MEMORANDUM DECISION

TENA CAMPBELL, Chief Judge.

In this third-party liability insurance coverage action,¹Plaintiffs Analee and Blair Rupp, as assignees of the insured Granite Construction Inc.("Granite") and excess insurer Westchester Fire Insurance Company("Westchester"), allege claims against the primary insurance companies for breach of various fiduciary duties, including a claim for bad faith refusal to settle an underlying personal injury lawsuit.

DefendantsAmerican Casualty Company of Reading, Pennsylvania ("American") and Continental Casualty Company("Continental") have filed a Motion for Summary Judgment seeking dismissal of all of Plaintiffs' claims.They contend that the insurance policies' terms and conditions bar recovery because the insurers did not consent to the settlement agreement between the Rupps, Granite, and Westchester, and because the underlying action never went to trial.They further contend that Westchester had no legally enforceable right of recovery to assign to the Rupps.²Alternatively, they contend that any liability they may have is limited to Granite's out-of-pocket loss (i.e., the amount Granite paid in excess of its deductible).

For the reasons set forth below, the court holds that American and Continental are not entitled to summary judgment.The Rupps' claims do not fail as a matter of Utah law and genuine disputes of material fact exist regarding the Rupps' allegation of a breach of fiduciary duties and regarding the insurance companies' allegation of a collusive, bad faith settlement and judgment.Accordingly, American's and Continental's Motion for Summary Judgment is DENIED.

I.FACTUAL BACKGROUND³

PlaintiffAnalee Rupp and her husband Blair Rupp bring this suit as assignees of Granite and Westchester to recover damages for breach of various fiduciary and equitable duties (including failure to fairly evaluate the claim and bad faith refusal to accept reasonable settlement offer within policy limits) that the insurance companies allegedly owed to Granite and Westchester.

In May 2003, Ms. Rupp was severely injured during a car accident in a construction zone on Interstate-15 in Utah (she is now a quadriplegic).In November 2004, the Rupps brought a personal injury suit (the "underlying action") in Utah state court against Granite's wholly-owned subsidiary Granite Construction Company of Utah ("Granite of Utah") and Granite of Utah's subcontractor, Riley Transportation Consultants, Inc.("Riley")(a Utah corporation).The Rupps blamed, at least in part, Granite of Utah's and Riley's allegedly negligent design of the traffic control plan for the construction project.⁴In the underlying action, the Rupps sought general, special, and, later in the litigation, punitive damages.

At the time of the accident, Granite had three commercial general liability insurance policies: the policy issued by American, which provided $2 million in primary coverage (Granite had a $500,000 per-occurrence deductible); the policy issued by Continental, which provided $2 million in umbrella⁵ coverage; and an excess⁶ policy issued by Westchester, which provided $11 million in coverage (with a $500,000 per-occurrence deductible) in excess of the $4 million coverage provided by American and Continental combined.Those policies apparently covered Granite of Utah.⁷

Based on the coverage Granite had, a jury verdict awarding more than $15 million in general and special damages would constitute an excess judgment.Also important is the fact that none of the policies provided coverage for punitive damages liability.

A.Policy Language

1.The American Policy

The American Policy's coverage form contains the following relevant language:

We will pay those sums that the insured becomes legally obligated to pay because of "bodily injury" ... to which this insurance applies.We will have the right and duty to defend the insured against any suit seeking those damages.

(American Policy§ I(1)(a)(BatesNo. AC0078), attached as Ex. 1 to Decl. of Melody L. Taylor.)It also provides that in the event of a claim by a third party, Granite:

must cooperate with us in the investigation or settlement of the claim or defense against the "suit"[.]

(Id.§ IV(2)(c)(3)(BatesNo. AC086).)Furthermore:

No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, ... without our consent.

(Id.§ IV(2)(d).)

2.The Continental Policy

The umbrella policy issued by Continental contains similar language:

We will pay on behalf of the insured those sums ... that the insured becomes legally obligated to pay as "ultimate net loss" because of ... "Bodily injury" ... to which this insurance applies.

(Continental Policy§ I(1)(a)(BatesNo. AC0136), attached as Ex. 2 to Taylor Decl.)The Continental Policy defines "ultimate net loss" as

the actual damages the insured is legally obligated to pay, either through: (1) Final adjudication on the merits; or (2) Through compromise settlement with our written consent or direction[.]

(Id.§ V(18)(a)(BatesNo. AC0146).)Consistent with the definition of "ultimate net loss," the "Conditions"section of the Continental Policy's "Commercial Umbrella Plus Coverage Part" contains the following language (which is not in the American Policy):

No legal action shall be brought against us unless you have fully complied with all the terms of this policy and the amount of your obligation to pay has been finally determined either by:

a. Judgment against you after actual trial; or

b. Written agreement between us, you and the claimant.

(Id.§ IV(3)(BatesNo. AC0141).)(The court refers to this as the "no legal action" or "legal action limitation" provision.)And, finally, in the policy, Continental assigns to itself "the sole right to make settlement of a `suit' as we deem expedient."(Id.§ VI(4)(BatesNo. AC0147).)

B.Defense Against the Underlying Action and Settlement Negotiations

American and Continental agreed to defend Granite of Utah in the underlying action, and Granite hired Utah lawyer Daniel McConkie to defend it in the underlying action.

In July 2005, Melody Taylor of CNA Claim Plus, Inc.(the claims manager for American and Continental) wrote to Granite advising it to increase its reserve fund from $425,000 to $1 million and put the umbrella insurer (Continental) on notice because the case could result in a potential verdict of $10-12 million, with a settlement range of $5-6 million.

In July 2006, Mr. McConkie, Granite's counsel, told Granite and Ms. Taylor that "[i]t would be highly unlikely that a jury would give the plaintiff 50% fault or greater, thus leaving her nothing at the end of the day."(July 12, 2006 e-mail from McConkie to Taylor et al. (attached as Ex. 2 to Aff. of Paul Brenkman).)⁸

In August 2006, the trial court in the underlying action allowed the Rupps to amend their complaint to assert a claim against Granite of Utah for punitive damages.

In October 2006, the first mediation failed when the insurers offered less than $1 million to settle the case.

In February 2007, CNA Claim Plus contacted attorney Donald Dawson Jr. to assist Mr. McConkie at trial.Mr. Dawson evaluated the case and concluded there was a 60% chance of a defense verdict, but he acknowledged that the remaining 40% was left to many intangibles at trial.He concluded that "[i]n the event of an adverse verdict, the likely compensatory damages range is $10-$15 million (although a higher amount cannot be ruled out)."(Feb. 27, 2007 Letter from Dawson to Taylor (attached as Ex. 2 to Brenkman Aff.)at 1-2, ¶¶ 1-4.)⁹He added that an offset for comparative fault could reduce the total verdict range "to $4 to $8 million."(Id.)He thought it unlikely that punitive damages would be awarded or that, if they were awarded, they"would exceed $10 million."(Id.)He added, "It is possible any punitive thoughts on the part of the jury would be folded into a higher compensatory verdict, which may take the upper end of that range to $20 million."(Id.)Despite his valuations, Mr. Dawson told CNA Claim Plus: "The settlement value of this case at this time is $1.5 to $2 million," and he added that "a reasonable settlement could be obtained after opening statement, or after the first few witnesses, if the client does not wish to go to verdict."(Id.)

On March 2, 2007, Mr. McConkie responded to Mr. Dawson's valuation.He agreed that the case value was probably $10-$15 million (including approximately $8 million in special damages), but he opined that the chance of a favorable verdict was 30%, not 60%. (Mar. 2, 2007 email from McConkie to Granite et al (attached as Ex. 2 to Brenkman Aff.).)¹⁰Based on his experience with the plaintiffs' counsel, he was of the "firm opinion" that the plaintiffs"will NOT settle this...