San Joaquin Valley Ins. Auth. v. Gallagher Benefit Servs., Inc., Case No. 1:17-cv-00861-EPG

• Decision Date: 05 February 2020
• Docket Number: Case No. 1:17-cv-00861-EPG
• Citation: 437 F.Supp.3d 761
• Parties: SAN JOAQUIN VALLEY INSURANCE AUTHORITY, Plaintiff, v. GALLAGHER BENEFIT SERVICES, INC. Defendant.
• Court: U.S. District Court — Eastern District of California

437 F.Supp.3d 761

SAN JOAQUIN VALLEY INSURANCE AUTHORITY, Plaintiff,

v.GALLAGHER BENEFIT SERVICES, INC. Defendant.

Case No. 1:17-cv-00861-EPG

United States District Court, E.D. California.

Signed February 5, 2020

John Stewart Clifford, Smith LC, Irvine, CA, Lauren Michelle Strickroth, Victor Loren Wolf, Best, Best & Krieger LLP, Riverside, CA, Richard T. Egger, Best Best and Krieger, Ontario, CA, for Plaintiff.

Brook Long, PHV, Pro Hac Vice, Patrick O'Meara, PHV, Pro Hac Vice, Steve D'Amore, PHV, Pro Hac Vice, Winston & Strawn, LLP, Chicago, IL, Thomas J. Kearney, Kenneth David Watnick, Anderson, McPharlin & Conners, Los Angeles, CA, for Defendant.

ORDER GRANTING PLAINTIFF'S MOTION FOR RECONSIDERATION RE THE COURT'S RULING: (1) DENYING PLAINTIFF'S MOTION IN LIMINE NO. 2 TO EXCLUDE ARGUMENT OR EVIDENCE OF COLLATERAL SOURCE PAYMENTS; AND (2) GRANTING DEFENDANT'S MOTION IN LIMINE NO. 1 THAT EVIDENCE OF PREMIUM SJVIA HAS CHARGED TO MAKE UP FOR ITS DEFICIT POSITION IS RELEVANT AND ADMISSIBLE

(ECF NO. 117)

ERICA P. GROSJEAN, United States Magistrate Judge

Plaintiff San Joaquin Valley Insurance Authority ("the SJVIA"), a joint powers entity, brings this suit against its former benefits consultant Defendant Gallagher Benefit Services ("GBS") for Professional Negligence and Malpractice, Negligent Misrepresentation, and Breach of Contract. SJVIA alleges that "[t]hroughout GBS's tenure as consultant for SJVIA, GBS provided grossly negligent consulting and actuarial services to SJVIA, which significantly damaged SJVIA and created a funding deficit of more than $20 million. GBS made critical errors in its monitoring, reporting, projections, and strategy recommendations." (ECF No. 1-1, at p. 18).

GBS seeks to introduce evidence that any damages caused by GBS have been recouped by SJVIA because SJVIA raised premiums on continuing participants of SJVIA to recover from the shortfall. The parties previously filed cross motions in limine on whether evidence of the alleged increased premiums is admissible to reduce SJVIA's damages. SJVIA claims that California's collateral source rule bars such evidence; GBS contends that the collateral source rule does not apply to these facts and that precluding such evidence would result in an impermissible double recovery for SJVIA.

On January 30, 2020, the Court issued a ruling in which it granted GBS's motion on the issue and ruled that evidence of the SJVIA's current recovery of the alleged shortfall of premiums is admissible while simultaneously denying the SJVIA's motion in limine to "exclude Argument or Evidence of Collateral Source Payments." (ECF No. 114, p. 29.) ("the order"). The Court rested its holding in large part on its legal conclusion that "SJVIA's collection of additional premiums after 2016 does not fit within any of the categories described by the California Supreme Court as qualifying for the collateral source rule." (ECF No. 114, at p. 19).

On January 31, 2020, the SJVIA filed a motion for reconsideration of the order. (ECF No. 117.) GBS filed an opposition. (ECF No. 119.)

For the following reasons, the Court GRANTS the SJVIA's motion for reconsideration and reverses its rulings on the parties' cross-motions in limine regarding the collateral source rule. Accordingly, SJVIA's motion in limine No. 2 (ECF No. 88) is GRANTED and GBS' motion in limine No. 1 (ECF No. 84) is DENIED.

I. LEGAL STANDARDS FOR MOTION FOR RECONSIDERATION AND CHOICE OF LAW

"[A] motion for reconsideration should not be granted, absent highly unusual circumstances, unless the district court is presented with newly discovered evidence, committed clear error, or if there is an intervening change in the controlling law." Orange St. Partners v. Arnold , 179 F.3d 656, 665 (9th Cir. 1999). Further, the Court notes that it is bound to apply state substantive law in this matter, as it sits in diversity. Hanna v. Plumer , 380 U.S. 460, 465, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). A federal court is bound by the decisions of a state's highest court when interpreting state law. Arizona Elec. Power Coop., Inc. v. Berkeley , 59 F.3d 988, 991 (9th Cir. 1995). However, "[i]n the absence of such a decision, a federal court must predict how the highest state court would decide the issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance." Id.

II. COURT'S PREVIOUS ORDER, SUBJECT TO RECONSIDERATION

In its previous order, the Court found the collateral source rule inapplicable to SJVIA's ability to make up a premium shortfall allegedly caused by GBSs conduct. In so doing, the Court relied heavily upon Helfend v. S. Cal. Rapid Transit Dist. , 2 Cal.3d 1, 84 Cal.Rptr. 173, 465 P.2d 61. 63 ( Cal. 1970), in which the California Supreme Court examined the origins and purposes of the collateral source rule. The Court relied particularly on Helfend's description of the collateral source rule as available in "tort cases in which the plaintiff has been compensated by an independent source—such as insurance, pension, continued wages, or disability payments—for which he had actually or constructively...paid or in cases in which the collateral source rule would be recompensated from the tort recovery through subrogation, refund of benefits, or some other arrangement." Id. , 84 Cal.Rptr. 173, 465 P.2d at 69.

Relying on that description as a limitation of the collateral source rule's application in California, the Court found the rule inapplicable to the SJVIA's ability to recoup underfunding through increased premiums on remaining members and participating entities after the termination of the relationship with the SJVIA:

As an initial matter, this is not a case involving an insurance payment, as in Helfend . It also does not involve any entity that SJVIA actually or constructively paid in order to recover in the event of a tort. The Court has also considered whether the "collateral source would be recompensated from the tort recovery through subrogation, refund of benefits or some other arrangement." There is no evidence of any explicit agreement to subrogate or refund benefits.

(ECF No. 114, p. 19.)

The Court further noted that neither party had presented any California authority applying or refusing to apply the collateral source rule in a similar case.

The Court then discussed the Milliman Inc. v. Maryland State Retirement and Pension System , 25 A.3d 988, 421 Md. 130 (Md. 2011) case at length in which the Maryland High Court found reimbursement under similar circumstances as those at issue here to be from a collateral source, including the following:

[T]he Board rejected Milliman's argument that the System was not damaged insofar as the taxpayers would fund any deficiency, because that "perspective subvert[ed] the entire function and purpose of actuarial analysis": An additional one of Milliman's alternative arguments against the award of any damages in the face of a determination of breach and liability is that MSRPS is not harmed, because, notwithstanding 22 years of Milliman's actuarial errors, it is undisputed that ultimately the retirement and pension systems will be fully funded in accordance with law....

However, this perspective subverts the entire function and purpose of actuarial analysis, which is to determine how much to contribute and when. If the Board were to accept this argument, an actuary could satisfy its contractual obligations to a client by training a monkey to punch random keys on a calculator. MSRPS, the Governor, and Legislature could agree to appropriate the amount thus randomly determined to be allocated toward pension funding, with the understanding that some group of State taxpayers sometime in the future would make up the difference in the event of a deficit or reap the rewards in the event of a surplus, and the actuary would always be held harmless for any calculation error, no matter its basis or magnitude.

Certainly, this is not an acceptable standard of professionalism for actuaries, nor is it the one in force, nor would its adoption benefit any actuarial firm, nor does such a lax standard characterize the usual excellent work of the competent, impressive, highly trained, skilled, and careful actuarial experts engaged by Milliman. Instead, the approval of such an argument would render actuarial calculations pointless. Adopting this position would also undermine the extremely important statutory objectives of leveling contributions, protecting inter-generational equity, and pre-funding defined benefits. That the losses incurred by MSRPS have now been amortized and already partially restored is irrelevant to Milliman's responsibility because the reimbursement made to date is from a collateral source , namely budgets adopted in years subsequent to the years and in different amounts than the appropriations that should have been made and would have been made but for Milliman's error.

Milliman, Inc. v. Maryland State Retirement and Pension System , 421 Md. 130, 146–147, 25 A.3d 988 (2011) (emphasis added).

The Court noted that it found this reasoning persuasive as a matter of policy perspective, and explained in its prior order:

This reasoning in Millman gives the Court significant pause. As in Millman , GBS argues, at least for purposes of this motion, that no matter how faulty or negligent its advice to SJVIA, it is not liable for damages so long as SJVIA eventually recovers its shortfall from renewing members. Like in Millman , this recovery will likely come from taxpayers as the members are public entities. Indeed, GBS has taken the position, described above in connection with the expert report of Mr. Toole, that damages must always be $0 because there is always an opportunity to seek additional premiums in the future. The Court is indeed concerned that allowing GBS to rely on such later payments to reduce or eliminate damages "subverts the entire function and purpose of actuarial analysis, which is to determine how much to contribute and

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