Scottsdale Ins. Co. v. Dickstein Shapiro LLP, Case No. 2:18-cv-02893-SVW-GJS

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
Citation389 F.Supp.3d 794
Docket NumberCase No. 2:18-cv-02893-SVW-GJS
Decision Date13 March 2019

389 F.Supp.3d 794


Case No. 2:18-cv-02893-SVW-GJS

United States District Court, C.D. California.

Signed March 13, 2019
Order Denying Rehearing August 1, 2019

389 F.Supp.3d 803

Faisal M. Zubairi, Navdeep Kumar Singh, Dorsey and Whitney LLP, Costa Mesa, CA, Bryan C. Keane, Pro Hac Vice, Caitlin L. D. Hull, Pro Hac Vice, Evan J. Livermore, Pro Hac Vice, Robert E. Cattanach, Pro Hac Vice, Dorsey and Whitney LLP, Minneapolis, MN, for Scottsdale Insurance Company.

Jeffrey K. Garfinkle, Michael W. Caspino, Danielle Michelle Mayer, Kelsey Anne Mills, Buchalter APC, Irvine, CA, John E. Jureller, Jr., Pro Hac Vice, Klestadt Winters Jureller Southard and Stevens LLP, New York, NY, Diana Castiov, Jeffrey N. Williams, for Dickstein Shapiro LLP et al.

Mark L. Block, Raymond J. Tittmann, Edward J. Valdespino, Wargo French LLP, Los Angeles, CA, for Underwriters.



Before the Court are cross-motions for summary judgment filed by Plaintiff and Counter-Defendant Scottsdale Insurance Company ("Scottsdale") and Defendants and Counter-Plaintiffs Certain Underwriters at Lloyds, London, including Brit UW Limited for and on behalf of Lloyds Syndicate 2987 ("Brit"), Beazley Furlonge Ltd. for and on behalf of Lloyds Syndicates 2623 and 0623 ("Beazley"), Faraday Capital Limited for and on behalf of Lloyd's Syndicate 0435 ("Faraday"), Amlin Underwriting Limited for and on behalf of Lloyd's Syndicate 2001 ("Amlin"), Renaissance Re Group for and on behalf of Lloyd's Syndicate 1458 ("Renaissance"), Lexington Insurance Company ("Lexington"), and Swiss Re International SE – Zurich ("Swiss Re" and, collectively with Brit, Beazley, Faraday, Amlin, Renaissance, and Lexington, "Underwriters"). See Dkts. 76, 90. For the reasons set forth below, Scottsdale's motion is GRANTED in part and DENIED in part, and Underwriters'

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motion is GRANTED in part and DENIED in part.

I. Factual Background

A. The Malpractice Insurance Policies

Defendant and Cross-Claimant Dickstein Shapiro LLP ("Dickstein") was a law firm and maintained malpractice insurance policies. Defendant Underwriters' Statement of Uncontroverted Facts and Conclusions of Law, Dkt. 118-1 ("DSUF"), ¶ 1. Underwriters issued a Primary Claims Made and Reported Lawyers Professional Liability Insurance policy to Dickstein identified as Policy No. B0621PDIC00212 (the "Primary Policy") for the period from December 20, 2012 to December 20, 2013 (the "Policy Period"). Id. ¶¶ 1-2; see also Dkt. 80-1.

The Primary Policy provides coverage to an "Assured" for claims first made against the Assured and reported to Underwriters during the Policy Period, for all claims "arising out of any act, error or omission of the Assured ... in rendering or failing to render professional services for others arising out of the conduct of the Assureds [sic] profession as lawyer, mediator, arbitrator, fiduciary, notary public or lobbyist." Dkt. 80-1 at 5. The Primary Policy also states that Underwriters "shall have the right and duty to defend, subject to the Limits of Liability, any Claim against the Assured seeking Damages which are payable under the terms of this Insurance [policy], even if any of the allegations of the Claim are groundless, false or fraudulent." Id. The Primary Policy defines the term "Assured" to include any lawyer who provided legal services as a partner for Dickstein. See id. at 6. The Primary Policy carried a policy limit of $15 million, with the various Underwriters insurers agreeing to cover a certain percentage of the policy limit. DSUF ¶ 2; see also Dkt. 80-1 at 1.

Dickstein also carried excess layers of malpractice insurance. Underwriters issued the First Excess Lawyers Professional Liability Insurance policy identified as Policy No. B0621PDIC00312 (the "Underwriters First Excess Policy") for the same Policy Period as the Primary Policy and embodying substantively similar defense and indemnity coverage. DSUF ¶ 3; see also Dkt. 80-2. Scottsdale, via its managing agent Huntersure LLC ("Huntersure"), also subscribed to a first layer excess policy with identical terms as the Underwriters First Excess Policy through a separate policy issued to Dickstein with the reference number LXS0000261 and identified as Policy No. B0621PDIC00312001 (the "Scottsdale First Excess Policy" and, together with the Underwriters First Excess Policy, the "First Excess Policy"). See Dkt. 80-3.

The First Excess Policy states that "[l]iability to pay under this Policy shall not attach unless and until the Underwriters of the [Primary Policy] shall have paid or have admitted liability or have been held liable to pay, the full amount of their indemnity inclusive of costs and expenses." Dkt. 80-2 at 5; Dkt. 80-3 at 8. The First Excess Policy carried a combined policy limit of $15 million above the $15 million limit provided by the Primary Policy. DSUF ¶ 5; see also Dkt. 80-2 at 2; Dkt. 80-3 at 5. Underwriters were allocated 70.62% of the First Excess Policy limit, and Scottsdale agreed to cover the remaining 29.38% share. DSUF ¶ 6; see also Dkt. 80-2 at 1; Dkt. 80-3 at 2-4. Each insurer's subscription to the Primary Policy and/or the First Excess Policy can be summarized as follows:

389 F.Supp.3d 805
 First Excess
                 Primary Layer
                 Participants Policy Policies
                 Brit (2987) 22.58% 5.87%
                 Beazley (2623/623) 22.58% 14.69%
                 Lexington 9.03% 4.41%
                 Faraday (435) 6.78% 5.87%
                 Amlin (2001) 4.51% 5.87%
                 RenRe (1458) 4.52% 3.91%
                 Swiss Re 30.00% 30.00%
                 Huntersure [Scottsdale] 0.00% 29.38%
                 _______ _______
                 100.00% 100.00%

Declaration of Marie Hill, Dkt. 118-2 ("Hill Decl."), ¶ 7.

B. The Hettrick Malpractice Action and Underwriters' Denial of Coverage

Clyde Hettrick was a partner at Dickstein, falling within the definition of an "Assured" under the Primary Policy. Scottsdale Insurance Company's Statement of Uncontroverted Facts and Conclusions of Law, Dkt. 116-1 ("PSUF"), ¶¶ 1, 9. In early 2008, Hettrick represented Manhattan Beachwear, LLC ("MBW") regarding insurance-related matters. Id. ¶ 2. In June 2008, Hettrick left Dickstein to start his own law firm, HettrickLaw P.C. ("HettrickLaw"). Id. ¶ 3. Hettrick continued representing MBW at HettrickLaw, and in January 2009 HettrickLaw filed a lawsuit on behalf of MBW against Lloyd's of London Insurers relating to certain insurance claims submitted by MBW (the "Lloyd's Litigation"). Id.

In 2011, MBW fired HettrickLaw as counsel for the Lloyd's Litigation and retained Dickstein as replacement counsel for the duration of the Lloyd's Litigation. Id. ¶ 4. In late 2012, the parties settled the Lloyd's Litigation. Id. MBW refused to pay fees to HettrickLaw and Dickstein related to the Lloyd's Litigation, threatening to file a malpractice action against Hettrick if Hettrick attempted to collect fees from MBW. Id. ¶ 5. MBW entered into a tolling agreement with Hettrick and HettrickLaw on June 13, 2012 regarding HettrickLaw's claim for fees against MBW, with an expiration date for the tolling agreement set as December 15, 2012. Id. ¶ 6.

On December 14, 2012, MBW filed a malpractice lawsuit against Hettrick and HettrickLaw in the Superior Court for the State of California, captioned Manhattan Beachwear, LLC v. Hettrick Law, P.C. et al. , Case No. BC497520 (Cal. Super. Ct.) (the "Hettrick Malpractice Action"). PSUF ¶ 7; see also Dkt. 93-1. MBW alleged damages exceeding $11 million as a result of Hettrick's professional negligence in tendering MBW's insurance claims and in handling the Lloyd's Litigation. PSUF ¶ 8; Dkt. 93-1 ¶¶ 14-17. In February 2013, Hettrick's attorney notified Dickstein that Hettrick was sued on a matter that originated while Hettrick was a partner at Dickstein. PSUF ¶ 10; Dkts. 93-10–11. In an email on March 13, 2013, before Hettrick had been served with the complaint for the Hettrick Malpractice Action, counsel for Hettrick formally requested that

389 F.Supp.3d 806

Dickstein and Dickstein's insurers participate in defending the Hettrick Malpractice Action. PSUF ¶¶ 11-12; Dkt. 93-12. After not hearing back from Dickstein for two months, on May 8, 2013, counsel for Hettrick repeated the request that Dickstein participate in the defense of the Hettrick Malpractice Action. PSUF ¶ 13; Dkt. 93-12.

On May 14, 2013, Dickstein sent a letter to Underwriters, providing Underwriters with a "Notice of Circumstance" regarding the Hettrick Malpractice Action. Dkt. 93-13. The following day, counsel for Underwriters, Furman Kornfeld & Brennan LLP ("FKB"), acknowledged receipt of the Notice of Circumstance on behalf of Underwriters, referencing only the identification number for the Primary Policy. Dkt. 116-2.

In July 2013, FKB prepared a draft report to Underwriters containing a draft of a letter responding to Dickstein's Notice of Circumstance. See Dkts. 116-23–25. The draft letter to Dickstein prepared by FKB suggested that Underwriters should deny defense and indemnity coverage to both...

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