State Farm Gen. Ins. Co. v. Phillips
| Docket Number | Case No. CV 21-3469 DMG (AFMx) |
| Decision Date | 18 March 2022 |
| Citation | 591 F.Supp.3d 680 |
| Parties | STATE FARM GENERAL INSURANCE COMPANY, Plaintiff, v. David PHILLIPS, et al., Defendants. |
| Court | U.S. District Court — Central District of California |
Karen L. Bizzini, Steven J. Elie, Musick Peeler and Garrett LLP, Los Angeles, CA, for Plaintiff.
Dennis Neil Jones, Myers Widders Gibson Jones and Feingold LLP, Ventura, CA, for Defendants.
This matter is before the Court on the motion for summary judgment ("MSJ") brought by Plaintiff State Farm General Insurance Company ("State Farm") on its declaratory relief claims against Defendants David Phillips and NKP Medical Marketing, Inc. ("NKP" and together with Phillips, "Insureds"). [Doc. # 34]. The motion is now fully briefed. Opp. [Doc. # 47]; Reply [Doc. # 49]. The Court held a hearing on the motion on March 18, 2022. For the reasons set forth below, the Court DENIES State Farm's MSJ as to the duty to defend causes of action and STAYS the remainder of this action as to the duty to indemnify.
This is an insurance coverage dispute concerning whether State Farm owes a duty to defend or indemnify Phillips and NKP in a lawsuit brought against them by Steven Fruchter and Fruchter & Co. dba GrowthMed, Inc. ("GrowthMed") in the Los Angeles County Superior Court, titled Fruchter v. Phillips , Case No. 19STCV12636 (the "Underlying Action"). State Farm moves for summary judgment on these issues. See MSJ at 2.2
The Complaint in the Underlying Action alleges that Fruchter was the target of a "heinous murder-for-hire plot hatched by Phillips to eliminate a competitor." SUF 10; see also Zimmerman Decl., Ex. 2 ("Underlying Complaint") ¶ 1 [Doc. # 34-4]. Phillips was the president and CEO of NKP, a company that provided website design and internet marketing services to companies in the medical field. SUF 11, DAF 69. For approximately two years, Fruchter worked for NKP as an independent contractor. Fruchter left NKP in 2014 after his relationship with Phillips soured. SUF 12. Fruchter then founded GrowthMed and served as its sole owner and CEO. SUF 13. GrowthMed competed directly with NKP in the same digital marketing space. SUF 14. "Shortly after" Fruchter left NKP, Fruchter's family members allegedly began receiving anonymous letters containing false information about Fruchter, including that he was a "drug addict." DAF 47. "In the years following" Fruchter's departure from NKP, Phillips attempted to recruit individual GrowthMed clients, and on at least one occasion, Phillips approached a client and "defamed" Fruchter and GrowthMed. DAF 51.
GrowthMed was successfully winning over clients from NKP when Phillips began plotting the murder-for-hire scheme. SUF 15. In April 2016, Phillips recruited David Suiaunoa, a drug trafficker, to murder Fruchter. SUF 16. Suiaunoa and Phillips met several times to discuss the murder-for-hire plot, including at NKP's offices, and Phillips paid Suiaunoa $30,000 for the job. SUF 17-18. At another meeting, Phillips gave Suiaunoa a photograph of Fruchter along with Fruchter's address and telephone number. DAF 53.
Unbeknownst to Phillips, federal agents investigating Suiaunoa for drug trafficking discovered the murder-for-hire plot and secured Suiaunoa's cooperation. SUF 20-22. Phillips was subsequently arrested, tried, and convicted in federal court for the murder-for-hire plot. SUF 22. Phillips was sentenced to 90 months in federal prison, and his conviction has since been upheld on appeal. Id.3
State Farm issued commercial general liability insurance to NKP as the named insured for the policy period of August 4, 2016 through August 4, 2017. SUF 1; see also Zimmerman Decl., Ex. 1 ("Policy") [Doc. # 34-3]. The Policy provides that State Farm "will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury,’ ‘property damage,’ or ‘personal and advertising injury.’ " SUF 3. The insurance applies to "bodily injury" and "property damage" only if they are caused by an "occurrence," which is defined to mean "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." SUF 3, 7. The insurance also applies to " ‘personal and advertising injury’ caused by an offense arising out of your business," with "personal and advertising injury" defined to be injuries caused by certain offenses including "[o]ral or written publication, in any manner, of material that slanders or libels a person or organization," and "[o]ral or written publication, in any manner, of material that violates a person's right of privacy." Id.
The Policy includes exclusions for bodily injury or property damage that is an "expected or intended injury" or the result of "willful and malicious, or criminal acts of the insured." SUF 8. The Policy also excludes coverage for "personal and advertising injury" caused by the insured "with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury" (the "Knowing Violations" exclusion). "Personal and advertising injuries" are also excluded if they are committed by an insured whose business is "designing or determining content of web-sites for others" (the "Internet Services" exclusion). Finally, personal or advertising injuries are excluded if they "aris[e] out of a criminal act committed by or at the direction of the insured" (the "Criminal Acts" exclusion). SUF 8.
On April 11, 2019, Fruchter and GrowthMed filed a complaint in Los Angeles County Superior Court against Phillips, NKP, and Suiaunoa, pleading four causes of action: (1) intentional infliction of emotional distress; (2) assault; (3) intentional interference with prospective economic advantage; and (4) interference with contractual relations. See Underlying Compl.
NKP tendered its defense of the Underlying Action to State Farm on September 20, 2019. SUF 42. State Farm accepted NKP's tender under a full reservation of rights by letter on October 9, 2019 and appointed counsel to defend NKP. SUF 43. State Farm also determined that it might have a duty to defend Phillips and appointed separate defense counsel to defend him under a full reservation of rights on October 30, 2019. SUF 44. State Farm later concluded that it no longer had a duty to defend Phillips and notified him of such by letter on April 20, 2021. SUF 45. State Farm advised NKP on the same date that it had withdrawn its defense of Phillips but that it would continue to defend NKP in the Underlying Action, subject to the reservation of rights and this declaratory relief action. SUF 46.
On April 23, 2021, State Farm filed its Complaint in this action. [Doc. # 1.] State Farm seeks declaratory relief as to four claims: (1) that it owes no duty to defend Phillips; (2) that it owes no duty to defend NKP; (3) that it owes no duty to indemnify Phillips; and (4) that it owes no duty to indemnify NKP in the Underlying Action. State Farm filed the instant MSJ on January 25, 2022.
Summary judgment should be granted "if the movant 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) ; accord Wash. Mut. Inc. v. United States , 636 F.3d 1207, 1216 (9th Cir. 2011). Material facts are those that may affect the outcome of the case. Nat'l Ass'n of Optometrists & Opticians v. Harris , 682 F.3d 1144, 1147 (9th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Liberty Lobby , 477 U.S. at 248, 106 S.Ct. 2505.
The moving party bears the initial burden of establishing the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party has met its initial burden, Rule 56(c) requires the nonmoving party to "go beyond the pleadings and by [his or] her own affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’ designate ‘specific facts showing that there is a genuine issue for trial.’ " Id. at 324, 106 S.Ct. 2548 (quoting Fed. R. Civ. P. 56(c), (e) ); see also Norse v. City of Santa Cruz , 629 F.3d 966, 973 (9th Cir. 2010) (en banc ) (). "In judging evidence at the summary judgment stage, the court does not make credibility determinations or weigh conflicting evidence." Soremekun v. Thrifty Payless, Inc. , 509 F.3d 978, 984 (9th Cir. 2007). "Rather, it draws all inferences in the light most favorable to the nonmoving party." Id.
Where the issues before the Court are questions of law, the case is particularly "well suited" for summary judgment. Del Real, LLC v. Harris , 966 F. Supp. 2d 1047, 1051 (E.D. Cal. 2013) ; see also Asuncion v. Dist. Dir. Of U.S. Immigration & Naturalization Serv. , 427 F.2d 523, 524 (9th Cir. 1970) (). Additionally, "[c]ontract interpretation is a judicial function that is appropriately resolved on summary judgment." DPR Constr. v. Shire Regenerative Med., Inc. , 204 F. Supp. 3d 1118, 1128 (S.D. Cal. 2016).
State Farm argues that it owes no duty to defend or indemnify Phillips or NKP because the murder-for-hire plot alleged in the Underlying Action is not covered by the Policy, either because it is not an "occurrence" or because it falls within one of the exclusions. Insureds4 respond in their Opposition by acknowledging that the murder-for-hire would not be covered, but they...
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