Free Reply Memorandum - District Court of California - California

Case 5:08-cv-00555-RS

Document 37

Filed 05/30/2008

Page 1 of 5

1 PETER S. HECKER (Bar No. 66159)
ANNA S. McLEAN (Bar No. 142233)

2 HELLER EHRMAN LLP
333 Bush Street

3 San Francisco, California 94104-2878
Telephone: (415) 772-6080

4 Facsimile: (415) 772-6268
[email protected]

5 [email protected] 6 FRANK BURT (Pro Hac Vice)
DENISE A. FEE (Pro Hac Vice)

7 JORDEN BURT LLP
1025 Thomas Jefferson Street, NW

8 Washington, DC 20007-0805
Telephone: (202) 965-8140

9 Facsimile: (202) 965-8104
[email protected]

10 [email protected] 11 Attorneys for Defendant
AMERICAN SECURITY INSURANCE COMPANY

12 13 14 15 16 17 MICHELE T. WAHL, on behalf of herself and Case No. C08-00555-RS
all others similarly situated, UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

18
Plaintiff,

19
v.

DEFENDANT AMERICAN SECURITY INSURANCE COMPANY'S RESPONSE TO PLAINTIFF'S SUR-REPLY TO MOTION TO DISMISS Hearing Date: Time: Courtroom: May 21, 2008 9:30 a.m. 4

20
AMERICAN SECURITY INSURANCE

21 COMPANY; and DOES 1-50, inclusive, 22 23 24 25 26 27 28
Defendant.

DEFENDANT AMERICAN SECURITY INSURANCE COMPANY'S RESPONSE TO PLAINTIFF'S SUR-REPLY TO MOTION TO DISMISS; CASE NO. C08-00555-RS

Case 5:08-cv-00555-RS

Document 37

Filed 05/30/2008

Page 2 of 5

1 I. 2 3

Ms. Wahl Lacks Standing. A. Ms. Wahl Does Not Have Standing Because She is an Additional Insured.

Ms. Wahl continues to urge a distinction between expressly named additional insureds and

4 those who fall within a protected class under the policy. Plaintiff's Sur-Reply ("Sur-Reply") at 1.
1 5 This alleged distinction is without a difference. As an additional insured, but not a contracting

6 party, Ms. Wahl "has no standing to enforce the contract or to recover extra-contract damages for 7 wrongful withholding of benefits to the contracting party," which is EMC. Hatchwell v. Blue 8 Shield of Cal., 198 Cal. App. 3d 1027, 1034 (1988); see First Amended Complaint ("FAC") Exs. F 9 & G (EMC listed as "named insured" and Ms. Wahl as "additional insured"). 10
Hatchwell, and not Royal Surplus Lines, governs the outcome of this case. Ms. Hatchwell

11 was not a member of an insured class; she was "enrolled and accepted" as a "Dependent 12 Subscriber." Hatchwell, 198 Cal. App. 3d at 1031, 1034. The court found that, although Ms. 13 Hatchwell was an additional insured, she was not a contracting party and therefore had no standing 14 to sue the insurance company to enforce the contract rights of a named insured. Id. at 1034. Royal 15 Surplus Lines involved a determination of whether an insured and an insurer could be joined in the 16 same coverage action. Royal Surplus Lines Ins. Co. v. Ranger Ins. Co., 100 Cal. App. 4th 193, 196 17 (2002). The court noted that an additional insured could sue an insurer that failed to defend the 18 additional insured in underlying litigation. Id. at 200. Royal Surplus Lines is inapplicable here 19 because Ms. Wahl's complaint is not based on the coverage afforded to her by the ASIC policy, or 20 for any alleged injury directly resulting from ASIC's actions, but rather alleges that she supposedly 21 was damaged by EMC's interaction with ASIC. Hatchwell instructs that, as an additional insured,
2 22 Ms. Wahl has no standing to assert that claim. 198 Cal. App. 3d at 1034.

23 24 25 26 27 28

It is settled law that "the words `additional insured' should be given their plain and ordinary meaning, of any person who is an insured under the policy in addition to the named insured. Necessarily, this includes not only persons who may be indicated by name to be an insured, but also any person who is a member of a class which is specifically indicated to be an insured under the policy." House v. State Auto. Mut. Ins. Co., 540 N.E.2d 738, 741 (Ohio Ct. App. 1988). 2 Plaintiff also argues that Hatchwell is distinguishable because the ASIC policy is "a first party, not third party, contract." Sur-Reply at 1. The assertion is untrue and irrelevant. Both the ASIC policy purchased by EMC and the health insurance policy in Hatchwell offer first party coverage to the beneficiaries themselves, as opposed to coverage for third party claims against the beneficiaries. The distinction noted by the Hatchwell court is that Ms. Hatchwell would have had standing to
(footnote continued on following page)

1

1
DEFENDANT AMERICAN SECURITY INSURANCE COMPANY'S RESPONSE TO PLAINTIFF'S SUR-REPLY TO MOTION TO DISMISS; CASE NO. C08-00555-RS

Case 5:08-cv-00555-RS

Document 37

Filed 05/30/2008

Page 3 of 5

1 2

B.

As a Matter of Law, EMC Was Not Acting as Ms. Wahl's Agent.

Ms. Wahl's alternative standing argument that EMC was acting as her agent in procuring

3 the ASIC policy has no basis in fact or law and is contrary to the agency theory asserted in the 4 Complaint. See Sur-Reply at 2-3. Ms. Wahl's relationship with EMC is defined by the Note and 5 Deed of Trust, which provides that, if she "fails to maintain any of the coverages described above, 6 Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is 7 under no obligation to purchase any particular type or amount of coverage. Therefore, such 8 coverage shall cover Lender, but might or might not protect Borrower . . ." Ex. 1 to ASIC's Motion 9 to Dismiss ("Motion Ex. 1") at 8. In obtaining the ASIC policy, EMC was not acting at Ms. Wahl's 10 behest but was exercising its own right to purchase insurance coverage to protect its interest in the 11 property. See Lauman v. Springfield Fire & Marine Ins. Co., 184 Cal. 650, 653 (1921) (finding it 12 "usual to provide in mortgages that the mortgagor shall secure insurance which will protect the 13 mortgagee" and not as the other's agent). 14
The defining characteristic of an agency relationship is the principal's control over the

15 agent. Rood v. County of Santa Clara, 113 Cal. App. 4th 549, 572 (2003). California courts reject 16 the notion that "one who performs a mere favor for another, without being subject to any legal duty 17 of service and without assenting to any right of control, can be an agent. Control may not be 18 inferred merely from the fact that one person's act benefits another." Id. (citations omitted). It is 19 clear from the Deed of Trust that EMC, and not Ms. Wahl, controlled the insurance aspect of the 20 parties' relationship. See Motion Ex. 1 at 8 (requiring Ms. Wahl to maintain insurance "in the 21 amounts . . . and for the periods that Lender requires;" stating that EMC may disapprove of her 22 choice of insurance; giving EMC the right to require Ms. Wahl to pay certain charges; allowing 23 EMC to obtain insurance at its option, the cost of which may "significantly exceed" other 24 insurance; requiring Ms. Wahl to include certain provisions in any policy she purchases; giving
3 25 EMC the right to retain the policies; and allowing EMC to demand receipts from Ms. Wahl).

26 assert her own right to coverage as a first party claimant, but she did not have standing to assert the 27 rights of her husband, the contracting party. 198 Cal. App. 3d at 1034-35. The same is true here. 3
EMC's later statement that it obtained separate coverage on Ms. Wahl's "behalf" does not create
(footnote continued on following page)

28 an agency relationship; rather, the immediately following phrase demonstrates that EMC obtained 2
DEFENDANT AMERICAN SECURITY INSURANCE COMPANY'S RESPONSE TO PLAINTIFF'S SUR-REPLY TO MOTION TO DISMISS; CASE NO. C08-00555-RS

Case 5:08-cv-00555-RS

Document 37

Filed 05/30/2008

Page 4 of 5

1 II. 2

EMC Waived its Coverage Under the Farmers Policy on January 27, 2006. Ms. Wahl argues incorrectly that EMC "took no act to procure substitute insurance before

3 March 4, 2006," and as a result did not waive its protection under the Farmers LLPE until that date. 4 Sur-Reply at 3.
The correspondence from EMC to Ms. Wahl attached to the Complaint

5 demonstrates that EMC secured coverage from ASIC effective January 27, 2006, the same date 6 Farmers cancelled Ms. Wahl's policy. See FAC Ex. D ("Hazard Insurance: 01/27/2006"), Ex. G 7 (ASIC policy effective 1/27/06); Ex. 1 to Notice of Filing Complete Exhibit D ("Notice Ex. 1")
4 8 (ASIC binder effective 1/27/06).

9

EMC sent Ms. Wahl two letters informing her that EMC "secured temporary insurance

10 coverage in the form of a sixty-day binder through American Security Insurance Company," 11 effective January 27, 2006. FAC Ex. C; Notice Ex. 1; see FAC ¶ 16(c). EMC also provided Ms. 12 Wahl with a copy of the binder, which states that its effective date is January 27, 2006. Thus, the 13 Exhibits to the FAC and plaintiff's own allegations demonstrate that EMC secured temporary 14 coverage from ASIC on Ms. Wahl's property effective simultaneously with the cancellation of her
5 15 Farmers' coverage, foreclosing any purported "overlap" between the two policies.

16 17
to protect its own interest 18 the insuranceFAC Ex. E (emphasis added). "in accordance with our rights in the mortgage documents."

19 20 21 22 23 24 25 26 27 28

Plaintiff responds to Notice Ex. 1 by contesting its authenticity, arguing: (1) the 4/3/06 letter from EMC to Ms. Wahl "does not state that the temporary insurance binder was attached to or enclosed with the letter;" and (2) the binder submitted by ASIC as the missing third page of Exhibit D "states a different coverage period than the period stated in the EMC letter to which it is allegedly attached." See Doc. No. 36 at 2. Neither argument has merit. First, EMC's 4/3/06 letter to Ms. Wahl expressly refers to the policy "shown on the attached binder." FAC Ex. D at 1. Second, the "Subject" of the uncontested EMC letter reads, "Hazard Insurance: 01/27/2006," which is the same effective date displayed on the missing attachment. Id.; see also Notice Ex. 1 at 3. 5 Plaintiff is in error in arguing that, to cancel the Farmers' policy, ASIC was required to perform "an act in furtherance" of the waiver. Sur-Reply at 3. Waiver under the LLPE is self-executing: "This policy shall remain in full force and effect as to the interest of the Lender for a period of ten (10) days after its expiration unless an acceptable policy in renewal thereof with loss thereunder payable to the Lender in accordance with the terms of this Lender's Loss Payable Endorsement, shall have been issued by some insurance company and accepted by the Lender." FAC, Ex. A ¶ 7 (emphasis added). It is undisputed that EMC purchased a policy acceptable to EMC that was issued by ASIC. Thus, by procuring another "acceptable policy," EMC waived any purported continuation of coverage under the Farmers' LLPE "pursuant to its terms." Glens Falls Ins. Co. v. Founders' Ins. Co., 209 Cal. App. 2d 157, 169 (1962).

4

3
DEFENDANT AMERICAN SECURITY INSURANCE COMPANY'S RESPONSE TO PLAINTIFF'S SUR-REPLY TO MOTION TO DISMISS; CASE NO. C08-00555-RS

Case 5:08-cv-00555-RS

Document 37

Filed 05/30/2008

Page 5 of 5

1 Dated: May 30, 2008 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

HELLER EHRMAN LLP By: /s/ Peter S. Hecker PETER S. HECKER Attorneys for Defendant

AMERICAN SECURITY INSURANCE COMPANY

4
DEFENDANT AMERICAN SECURITY INSURANCE COMPANY'S RESPONSE TO PLAINTIFF'S SUR-REPLY TO MOTION TO DISMISS; CASE NO. C08-00555-RS