Arlitz v. GEICO Cas. Co.

642 F.Supp.3d 1214

Kelsy ARLITZ, et al., Plaintiffs v. GEICO CASUALTY COMPANY, Defendant.

Case No. 2:19-cv-00743-CDS-DJA

United States District Court, D. Nevada

Signed November 22, 2022

Elizabeth E. Coats, Farhan R. Naqvi, Paul G. Albright, Naqvi Injury Law, Las Vegas, NV, Kevin Thomas Strong, Dennis Michael Prince, Prince Law Group, Las Vegas, NV, for Plaintiffs.

Tayler D. Martinez, Renee Maxfield, Wade M. Hansard, Jonathan W. Carlson, McCormick, Barstow, Sheppard, Wayte & Carruth, LLP, Las Vegas, NV, Cary B. Lerman, Pro Hac Vice, Munger, Tolles & Olson LLP, Los Angeles, CA, Jacob Max Rosen, Pro Hac Vice, Munger Tolles & Olson LLP, San Francisco, CA, James P. Wagoner, Pro Hac Vice, McCormick, Barstow, Sheppard, Wayte & Carruth LLP, Fresno, CA, for Defendant.

Order Granting in Part and Denying in Part Defendant's Motion for Summary Judgment, Denying Plaintiffs' Motion for Summary Judgment, and Granting Plaintiffs' Motion to Strike

[ECF Nos. 111, 116, 185]

Cristina D. Silva, United States District Judge

The parties bring dueling motions for summary judgment concerning claims raised as part of an insurance dispute following a tragic car accident. Def.'s Mot. Summ. J., ECF No. 111; Pls.' Mot. Summ. J., ECF No. 116. The accident occurred on February 12, 2016, when nonparty William Richard Schulte, Sr. (Richard) crashed a vehicle owned by his son, nonparty William Christopher Schulte, Jr. (Christopher), into plaintiff Kelsy Arlitz, who was riding a motorcycle. ECF No. 116 at 11-12. Kelsy was catastrophically injured.

Kelsy and her guardians, Gary and Karie Arlitz (the Arlitzes) sued the Schultes in state court for negligence. Accident Compl., ECF No. 116-24. Richard tendered the legal defense to his insurer, defendant GEICO Casualty Company, which denied that tender based on its position that it had no obligation to defend Richard under the policy because Richard and Christopher resided in the same household, which excluded Christopher's car from Richard's coverage. Pet. Removal, ECF No. 1 at 2. Facing immense liability, the Schultes negotiated an agreement with the Arlitzes whereby the Arlitzes agreed not to execute any judgment against the Schultes in exchange for the Schultes' rights and claims against GEICO. Am. Insurance Compl., ECF No. 1-2 at 12-13; Covenant, ECF No. 112-4 at 243-45. Following that negotiated agreement, the Arlitzes and Schultes entered into a binding arbitration after which the arbitrator awarded the Arlitzes $65,749,540 plus interest. Id. at 12.

The Arlitzes, as assignees of Richard, pursue three causes of action against GEICO, including: (1) breach of contract, (2) breach of the covenant of good faith and fair dealing, and (3) violation of Nevada's Unfair Claims Practices Act. See generally ECF No. 1. The Arlitzes argue that they are entitled to collect the full amount of the arbitration judgment from GEICO based on those breaches. ECF No. 1-1 at 19.

Now at summary judgment, the Arlitzes request that I find that GEICO breached its duty to make reasonable settlement decisions, that GEICO breached its duty of good faith and fair dealing by failing to inform the Schultes of Kelsy's settlement offer at GEICO's policy limits, that the Schultes were entitled to coverage under the GEICO policy when the collision occurred, that GEICO knowingly and unreasonably breached its contractual duty to defend the Schultes from the Arlitzes' accident lawsuit, and that the Arlitzes did not procure the arbitration judgment through fraud or collusion. See generally ECF No. 116.

GEICO requests that I find that it had no duty to defend the Schultes, that the arbitration judgment is not enforceable against GEICO, and that the Arlitzes' claims under Nevada's Unfair Claims Practices Act have no factual bases to survive summary judgment. See generally ECF No. 111.

I held two hearings on the competing summary judgment motions and ordered voluminous supplemental briefing on a variety of topics. Mot. Hr'g of June 22, 2022, ECF No. 162; Tr. of Hr'g, ECF No. 163; Mot. Hr'g of Aug. 15, 2022, ECF No. 178; Tr. of Hr'g, ECF No. 177; ECF Nos. 168-173 (first round of supplemental briefs); ECF Nos. 179-183 (second round of supplemental briefs). I instructed the parties to direct their second round of supplemental briefing toward summation of the evidence and arguments thus far. ECF No. 177 at 69. However, GEICO's summation brief references Richard's driver's license, which was not entered into evidence at any point during discovery. ECF No. 183 at 12. The Arlitzes now move to strike the reference to Richard's driver's license. ECF No. 185.

For the reasons described herein, I grant plaintiffs' motion to strike evidence of Richard's driver's license from GEICO's supplemental brief. I then deny plaintiffs' motion for summary judgment and grant in part and deny in part defendant's motion for summary judgment.

I. Relevant Background Information

a. The Accident and Personal Injury Lawsuit

On February 12, 2016, Richard drove his son Christopher's 2005 Ford automobile to a gas station. ECF No. 1-1 at 4. He admittedly operated the vehicle negligently, failing to look for oncoming traffic while pulling out from the gas station's driveway. Id. Consequently, he drove into the path of a motorcycle ridden by plaintiff Kelsy Arlitz, resulting in a crash. When the Ford struck the motorcycle, it ejected Kelsy, launching her to the ground. Id. Kelsy sustained significant brain injuries and has suffered severe and permanent loss of physical functions. Id. at 5.

At the time of the accident, Richard had personal auto liability insurance through GEICO with a policy limit for bodily injury claims of $15,000/person. Id. at 6. At all relevant times, Richard paid his premiums on time and fulfilled his contractual obligations and duties. Id. Mid-Century Insurance Company (also referred by the parties as "Farmers Insurance") covered the Ford, owned by Christopher, with a policy limit for bodily injury claims of $100,000/person. Id. Progressive Direct Insurance Company covered the motorcycle on which Kelsy was a passenger with a policy limit for bodily injury claims of $50,000/person. Id. Mid-Century and Progressive both settled with Kelsy at their policy limits in spring 2016. Id.

A few weeks after the collision, Richard contacted GEICO to open a claim. Id. at 7. The next day, the Arlitzes' counsel sent a letter of representation to GEICO requesting disclosure of GEICO's policy limits. Id. GEICO then sent Richard a letter denying coverage and liability for the collision on the basis that the Ford was not a vehicle covered under the policy. Id. at 8. Section I — Liability Coverages of the insurance contract between Richard and GEICO is excerpted in relevant part here:

4. Insured means a person or organization described under Persons insured;

5. Non-owned auto means an automobile ... not owned by or furnished for the regular use of either you or a relative, other than a temporary substitute auto ...

6. "Owned auto" means:

(a) A vehicle described in this policy for which a premium charge is shown for these coverages;

(b) A trailer owned by you;

(c) A private passenger, farm, or utility auto which you acquire ownership of during the policy period...

(d) A Temporary Substitute auto.

7. Private passenger auto means a four-wheel private passenger, station wagon or jeep-type auto.

8. Relative means a person related to you who resides in your household.

9. Temporary substitute auto means an automobile ... not owned by you, temporarily used with the permission of the owner. This vehicle must be used as a substitute for the owned auto ... when withdrawn from normal use because of its breakdown, repair, servicing, loss or destruction.

...

13. You or your means the named insured as shown on the declarations page or, if a resident of the same household, his or her spouse or registered domestic partner ...

ECF No. 113-2 at 6. The policy also has a section entitled "LOSSES WE WILL PAY FOR YOU UNDER SECTION I," which states:

Under Section I, we will pay damages which an insured becomes legally obligated to pay because of:

1. Bodily Injury, sustained by a person, and;

2. Damage to or destruction of property, arising out of the ownership, maintenance, or use of the owned auto or a non-owned auto. We will defend any suit for damages payable under the terms of this policy. We may investigate and settle any claim or suit.

Id. On May 25, 2016, counsel for the Arlitzes sent a letter to GEICO, offering to settle Kelsy Arlitz's claim against the Schultes for GEICO's $15,000 policy limit. ECF No. 116 at 23-24. GEICO never informed the Schultes of the offer or its consequences. Id. at 24.

Four months later, Kelsy Arlitz filed suit against the Schultes. ECF No. 116-24. GEICO continued to disclaim coverage and did not defend or aid the Schultes in that litigation. ECF No. 116 at 24. GEICO did so despite the provision in the insurance contract stating, "[GEICO] will defend any suit for damages payable under the terms of [the] policy." ECF No. 113-2 at 6. Whether the Arlitzes' accident lawsuit was a "suit for damages payable under the terms of [the] policy" is the main point of contestation in the instant suit. Ultimately, Christopher and his Ford (the car involved in the collision) were covered by Mid-Century, which had already agreed to pay the applicable policy limit of $100,000. Mid-Century's in-house attorney thus defended the Schultes. Id. at 25.

The Schultes, seeking to limit their financial exposure to the Arlitzes' claims, negotiated a covenant-not-to-execute which assigned their rights and claims against GEICO to the Arlitzes. Id. at 25. Kelsy's guardians, on her behalf, agreed to "not execute upon Schulte Defendants personally any award/verdict/judgment arising from the lawsuit above the $100,000.00 policy limits to be paid by [Mid-Century.]" Covenant Not to Execute, ECF No. 116-27 at 2. The Schultes and Arlitzes then entered binding arbitration conducted by an...