Marentes v. State Farm Mut. Auto. Ins. Co.

224 F.Supp.3d 891

Vincent Castillo MARENTES, et al., Plaintiffs,

v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.

Case No. 15–CV–05616–LHK

United States District Court, N.D. California, San Jose Division.

Signed December 1, 2016

Jon–Marc Dobrin, Law Offices of Jon–Marc Dobrin, A.P.C., Larkspur, CA, Jordan S. Stanzler, Jeffrey M. Curtiss, Stanzler Law Group, Palo Alto, CA, for Plaintiffs.

Cherie M. Sutherland, Jamie A. Radack, Stephen P. Ellingson, Hayes Scott Bonino Ellingson & McLay LLP, Redwood City, CA, Stephen M. Hayes, Lauren M. Case, Hayes, Scott, Bonino, Ellingson & McLay, LLP, Redwood Shores, CA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

LUCY H. KOH, United States District Judge

Vincent Marentes and Liudmila Bichegkueva (collectively "Plaintiffs") bring the instant suit against State Farm Mutual Automobile Insurance Company ("Defendant"). Before the Court is Defendant's Motion for Summary Judgment, or in the Alternative, Partial Summary Judgment. ECF No. 39 ("Mot."). Having considered the parties' briefing, the relevant law, and the record in this case, the Court GRANTS Defendant's Motion for Summary Judgment. The Court DENIES Plaintiffs' Motion for Partial Summary Judgment, ECF No. 67, and Defendant's Administrative Motion to File a Sur–Reply, ECF No. 71, as moot.

I. BACKGROUND

A. Factual Background

1. Marentes I

On June 16, 2013, Bichegkueva suffered severe injuries as the result of her vehicle being rear ended by a tow truck driven by Marentes. ECF No. 40–1; ECF No. 40–2 ("Police Report"); ECF No. 48–33 ("Default Judgment Mot."). The tow truck belonged to Extreme Towing, Marentes' employer, and Marentes was driving it home after completing a tow job for Extreme Towing. ECF No. 40–1; Police Report at 13. On December 12, 2013, Bichegkueva filed a personal injury action against Marentes and Extreme Towing for injuries arising out of the June 16, 2013 incident. ECF No. 48–14, Declaration of Kevin Cholakian ("Cholakian Decl.") ¶ 2–3. The case was originally filed in San Francisco County Superior Court before being transferred to Santa Clara County Superior Court. Id. All proceedings in the action shall be referred to as Marentes I .

2. Coverage Decision Under Marentes' Insurance Policy

Marentes had a State Farm car insurance policy at the time of the accident covering his primary vehicle. ECF No. 40–15 ("State Farm Policy"). After the accident and in the first seven months of the case brought by Bichegkueva against Marentes and his employer, Marentes did not tender the accident to Defendant. ECF No. 40–17, August 6, 2016 Deposition of Vincent Marentes ("Marentes Deposition") pp. 26–27. When asked why Marentes did not tender the accident in a deposition, he responded, "Because it—it wasn't involving my cars, my personal cars." Id. On July 17, 2014, Robert Aaron ("Aaron") of Aaron & Wilson LLP, the attorneys hired by Extreme Towing's insurance company to defend Marentes and Extreme Towing, tendered the "defense and indemnity of the case to State Farm." ECF No. 40–1. On July 28, 2014, Defendant requested that Aaron provide the police report, which Aaron sent the next day. See Police Report at 1.

Marentes' State Farm Policy in place at the time of the accident covered a 2003 Chevrolet Impala. State Farm Policy at 2. The policy provided insurance coverage of Marentes's use of "(1) your car; (2) a newly acquired car; or (3) a trailer; and... the maintenance or use of (1) a non-owned car; or (2) a temporary substitute car." Id. at 10. The policy defines a non-owned car to include "a car that is in the lawful possession of you or any resident relative and that neither:

1. is owned by:

a. you ;

b. any resident relative ;

c. any other person who resides primarily in your household; or

d. an employer of any person described in a., b., or c. above...."

Id. at 8.

The policy also excludes coverage "while maintaining or using a vehicle in connection with that insured's employment in or engagement of any kind in a car business ." Id. at 7. The policy provides an exception to this exclusion if the policy-holder is driving a car owned by the insured. Id. at 11–12. The policy defines a car business to be "a business or job where the purpose is to sell, repair, service, deliver, test, road-test, park, or store land motor vehicles or any type of trailer." Id. at 8.

3. Demands on State Farm & Plaintiffs' Settlement Agreement

On August 4, 2014, Defendant informed Marentes that Defendant was investigating the accident and stated that Defendant reserved the right to assert all available policy defenses. ECF No. 40–4. On September 8, 2014, Defendant sent a letter to Aaron stating that it was State Farm's understanding that Marentes was within the scope of his employment at the time of the accident. ECF No. 40–5. Purportedly, this understanding would exclude the accident because Marentes' job delivering and parking non-functioning cars with a tow truck caused the use of the tow truck to be "in connection with" a car business. See State Farm Policy at 8, 11–12.

In the September 8, 2014 letter, Defendant requested that Aaron respond to Defendant within seven days if its understanding that the accident occurred within Marentes' scope of employment was incorrect. ECF No. 40–5. After Aaron failed to respond, on September 23, 2014, Defendant sent a letter to Marentes care of Aaron & Wilson LLP denying coverage for the accident. ECF No. 40–6. However, rather than relying on Marentes' scope of employment and the car business exception, Defendant denied coverage because the car was owned by Marentes' employer, which is explicitly excluded from the definition of a non-owned car under the policy. Id. ; State Farm Policy at 8.

On December 30, 2014, Marentes and Bichegkueva entered into a settlement agreement in Marentes I . ECF No. 40–9. Under the Settlement Agreement, Marentes agreed to "stipulate to vacating the Answer filed on his behalf in the Subject Action and allow a default to be entered against him in the Subject Action" and that, at a subsequent "prove-up hearing for a judicial determination of total damages[,]...Marentes w[ould] not contest the damages requested and/or the Judgment ultimately entered against him." Id. at 3. Additionally, Marentes agreed to "assign[ ] and transfer[ ] to [Bichegkueva] any and all claims and causes of action Marentes may now have or hereafter acquire against State Farm arising out of State Farm's denial of Marentes' tender as set forth above, except any claim for emotional distress or punitive damages."Id. at 4–5. In return, Bichegkueva agreed "not to execute or otherwise seek to enforce or collect upon the Judgment." Id. at 4.

With respect to the default judgment provision, the agreement was premised on Bichegkueva's attorney's "final determination...that there are sufficient grounds for Marentes to proceed with a civil action for bad faith against [Defendant] by reason of [Defendant's] refusal to provide Marentes with a defense and/or indemnity in the Subject Action." Id. at 3. If Bichegkueva's attorney determined there were insufficient grounds to bring such an action, Bichegkueva agreed to dismiss the case against Marentes with prejudice. Id. at 3–4.

4. State Farm Agrees to Defend Marentes

On February 23, 2015, Bichegkueva's attorney forwarded the settlement agreement to Defendant by email and stated that he was "giving [Defendant] this last opportunity to defend Mr. Marentes." ECF No. 48–10 Ex. A. Bichegkueva's attorney stated that he would "give [Defendant] until March 13, 2015, to notify Mr. Marentes' current attorney, Robert Aaron, and me [Bichegkueva's attorney] whether [Defendant] will defend Mr. Marentes." Id. Otherwise, if Defendant "refuse[d] to provide a defense to Mr. Marentes, then the Plaintiff w[ould] proceed forward and have a default and judgment entered against him." Id.

On March 12, 2015, counsel for Defendant, Stephen M. Hayes of Hayes Scott Bonino Ellingson & McLay, LLP ("the Hayes firm"), sent a letter to Bichegkueva's attorney stating that "[Defendant] will be providing its insured, Vincent Marentes, a defense under a full reservation of rights in relation to the above-referenced matter." ECF No. 40–10 ("Def. March 12, 2015 Letter"). Defendant's attorney specified that "[Defendant] is in the process of identifying defense counsel, who will contact Mr. Marentes shortly. [Defendant] will also be issuing a full reservation of rights to Mr. Marentes." Id. Finally, Defendant's attorney stated that Defendant did not "intend, by this letter, to waive any rights under the policy or any policy defense. [Defendant] specifically reserves its right to assert defenses at any time." Id. Although the letter was addressed to Bichegkueva's counsel, the letter was also sent directly to Aaron & Wilson, LLP and Marentes. Id. at 2; ECF No. 46 ("Marentes Decl.") ¶ 6.

Defendant did not immediately contact Marentes and did not challenge the terms of the settlement agreement. ECF No. 48–1, Decl. of Jon–Marc Dobrin ("Dobrin Decl.") ¶ 3. On April 22, 2015, forty-one days later, Bichegkueva's attorney filed a motion to enforce the settlement agreement in Marentes I . Id. Rather than oppose the motion, Aaron complied with the terms of the settlement agreement by filing a Stipulation and Order Striking Marentes' Answer and entering Marentes' default. Id. A hearing for the motion was set for May 19, 2015. ECF No. 48–20, Deposition of Kevin Cholakian ("Cholakian Depo.") p. 41, ln.16.

State Farm then appointed Kevin Cholakian ("Cholakian") and his firm, Cholakian & Associates, to represent Marentes. ECF No. 40–11 ("Def. May 20, 2015 Letter") at 5. On May 12, 2015, Aaron allowed Cholakian to associate as defense counsel in Marentes I . On May 15, 2015, Cholakian filed an untimely response to the motion to enforce the settlement agreement between Bichegkueva and Marentes. ECF No. 48–13. In the opposition, Cholakian argued that the settlement cannot be enforced because (1) Marentes' State Farm...