Gemini Insurance Company v. Western Marine Insurance Services Corporation

Filing 53

ORDER signed by Judge Kimberly J. Mueller on 2/28/2013 GRANTING 45 Motion to Intervene. (Michel, G)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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GEMINI INSURANCE COMPANY,
a corporation,

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Plaintiff,
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No. CIV S-10-3172 KJM JFM

vs.
WESTERN MARINE INSURANCE
SERVICES CORPORATION, a
California corporation,
Defendant.

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WESTERN MARINE INSURANCE
SERVICES CORPORATION, a
California corporation,

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Third-party Plaintiff,
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vs.

ORDER

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ALLIANT INSURANCE SERVICES,
INC., a corporation, DAVID CRANMER,
an individual, and RESEARCH
SPECIALISTS, INC., a corporation
Third-party Defendants.
_________________________________/

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Scottsdale Indemnity Company (“Scottsdale”) filed a motion to intervene in the

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above-captioned case on January 8, 2013. (ECF 45.) For the reasons set forth below,

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Scottsdale’s motion is GRANTED.

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I.

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BACKGROUND
On November 23, 2010, Gemini Insurance Company (“Gemini”) filed a

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complaint against Western Marine Insurance Services Corporation (“Westmar”), an insurance

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brokerage specializing in marine insurance, alleging causes of action for breach of contract and

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negligence. (ECF 1.) On February 17, 2011, Westmar answered Gemini’s complaint and filed a

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Third Party Complaint against Alliant Insurance Services, Inc. (“Alliant”), David Cranmer, and

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Research Specialists, Inc. (“RSI”), alleging causes of action for indemnity and breach of

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contract. (ECF 9, 10.) The court granted RSI’s motion to dismiss and denied Alliant’s and

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Cranmer’s motion to dismiss or stay on July 17, 2012. (ECF 43.) In the same order, the court

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denied without prejudice Scottsdale’s motion to intervene as a fourth party plaintiff against

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Gemini, Alliant, Cranmer, RSI and Marine Claims Services, Inc (“MCS”), because Scottsdale

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did not address the Ninth Circuit’s standard for intervention as of right or permissive

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intervention. (Id.)

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As the factual allegations are detailed in the court’s previous order, the court

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addresses only those facts relevant to Scottsdale’s current motion to intervene. Gemini and

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Westmar entered into a Program Administrator Agreement (“PAA”), through which Westmar

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had the authority to issue Gemini’s insurance policies. (ECF 1 ¶ 7.) Westmar issued a Gemini

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policy to Wesco providing property and business interruption coverage for Wesco’s marinas in

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southern California, which Wesco obtained through its insurance broker, Alliant and its agent

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Cranmer. (Id. ¶¶ 8-12; ECF 10 ¶¶ 5, 9.) In or around December 2006, Wesco submitted a claim

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under its Gemini policy through third-party administrator MCS. (ECF 1 ¶ 14; ECF 10 ¶ 17.)

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Wesco sought compensation for storm damage to two marinas, claiming a total loss and seeking

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replacement coverage in the amount of $2,340,000 and business interruption coverage in the
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amount of $500,000. (Proposed Fourth-Party Compl. ¶ 18, ECF 45-1.) In or around March

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2008, Gemini paid Wesco $510,000 as replacement coverage and $140,000 as business

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interruption coverage. (Id. ¶ 20.)

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On February 4, 2009, Wesco filed suit against Gemini in state court seeking the

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maximum coverage allowed under the policy. (ECF 1 ¶ 16.) Westmar agreed to defend and

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indemnify Gemini in the action, as provided by the terms of the PAA. (Id. ¶ 17.) The state court

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suit settled, with Gemini paying $950,000 toward settlement and $28,000 in attorneys’ fees. (Id.

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¶¶ 18-19.) Scottsdale paid for Westmar’s defense of Gemini under the terms of an insurance

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brokerage errors and omissions policy between Westmar and Scottsdale. (ECF 45-1 ¶ 24.)

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Scottsdale now moves to intervene, to file claims for common law

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indemnification against Gemini, Alliant, Cranmer and MCS, claims for breach of contract

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against Gemini, Alliant and Cranmer, claims for breach of the duty of good faith and fair dealing

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against Gemini, Alliant and Cranmer, and claims for negligence against Gemini, Alliant,

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Cranmer and MCS. (Id. ¶¶ 29-69.) Scottsdale’s proposed complaint states it is “a contractual

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and equitable subrogee to the rights of [Westmar].” (Id. ¶ 3.)

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Westmar filed a statement of non-opposition to Scottsdale’s motion. (ECF 47.)

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Gemini filed an opposition to the motion “to the extent that the Proposed Complaint alleges

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counts against Gemini for breach of contract and breach of the covenant of faith and fair

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dealing.” (ECF 46 at 2.) Gemini does not oppose Scottsdale’s intervention to allege common

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law indemnification and negligence claims. (Id.)

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I.

ANALYSIS
A.

Standard

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Federal Rule of Civil Procedure 24(a) provides in pertinent part:

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On timely motion, the court must permit anyone to intervene who
. . . claims an interest relating to the property or transaction that is
the subject of the action, and is so situated that disposing of the
action may as a practical matter impair or impede the movant’s
ability to protect its interest, unless existing parties adequately
represent that interest.

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FED. R. CIV. P. 24(a). The court applies a four-part test to determine whether intervention of

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right is proper under Rule 24(a): “(1) the application for intervention must be timely; (2) the

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applicant must have a ‘significantly protectable’ interest relating to the property or transaction

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that is the subject of the action; (3) the applicant must be so situated that the disposition of the

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action may, as a practical matter, impair or impede the applicant’s ability to protect that interest;

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and (4) the applicant’s interest must not be adequately represented by the existing parties in the

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lawsuit.” Southwest Ctr. for Biological Diversity v. Berg, 268 F.3d 810, 817 (9th Cir. 2001).

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Rule 24(a) is construed “liberally in favor of potential intervenors.” Id. at 818.

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B.

Analysis

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1.

Protectable Interest Prong

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Scottsdale asserts that its desire to protect its subrogation rights gives it a

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protectable interest in the litigation. (Mem. of P. &A., ECF 45-1 at 8.) In the context of

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reversing the denial of an insurance company’s motion to intervene, the Ninth Circuit has stated

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that “[b]ecause the insurance company as subrogee stands in the shoes of the insured, it is the

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real party in interest in the insured's suit to the extent of the subrogation.” Cummings v. United

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States, 704 F.2d 437, 439 (9th Cir. 1983). Gemini urges the court to deny Scottsdale’s motion to

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intervene to make claims for breach of contract and breach of the covenant of good faith and fair

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dealing, asserting “each of the counts is a sham and is frivolous.” (Opp’n, ECF 46 at 2.)

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Specifically, Gemini argues that Scottsdale cannot assert the claim for breach because it was not
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a party to the PAA and cannot assert the claim for tortious bad faith because the contract at issue

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is not an insurance contract. (Id. at 3-4.)

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In reviewing whether proposed intervenors have a protectable interest, “[c]ourts

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are to take all well-pleaded, nonconclusory allegations in the motion to intervene, the proposed

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complaint or answer in intervention, and declarations supporting the motion as true absent sham,

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frivolity or other objections.” Berg, 268 F.3d at 820. In Berg, a group of building trade

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associations moved to intervene in a conservation group’s challenge to the City of San Diego’s

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land management plan for protecting endangered species. Id. at 817. The plan gave the City the

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power to designate “Third Party Beneficiary status” to projects that meet certain criteria for

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protecting biological resources, which would give those projects authority to conduct incidental

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takes of endangered species. Id. at 816. The district court denied the motion to intervene on the

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grounds that the building trade associations had failed to demonstrate that they had Third Party

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Beneficiary status or would be otherwise affected by the outcome of the action, meaning they did

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not meet the protectable interest prong, although the associations had alleged these interests and

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provided evidence in support in moving to intervene. Id. at 818-19. The Ninth Circuit reversed,

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explaining that “a district court is required to accept as true the non-conclusory allegations made

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in support of an intervention motion.” Id. at 819.

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The rule articulated in Berg does not require the court to assess whether

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Scottsdale’s claims will succeed, only whether Scottsdale has misrepresented the facts showing

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it has some protectable interest related to the litigation. Here, Gemini does not contest

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Scottsdale’s factual assertions showing that Scottsdale’s interests would be affected by the

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outcome of the litigation. Gemini’s claim that Scottsdale’s anticipated causes of actions are

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sham or fraud is therefore not a reason to deny Scottsdale’s motion to intervene. Moreover, as

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Scottsdale argues, courts do not consider the merits of proposed intervenors’ claims when

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resolving motions to intervene. (ECF 51 at 3); Zurich Am. Ins. Co. v. ACE Am. Ins. Co., No.

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CIV-S-11-0881 KJM-DAD, 2012 WL 3884695, at *3 (E.D. Cal. Sept. 6, 2012); E.E.O.C. v.
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Giumarra Vineyards Corp., No. 1:09-CV-02255-OWW-SKO, 2010 WL 3220387, at *7 (E.D.

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Cal. Aug. 13, 2010). In sum, Scottsdale has shown it has a protectable interest in the litigation.

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2.

Remaining Prongs

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Scottsdale has filed its motion to intervene before the status conference and no

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party has asserted that it is prejudiced by the motion to intervene. In terms of potential

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impairment of Scottsdale’s interests, Scottsdale argues that it “may ultimately bear responsibility

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for any judgment obtained by Gemini,” which the other parties do not dispute. (ECF 45-1 at 11.)

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Scottsdale has satisfied these factors of the intervention of right test.

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Regarding adequacy of representation by existing parties, the court must consider

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three factors when evaluating the adequacy of representation: (1) whether the present parties will

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“undoubtedly make all of the intervenor's arguments;” (2) whether the present parties can and

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will make those arguments; and (3) whether the proposed intervenor “offers a necessary element

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to the proceedings that would be neglected.” Sagebrush Rebellion, Inc. v. Watt, 713 F.2d 525,

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528 (9th Cir. 1983). The most important factor is “how the interest compares with the interest of

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existing parties,” Arakaki v. Cayetano, 324 F.3d 1078, 1086 (9th Cir. 2003), because “[i]f an

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applicant for intervention and an existing party share the same ultimate objective, a presumption

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of adequacy of representation arises,” Citizens for Balanced Use v. Montana Wilderness Ass’n,

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647 F.3d 893, 898 (9th Cir. 2011). To rebut this presumption, the proposed intervenor must

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make a “compelling showing” of inadequacy. Id. (citing Arakaki, 324 F.3d at 1086).
Scottsdale concedes that Westmar’s interests and Scottsdale’s interests are largely

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aligned. (ECF 45-1 at 10.) However, as Scottsdale argues, Westmar does not make the same

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claims that Scottsdale plans to make. (Id.) Westmar has not alleged claims against Gemini or

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MCS. (See ECF 10.) This element of the intervention of right test is met.

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In conclusion, Scottsdale has shown that it meets the requirements to intervene

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under Rule 24(a). Accordingly, Scottsdale’s motion to intervene is GRANTED.

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DATED: February 28, 2013.

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UNITED STATES DISTRICT JUDGE

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