Zurich American Insurance Company of Illinois v. VForce Inc.
Filing
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ORDER signed by District Judge Dale A. Drozd on 2/2/24 ORDERING that Defendant VForce, Inc.'s [27-1] request for judicial notice is GRANTED as to exhibits 7 -12 and DENIED as to exhibits 5 and 6. Plaintiff's 92 motion for summary judgment, or in the alternative, partial summary judgment, is GRANTED, in PART and DENIED in PART as follows: a. Plaintiff's motion for partial summary judgment in its favor as to the first, second, and third elements of its breach of contra ct claim against defendant VForce, Inc., is GRANTED; and b. Plaintiff's motion for partial summary judgment in its favor as to the fourth element of damages on its breach of contract claim against defendant VForce, Inc., is DENIED. The Clerk is DIRECTED to update the docket to reflect that defendant Hybrid Financial Group, LLC was terminated as a named defendant in this action on 6/23/20. (See Doc. NO. 72 . (Kastilahn, A)
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UNITED STATES DISTRICT COURT
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FOR THE EASTERN DISTRICT OF CALIFORNIA
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ZURICH AMERICAN INSURANCE
COMPANY OF ILLINOIS,
Plaintiff,
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v.
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VFORCE INC., et al.,
(Doc. No. 92)
VFORCE INC.,
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Cross-Claimant and
Third-Party Plaintiff,
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v.
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ORDER GRANTING IN PART AND
DENYING IN PART PLAINTIFF’S MOTION
FOR SUMMARY JUDGMENT, OR IN THE
ALTERNATIVE, PARTIAL SUMMARY
JUDGMENT
Defendants.
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No. 2:18-cv-02066-DAD-CKD
CORTECH, LLC, et al.,
Cross-Defendant and
Third-Party Defendants.
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This matter is before the court on the motion for summary judgment, or in the alternative,
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partial summary judgment filed by plaintiff on March 2, 2021. (Doc. No. 92.) The pending
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motion was taken under submission by the previously assigned district judge on May 17, 2021.1
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(Doc. No. 103.) For the reasons explained below, plaintiff’s motion will be granted in part and
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denied in part.
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BACKGROUND
This case arises from defendant VForce Inc. (“VForce”), a staffing company, allegedly
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failing to pay the additional insurance premium owed to plaintiff Zurich American Insurance
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Company of Illinois (“Zurich”) in breach of their workers’ compensation insurance contract.
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A.
Background on Workers’ Compensation Insurance Policies and Premiums2
In California, workers’ compensation insurance is heavily regulated by the California
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Insurance Code, the Insurance Commissioner, and the Department of Insurance. See State Comp.
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Ins. Fund v. ReadyLink Healthcare, Inc., 50 Cal. App. 5th 422, 431 (2020). The Insurance
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Commissioner and the Workers’ Compensation Insurance Rating Bureau (“WCIRB”) have
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statutory authority “to oversee the form and substance of all workers’ compensation insurance
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plans, including everything from the scope of required coverage provided to employees, to the
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amount employers pay insurers for premiums.” Ceradyne, Inc. v. Argonaut Ins. Co.,
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No. G039873, 2009 WL 1526071, at *1 (Cal. Ct. App. June 2, 2009). As one district court aptly
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summarized:
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Workers compensation insurance premiums are calculated in part by
determining the amount of payroll associated with a given “class
code.” The class code refers to the classification of employees based
on their job duties and descriptions for the purpose of determining
the workers compensation insurance rates. In California, the
Department of Insurance approves the rates charged by an insurance
carrier for a given class code and class code rates not so approved
cannot be charged by an insurance carrier. In general, the higher the
risk of injury posed by a certain job type, the higher the rate charged
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On August 25, 2022, this case was reassigned to the undersigned. (Doc. No. 132.) The
undersigned has endeavored to work through a backlog of inherited submitted motions in civil
cases as quickly as possible since returning to the Sacramento courthouse.
Though not stated as facts in the parties’ separate statements of undisputed facts, plaintiff
Zurich and defendant VForce each provide additional context regarding workers’ compensation
insurance policies and premiums in their briefs. (Doc. Nos. 92-1 at 6–7; 102 at 6–7.) That
context, which is largely derived from the affidavits that the parties filed in support of their
respective briefs, is summarized first in this background section.
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per each $100 of payroll. Prior to the issuance of an insurance policy,
an insurance proposal is provided to the prospective insured for
approval. This insurance proposal (otherwise known as a “quote”)
includes all the rates, schedules, credits, debits[,] and modifiers used
to calculate the insurance premium for a policy and is incorporated
into the policy[] once the insured agrees to accept the quote and bind
the policy to the quoted rates.
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Zurich Am. Ins. Co. v. UGS Priv. Sec., Inc., No. 22-cv-01163-GW-EX, 2023 WL 3565063, at *1
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(C.D. Cal. Jan. 20, 2023). The policy terms change when an endorsement to the policy is issued,
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which frequently happens after the inception of the policy and often happens after the end of the
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policy period as well. (Doc. No. 92-4 at 3.) For example, staffing agencies that supply temporary
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workers to clients in various industries have many different class codes applicable to their
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workers’ compensation policies. (Id.) Such agencies often obtain new clients during the policy
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period who need temporary workers in class codes not already included in the policy (i.e.,
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employees with different job duties). (Doc. No. 92-7 at 6.) Thus, the applicable class codes often
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change during the policy year when the staffing agency needs to add class codes for those job
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duties. (Doc. No. 92-4 at 3.) When a temporary staffing agency notifies the insurance carrier of
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the new class codes, an endorsement to the policy for that class is generally issued. (Id.)
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In addition to class codes, another component of the premium calculation is the insured’s
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experience modification rating (sometimes referred to as an “ex mod”), which is determined by
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the WCIRB based on its analysis of claims data. Allied Interstate, Inc. v. Sessions Payroll Mgmt.,
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Inc., 203 Cal. App. 4th 808, 819 (2012) (“It is well settled that the experience of a particular
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insured may be used as a factor in setting the premium.”) (citation omitted). An ex mod of less
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than 1.00 is a multiplier that decreases the overall policy premium (after adding up payroll
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associated with each class code and applying other debits and credits), whereas an ex mod of
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more than 1.00 is a multiplier that increases the premium. (Doc. No. 92-4 at 4.)
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Insurance carriers cannot discount or deviate from the experience modification rating set
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by the WCIRB. (Doc. No. 92-7 at 4.) The WCIRB can change the experience modification
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rating for an insured multiple times within a year, for example, due to updates in payroll or claims
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information, and the WCIRB notifies the insured of such a change when it is made. (Id. at 5.)
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The WCIRB requires carriers, once they become aware of the ex mod change, to issue a policy
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endorsement to include the rating change as part of the insurance policy and premium calculation.
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(Id.) Such endorsements may even be issued after the policy period has ended if the carrier learns
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after that end date of an ex mod change with an effective date during the policy period. (Id.)
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Typically, an insurance carrier learns of an ex mod change either by monitoring the WCIRB
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database,3 by receiving change information from the insured’s broker, or by receiving a “criticism
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letter” from the WCIRB alerting the carrier of its failure to notify the WCIRB that an
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endorsement to the policy reflecting the ex mod change has been issued, as required. (Id.)
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B.
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Factual Background4
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The VForce Policy
In the summer of 2014, VForce’s insurance broker, Charles “Adam” Forbes, approached
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Zurich’s managing general agent, World Wide Specialty Programs (“World Wide”), to obtain
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workers’ compensation insurance for VForce. (PUF ¶ 1.) A workers’ compensation insurance
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proposal was issued by World Wide on behalf of Zurich to VForce on September 26, 2014 for the
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proposal period December 15, 2014 to December 15, 2015. (PUF ¶ 2.) That proposal was
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accepted by VForce, and Zurich workers’ compensation policy No. WC 5714367-00 was issued
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to VForce for the policy period December 15, 2014 to December 15, 2015 (“the Policy”). (PUF
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¶ 3.)
By its own terms, the Policy consists of the policy and all of its endorsements.5 (PUF ¶
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4.) The Policy states that “[t]he only agreements relating to this insurance are stated in this
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policy. The terms of this policy may not be changed or waived except by endorsement issued by
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The WCIRB has a record of ex mod ratings for each workers compensation insurance insured
called a Workers’ Compensation Experience Rating Form. (Doc. No. 92-7 at 5.)
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The relevant facts that follow are undisputed unless otherwise noted and are derived from the
undisputed facts as stated by plaintiff and responded to by defendant VForce (Doc. No. 102-1
(“PUF”)), the additional material facts as stated by defendant VForce and responded to by
plaintiff (Doc. No. 104-1 (“DUF”)), as well as the exhibits attached to the affidavits filed by the
parties in support of their respective briefs (Doc. Nos. 92-3–92-9, 102-4, 102-5, 104-2–104-5).
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VForce does not dispute that the endorsements are part of the Policy but argues that the
endorsements are illegal, void, and unenforceable under the California Insurance Code. (PUF
¶ 4.) Defendant’s arguments in this regard will be addressed in the analysis section of this order
below.
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us to be part of this policy.” (PUF ¶ 22.) The Policy provides that “this policy, including all
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endorsements forming a part thereof, constitutes the entire contract of insurance. No condition,
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provision, agreement, or understanding not set forth in this policy or such endorsements shall
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effect such contract or any rights, duties, or privileges arising therefrom.” (PUF ¶ 21.)
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Every single time there is a change to a workers’ compensation policy, an endorsement
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must be filed with the WCIRB.6 (DUF ¶ 1.) During the policy period, many new class codes
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were incorporated into the Policy by endorsements. (PUF ¶ 11.) During the VForce Policy
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period, the WCIRB changed VForce’s experience modification rating twice, and the two changes
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were incorporated into the Policy by endorsements. (PUF ¶ 12.) Zurich is required by the
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WCIRB to charge the experience modification rating changes as a policy premium multiplier.
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(PUF ¶ 20.) The Policy provides that Zurich has the right at the time of the post-policy period
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payroll audit to apply all rates and classifications that lawfully apply for purposes of calculating
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the final premium. (PUF ¶ 23.)
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Immediately before or after the inception of the VForce Policy in December 2014,
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VForce’s insurance broker (Mr. Forbes) contacted Zurich’s managing general agent (World
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Wide) and requested that Accuire, LLC (“Accuire”), another staffing company owned by VForce,
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Defendant offers as an undisputed fact that plaintiff did not file the Policy endorsements with
the WCIRB, but the evidence defendant cites does not support this purported fact. (DUF ¶ 2.)
Defendant cites the deposition testimony of Robert Thompson, president of World Wide, who
stated that Zurich—not World Wide—submits endorsements to the WCIRB and that he was sure
that Zurich had done so with the Policy endorsements. (Doc. No. 102-4 at 73, 80.) Thompson
did not testify that the endorsements were not submitted at all to the WCIRB. As for plaintiff’s
evidentiary support for its assertion that it did in fact submit all Policy endorsements to the
WCIRB as required, plaintiff cites to the affidavits of James Buck (Zurich’s programs
underwriter), Carol McArdle (Zurich’s statistical analyst), and Margarita Hambrock (World
Wide’s underwriting supervisor), all of whom state that pursuant to Zurich’s policy writing
system, all 26 endorsements to the Policy were filed via direct uploading to the WCIRB within a
day of being written. (DUF ¶ 2; Doc. Nos. 104-2 at ¶ 8; 104-3 at ¶¶ 2–3; 104-4 at ¶¶ 3–4.)
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be added as an additional insured to the VForce Policy.7 (PUF ¶ 9.) On December 22, 2014, one
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hundred percent of the membership interest in Accuire was transferred to VForce pursuant to an
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agreement dated December 22, 2014. (DUF ¶ 24.) Despite VForce’s request to add Accuire as
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an additional insured on its Policy, during a phone call immediately before or after the December
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15, 2014 inception of the VForce Policy, Mr. Forbes informed Mr. Thompson (World Wide’s
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president) that VForce and Accuire planned to separate, with different ownership groups, and that
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it was VForce’s and Accuire’s desire that a separate workers compensation policy be issued to
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Accuire after the split. (DUF ¶ 28; Doc. No. 92-5 at ¶ 19.)
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According to Zurich, a policy endorsement with an effective date of December 30, 2014
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was issued adding Accuire as an additional insured to the VForce Policy (“Endorsement No. 3”).
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(PUF ¶ 10; Doc. No. 92-3 at 68.) VForce does not contest that Endorsement No. 3 added Accuire
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as an “entity name,” but VForce disputes the characterization that Accuire was added as an
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“additional insured.” (PUF ¶ 10; DUF ¶¶ 5, 6.) The “change description” on Endorsement No. 3
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states:
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THE FOLLOWING DBA NAME HAS BEEN ADDED TO LEGAL
ENTITY: ACCUIRE, LLC: VFORCE STAFFING SOLUTIONS
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THE FOLLOWING ENTITY NAME(S) HAVE BEEN ADDED:
ACCUIRE, LLC
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(Doc. No. 92-3 at 68.) It is undisputed that the Schedule of Insureds and Locations provision of
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the VForce Policy lists VForce, Inc., not Accuire, LLC. (DUF ¶ 4.) According to VForce, an
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additional insured would have been listed in the schedule of named insureds. (DUF ¶ 3.) But the
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While not listed as undisputed facts, VForce provides additional factual context with regard to
VForce and Accuire, primarily citing to the affidavit of Mark Nobili, a founding partner,
shareholder, and vice president of VForce. (Doc. No. 102 at 7) (citing Doc. No. 102-5 at 1–2).
For context purposes, the court notes that according to VForce: (i) VForce is a service-disabled
veteran-owned California corporation, that operates a small staffing and employment service
business specialized in government contracting; (ii) VForce serves a narrow subset of customers
including clerical, administration, and wholesale/warehouse customers that seek to provide
veterans with positions in the work force; and (iii) at all pertinent times, VForce had less than $2
million dollars in payroll. (Id.) In contrast, Accuire, is a large and diverse staffing company and
professional employer organization (“PEO”) that provides a wide range of clients with staffing,
payroll, workers’ compensation, and human resources services and at all pertinent times had over
$20 million in payroll. (Id.)
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only supporting evidence VForce has cited for this assertion is an excerpt from the deposition
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testimony of Christopher Hawkins, Zurich’s premium audit director, who was asked “where on
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the policy is the additional insured listed?” (Doc. No. 102-4 at 28.) He answered: “There is an
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additional insureds or a named insureds endorsement on the policy. So, without reviewing the
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policy in front of me, that’s where it would have been identified, within the named insured’s
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schedule or the schedule of named insured’s endorsement.” (Id.) (emphasis added). According to
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plaintiff and based on the affidavit of Mr. Buck (Zurich’s programs underwriter), “Accuire is not
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in the ‘Schedule of Insureds and Locations,’ which is created at the inception of the VForce
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Policy, because Accuire was added as an additional named insured by Endorsement No. 3 after
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policy inception, and new Schedules are not generated after inception of the policy.” (Doc. No.
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104 at 6) (citing Doc. No. 104-2 at ¶ 16 (“If endorsements are added to the policy after inception
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(as in this case, including the addition of Accuire as an insured) new Schedules are not created.
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The added endorsements are deemed part of the policy by its terms.”)).8
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Pursuant to the Policy, Zurich provided workers’ compensation insurance to VForce and
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other listed insureds during the policy period.9 (PUF ¶ 5.) The Zurich claims handling and intake
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forms for new workers’ compensation claims are tied to the policy number. (PUF ¶ 27.)
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To support its asserted fact that Accuire was not named on the VForce Policy, defendant also
points to two “criticism letters” that Zurich received from the WCIRB, the first dated September
14, 2015, and the follow-up letter dated October 14, 2015, regarding a “Policy Audit Error
Query.” (DUF ¶ 7; Doc. No. 102-4 at 97–100.) The letters explained that “[t]he WCIRB’s audit
of the referenced policy detected the following data condition(s) in need of immediate correction
or clarification: [t]he following name(s) was not on prior coverage for this policyholder (ID01):
Acquire, LLC,” and the WCIRB asked Zurich to provide “prior coverage information” for
Accuire. (Id.) Plaintiff disputes defendant’s interpretation of these letters as indicating that
Accuire was not named on the VForce policy. (DUF ¶ 7.) To the contrary, plaintiff relies on Mr.
Buck’s affidavit, in which he explained that “there is no evidence that the WCIRB ever
challenged or rejected the addition of Accuire as an additional insured to the VForce Policy,” and
these letters “request information about Accuire’s past policy history, given that Accuire was not
previously on VForce’s workers compensation coverage as a combinable entity.” (Id.; Doc. No.
104-2 at ¶¶ 11–13.)
Defendant purports to dispute this fact “to the extent that ‘VForce, Inc.’ is the only properly
named insured on the Policy.” (PUF ¶ 5.) However, regardless of whether the “other listed
insureds” were properly named or not (in defendant’s view), defendant does not dispute that
Zurich provided insurance to VForce and Accuire during the policy period. (Id.)
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VForce’s insurance broker, Mr. Forbes, notified World Wide in April 2015 that Accuire
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was in the process of splitting away from VForce and requested World Wide to start the process
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of separating their workers’ compensation policies. (DUF ¶ 29.)
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The Accuire Policy
On May 1, 2015, Accuire and VForce entered into an agreement wherein VForce assigned
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all of its rights, title, and interests in Accuire to Gardner Investments Holdings, LLC, and Mani
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Kontokanis (who continued to serve as VForce’s president/CEO). (DUF ¶¶ 19, 25.) On or about
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May 26, 2015, Mike DiManno resigned as vice president and director of VForce and transferred
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his share of VForce to Mr. Nobili (founder, shareholder, and vice president of VForce). (DUF
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¶ 26.)
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On September 16, 2015, a proposal for a separate workers’ compensation policy for
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Accuire was issued by World Wide on behalf of Zurich. (PUF ¶ 26.) That same day, Mr. Forbes
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emailed World Wide to confirm Accuire’s acceptance of the Accuire proposal, and Zurich issued
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the workers compensation policy No. WC 5714432-00 to Accuire for the policy period October 1,
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2015 to December 15, 2015 (“the Accuire Policy”). (Doc. No. 92-4 at ¶ 26.) Effective with the
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issuance of the Accuire Policy, World Wide issued Endorsement No. 23 on the VForce Policy to
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remove Accuire from the VForce Policy. (DUF ¶ 30; Doc. No. 92-4 at ¶ 27.)
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World Wide had been informed of the ownership change between Accuire and VForce
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before September/October 2015. (DUF ¶ 27.) However, Accuire did not provide all of the
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information and documentation needed by World Wide and Zurich to assess the risk and make an
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underwriting decision about whether to issue a policy proposal for a separate workers’
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compensation policy to Accuire until mid-September 2015.10 (PUF ¶ 25.)
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3.
The Audit of the VForce Policy
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Pursuant to the VForce Policy, the initial deposit is an estimate (“deposit premium”) based
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on the insured’s estimate of its payroll and allocation of that payroll to pertinent class codes.
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Defendant purports to dispute the fact that Accuire had not provided Zurich with the necessary
information by asserting that, (at some unspecified time) before September 2015, VForce
provided all the information necessary for Zurich to remove Accuire from the Policy. (PUF
¶ 25.) However, none of the supporting evidence cited by defendant substantiates this assertion.
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(PUF ¶ 6.) Pursuant to the Policy, Zurich performed a payroll audit of VForce after the policy
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term, which functioned as a “true-up” to determine any difference between the estimated and
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actual payroll and allocation to class codes. (PUF ¶ 7.) That is, if the payroll audit determined
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that VForce’s actual payroll as allocated to pertinent class codes for the policy period is higher
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than its estimated payroll as allocated to pertinent class codes for the policy period (after
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application of applicable rates, credits, debits, discounts, and multipliers), then an additional
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premium would be owed by VForce to Zurich. (PUF ¶ 8.) On the other hand, if the actual
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payroll/class code equation is less than the estimated payroll/class code equation, then VForce
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would have been entitled to a premium rebate. (Id.) The Policy provides that “[t]he due date for
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audit and retrospective premiums is the date of the billing.” (PUF ¶ 15.)
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A payroll audit was conducted by Zurich after the end of the VForce Policy. (PUF ¶ 13.)
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Specifically, beginning in January 2016, Mr. Hawkins, Zurich’s premium audit director,
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simultaneously conducted the post-policy payroll audits for the Zurich workers compensation
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policies for VForce and Accuire. (Id.; DUF ¶ 10; Doc. No. 92-6 at ¶ 12.) When auditing a policy
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with more than one named insured, the auditor must verify payroll to each specific entity, which
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requires the insurer to segregate the payroll between entities. (DUF ¶ 9.) According to Mr.
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Hawkins, the contact person for both audits was Brad Brozaitis, and Mr. Hawkins only met with
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Mr. Brozaitis and Mr. DiManno.11 (DUF ¶ 21; Doc. No. 92-6 at ¶¶ 15–16.) Despite some early
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delays, Mr. Hawkins received all of the necessary documents for the VForce payroll audit by
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sometime in April 2016.12 (Doc. No. 92-6 at ¶¶ 15–16.)
Mr. Hawkins explained in his affidavit that for his purposes, he “did not need to make any
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distinguishment between VForce and Accuire for purposes of evaluating the payroll pertinent to
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The parties do not clearly articulate what role/position Mr. Brozaitis held with VForce or
Accuire. According to the affidavit of Mr. Nobili (VForce’s vice president), Mr. Brozaitis was
“not a representative[], agent[], or employee[] of VForce at the time of Zurich’s audit of the
VForce Policy”—a fact that Zurich disputes. (DUF ¶ 22; Doc. No. 102-5 at 5.) The court notes
that the signature block on the emails dated in March and April 2016, which are attached as
exhibits to Mr. Hawkins’s affidavit, reflect “Brad Brozaitis, Operations & Corporate Services,
Brad@vforcestaff.com.” (Doc. No. 92-6 at 9–13.) Further, those emails reflect that Mr. Hawkins
emailed Mr. Brozaitis a spreadsheet listing outstanding items that were needed for both audits,
and Mr. Brozaitis forwarded that email to Mr. Kontokanis (VForce’s president), directing his
attention to the spreadsheet tab for VForce, Inc. (Id.) Mr. Kontokanis replied to Mr. Brozaitis,
provided answers to Mr. Hawkins’s questions, and stated, “I presume the payroll info was already
requested by you on our behalf based on the emails I was copied to last week. Let me know if
you or Zurich needs anything else.” (Id. at 9–10.) Mr. Brozaitis forwarded Mr. Kontokanis’s
email to Mr. Hawkins. (Id. at 9.) When asked at his deposition about this email and whether Mr.
Brozaitis was the person who coordinated the audit materials for VForce, Inc. in that time period,
Mr. Kontokanis answered: “I don’t recall specifically the situation. What I remember is that [Mr.
Brozaitis] was one of our employees, he went over to the Accuire group, VForce Staffing
Solutions. And they were notified of the audit directly. And he obviously is notifying me that he
needs information on our small book of business that we had on that policy, for payroll
documents for [vendor] Venture. And we provided it.” (Doc. No. 102-4 at 171.) Further, Mr.
Kontokanis was asked at his deposition if he, Mr. Nobili, or anybody else from VForce, Inc. ever
contacted the Zurich auditor to say, “wait a minute, don’t contact [Mr. Brozaitis] for this
information, contact us,” and Mr. Kontokanis answered, “I don’t recall.” (Id. at 172.) For his
part, Mr. Hawkins stated in his affidavit that “[a]t no time during the audit process did Mr.
Kontokanis or anyone else complain that I was obtaining information from Mr. Brozaitis for the
VForce payroll audit.” (Doc. No. 92-6 at ¶ 17.)
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Despite the documentary evidence and deposition testimony referenced in footnote 11 above,
defendant purports to dispute whether Mr. Kontokanis participated in Zurich’s payroll audit of
VForce and asserts instead that “Mr. Kontokanis is unaware if anyone from VForce ever
participated in the audit.” (PUF ¶ 24; DUF ¶ 20.) As supporting evidence, defendant refers to
Mr. Kontokanis’s deposition when he was asked, “are you contending that the audit results are
incorrect?,” to which he originally answered, “I’m not contending anything. I just don’t recall the
audit. I don’t remember being a part of the audit.” (PUF ¶ 24; DUF ¶ 20; Doc. No. 102-4 at
172.) After the deposition, Kontokanis provided a corrected answer: “I don’t know, because
VForce didn’t participate in the audit and Zurich never sent VForce the audit results. All I know
is that the additional premium number is too large, so the audit results must be inaccurate.” (Doc.
No. 102-4 at 177.)
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the payroll audit during the VForce policy period” because “[p]rior to Accuire obtaining a
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separate policy on October 1, 2015, the pertinent payroll for VForce was all of the payroll for the
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two entities (VForce and Accuire) insured under the VForce policy.” (Doc. No. 92-6 at ¶ 19.)
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Zurich’s audit of the VForce Policy included Accuire’s exposure through September 30, 2015.
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(DUF ¶ 13.) During Zurich’s audit of the VForce Policy, Zurich did not verify or validate which
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temporary staff employees were paid through Accuire and which temporary staff employees were
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paid through VForce. (DUF ¶ 15.) Rather, during that audit, Zurich reviewed employee-level
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information of only the internal staff for Accuire. (DUF ¶ 16.) As for Zurich’s review of class
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codes during the audit, Zurich reviewed the three class codes that were used by VForce but not all
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of the approximately 200 class codes listed for both VForce and Accuire. (DUF ¶ 17.) Zurich
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did not review how VForce’s experience modification rates were applied to the class codes during
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the audit of the VForce Policy. (DUF ¶ 18.)
Shortly after an initial audit recap summary was issued on June 21, 2016, VForce’s
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insurance broker (Mr. Forbes) contacted Zurich’s audit department and requested that the audit
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results be revised because the effective dates of the experience modification rating changes during
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the policy were inaccurate. (Doc. No. 92-6 at ¶ 21.) Zurich corrected/revised the audit recap
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summary accordingly and issued the operative Audit Adjustment of Premium on July 6, 2016,13
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which demanded that VForce pay an additional premium of $612,656.00. (PUF ¶ 14.) VForce
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did not pay any of that amount to Zurich. (PUF ¶ 16.) Zurich sent VForce a final invoice dated
20
August 8, 2016, demanding payment of $612,656.00 plus $13.00 in late fees, for a total of
21
$612,669.00. (Doc. No. 92-3 at ¶ 7.) On September 27, 2016, Zurich sent a demand letter to
22
VForce, attaching both the final invoice and the Audit Adjustment of Premium, demanding
23
payment of the total amount due. (Id. at ¶ 9.)
24
On July 28, 2018, Zurich filed the complaint initiating this breach-of-contract action
25
against VForce and seeking $612,669.00 in damages. (Doc. No. 1.) However, “to simplify
26
27
28
13
In stating this undisputed fact, the parties mistakenly state the date of issue as July 6, 2021,
which appears to a typographical error, as the Audit Adjustment of Premium itself states July 6,
2016. (See Doc. No. 92-3 at 363, 371.)
11
1
matters for purposes of its complaint and [the pending motion for summary judgment], Zurich is
2
not pursuing the $13.00 late fee charges contained in the final invoice,” and thus seeks only
3
$612,656.00 in damages, which is the amount due reflected in the Audit Adjustment of Premium.
4
(PUF ¶ 18; Doc. No. 92-3 at ¶ 10.)
It is undisputed that Zurich’s audit of the VForce Policy is not entirely accurate in all
5
6
respects. (DUF ¶ 8.) In preparation for the filing of the pending motion, Zurich reanalyzed the
7
payroll audit results reflected in the Audit Adjustment of Premium, and determined that there are
8
minor errors in some of the manually input rates of class codes added by endorsements, and that
9
VForce had actually paid a slightly higher deposit premium than noted. (PUF ¶ 17.) Zurich
10
offers as supporting evidence the affidavit of Mike Berrenson, a field technical director in
11
Zurich’s premium audit division, who reviewed the Audit Adjustment of Premium. (Id.) In his
12
affidavit, Mr. Berrenson states that “[t]he manual input errors regarding class code rates add up to
13
$2,681.00 in additional premium that should have been charged to VForce,” but he does not
14
specify which class code rates contained errors or what those errors were in particular. (Doc. No.
15
92-8 at ¶ 11.) When asked at his deposition if he recalled in this instance what the exact errors
16
were, Mr. Berrenson answered, “No, I do not. I would have no idea.” (Doc. No. 102-4 at 58–59.)
17
As for the deposit premium that VForce paid, Zurich’s records indicate that VForce made
18
payments totaling $1,314,563.00 but was only given credit for $1,314,498.00—a difference of
19
$65.00. (PUF ¶ 17; Doc. No. 92-8 at ¶ 11.) The net amount of the errors would add $2,616.00 to
20
the amount of additional premium stated as owed by VForce to Zurich in the Audit Adjustment of
21
Premium. (PUF ¶ 17.) However, as noted above, Zurich is seeking only the (admittedly
22
inaccurate) amount of $612,656.00 in damages. (PUF ¶ 18.)
23
C.
24
Procedural Background
As noted above, on July 28, 2018, plaintiff Zurich filed the complaint initiating this action
25
against defendant VForce alleging a single claim for breach of contract, though plaintiff did not
26
promptly serve that complaint. (Doc. No. 1.) Instead, on January 30, 2019, plaintiff filed the
27
operative first amended complaint (“FAC”), asserting the same breach-of-contract claim and
28
substantive allegations against defendant VForce. (Doc. No. 6.) In the FAC, plaintiff also added
12
1
defendant Cortech, LLC (“Cortech”) and alleged that, on April 23, 2018, “VForce merged with
2
and became the wholly-owned subsidiary of Cortech,” and “Cortech became jointly responsible
3
for the liabilities of VForce.” (Id. at ¶ 13.) On March 11, 2019, defendant Cortech filed an
4
answer to the FAC and denied the merger/subsidiary allegations. (Doc. No. 13.) The next day,
5
defendant VForce filed an answer to the FAC, likewise denying the merger/subsidiary
6
allegations, and asserting 43 affirmative defenses. (Doc. No. 14.)
7
Also on March 12, 2019, VForce filed a crossclaim against Cortech and a third-party
8
complaint against ten defendants (including Accuire, Mr. DiManno, and Mr. Forbes), asserting
9
claims against them for breach of contract, express indemnity, and equitable indemnity. (Doc.
10
No. 15.) On February 15, 2022, cross-claimant VForce filed the operative second amended
11
crossclaim and third party complaint, naming two additional defendants and bringing six
12
additional claims.14 (Doc. No. 119.)
13
On March 2, 2021, plaintiff Zurich filed the pending motion for summary judgment in its
14
favor on its breach-of-contract claim against defendant VForce, or in the alternative, partial
15
summary judgment in its favor on certain of defendant VForce’s asserted defenses.15 (Doc.
16
No. 92.) After receiving extensions of time in which to do so, on May 13, 2021, defendant
17
14
18
19
20
21
Defendants Forbes and Hybrid Financial Group, LLC were not named in the operative third
party complaint, consistent with their dismissal with prejudice in June 2020, pursuant to the
parties’ stipulations. (See Doc. Nos. 70–72.) The docket reflects the termination of defendant
Forbes, but not defendant Hybrid Financial Group, LLC. Accordingly, the court will direct the
Clerk of the Court to update the docket to reflect that defendant Hybrid Financial Group, LLC
was terminated as a named defendant in this action on June 23, 2020. (See Doc. No. 72.)
15
22
23
24
25
26
27
28
Plaintiff frames its alternative motion as seeking partial summary judgment in its favor on
defendant VForce’s “asserted defenses”—specifically, defendant VForce’s assertions that: (i)
VForce owes less than $612,656.00 in additional premiums; (ii) Zurich obtained data for the
payroll from persons who were not employees of VForce; (iii) rate changes are not allowed by the
Policy; (iv) Zurich is responsible for not issuing a separate policy to Accuire sooner; and (v)
Zurich assigned and handled workers’ compensation claims that belonged to Accuire employees
on VForce’s separate policy after the policies were separated. (Doc. No. 92 at 2–3.) However,
none of these purported “assertions” are included in the 43 affirmative defenses alleged by
defendant VForce in its answer to the FAC. Accordingly, the court will address the arguments
raised by the parties with regard to these assertions but only to the extent that they bear on the
question of whether plaintiff is entitled to summary judgment in its favor on its breach-of-contract
claim.
13
1
VForce filed an opposition to the pending motion for summary judgment. (Doc. No. 102.)
2
Defendant VForce also concurrently filed a request for judicial notice and objections to the
3
evidence plaintiff submitted in support of the pending motion. (Doc. Nos. 102-2, 102-3.) On
4
May 20, 2021, plaintiff filed a reply in support of the pending motion for summary judgment.
5
(Doc. No. 104.) Plaintiff did not file a response to defendant VForce’s request for judicial notice
6
or evidentiary objections and did not otherwise address them in its reply brief.16 As noted above,
7
the previously assigned district judge took the pending motion under submission without oral
8
argument.
9
LEGAL STANDARD
10
Summary judgment is appropriate when the moving party “shows that there is no genuine
11
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
12
Civ. P. 56(a).
In summary judgment practice, the moving party “initially bears the burden of proving the
13
14
absence of a genuine issue of material fact.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387
15
(9th Cir. 2010) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). The moving party
16
may accomplish this by “citing to particular parts of materials in the record, including
17
depositions, documents, electronically stored information, affidavits or declarations, stipulations
18
(including those made for purposes of the motion only), admissions, interrogatory answers, or
19
other materials,” or by showing that such materials “do not establish the absence or presence of a
20
genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.”
21
Fed. R. Civ. P. 56(c)(1)(A), (B). When the non-moving party bears the burden of proof at trial,
22
“the moving party need only prove that there is an absence of evidence to support the non-moving
23
party’s case.” Oracle Corp., 627 F.3d at 387 (citing Celotex, 477 U.S. at 325); see also Fed. R.
24
Civ. P. 56(c)(1)(B). Indeed, after adequate time for discovery and upon motion, summary
25
26
27
28
The pending motion for summary judgment does not pertain to plaintiff’s claims brought
against defendant Cortech nor to defendant VForce’s crossclaims and third party claims. Indeed,
defendant Cortech is not mentioned in either parties’ briefs in connection with the pending
motion. Accordingly, the court’s use of the term “defendant” in the analysis below refers to
defendant VForce.
14
16
1
judgment should be entered against a party who fails to make a showing sufficient to establish the
2
existence of an element essential to that party’s case, and on which that party will bear the burden
3
of proof at trial. See Celotex, 477 U.S. at 322. “[A] complete failure of proof concerning an
4
essential element of the nonmoving party’s case necessarily renders all other facts immaterial.”
5
Id. at 322–23. In such a circumstance, summary judgment should be granted, “so long as
6
whatever is before the district court demonstrates that the standard for the entry of summary
7
judgment . . . is satisfied.” Id. at 323.
8
If the moving party meets its initial responsibility, the burden then shifts to the opposing
9
party to establish that a genuine issue as to any material fact actually does exist. See Matsushita
10
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). In attempting to establish the
11
existence of this factual dispute, the opposing party may not rely upon the allegations or denials
12
of its pleadings but is required to tender evidence of specific facts in the form of affidavits or
13
admissible discovery material in support of its contention that the dispute exists. See Fed. R. Civ.
14
P. 56(c)(1); Matsushita, 475 U.S. at 586 n.11; Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773
15
(9th Cir. 2002) (“A trial court can only consider admissible evidence in ruling on a motion for
16
summary judgment.”). The opposing party must demonstrate that the fact in contention is
17
material, i.e., a fact that might affect the outcome of the suit under the governing law, and that the
18
dispute is genuine, i.e., the evidence is such that a reasonable jury could return a verdict for the
19
non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 250 (1986).
20
In the endeavor to establish the existence of a factual dispute, the opposing party need not
21
establish a material issue of fact conclusively in its favor. It is sufficient that “the claimed factual
22
dispute be shown to require a jury or judge to resolve the parties’ differing versions of the truth at
23
trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987).
24
Thus, the “purpose of summary judgment is to ‘pierce the pleadings and to assess the proof in
25
order to see whether there is a genuine need for trial.’” Matsushita, 475 U.S. at 587 (citations
26
omitted).
27
28
“In evaluating the evidence to determine whether there is a genuine issue of fact,” the
court draws “all inferences supported by the evidence in favor of the non-moving party.” Walls v.
15
1
Cent. Contra Costa Transit Auth., 653 F.3d 963, 966 (9th Cir. 2011). It is the opposing party’s
2
obligation to produce a factual predicate from which the inference may be drawn. See Richards
3
v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244–45 (E.D. Cal. 1985), aff’d, 810 F.2d 898 (9th
4
Cir. 1987). Finally, to demonstrate a genuine issue, the opposing party “must do more than
5
simply show that there is some metaphysical doubt as to the material facts. . . . Where the record
6
taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no
7
‘genuine issue for trial.’” Matsushita, 475 U.S. at 586–87 (citations omitted).
8
ANALYSIS
As a preliminary matter, the court will first address defendant’s request for judicial notice
9
10
and its evidentiary objections. Then the court will consider whether plaintiff is entitled to
11
summary judgment in its favor as to its breach-of-contract claim brought against defendant
12
VForce, or partial summary judgment in its favor as to certain elements of that claim.
13
B.
Defendant VForce’s Request for Judicial Notice
Pursuant to Federal Rule of Evidence 201(b), a court may “judicially notice a fact that is
14
15
not subject to reasonable dispute because it: (1) is generally known within the trial court’s
16
territorial jurisdiction; or (2) can be accurately and readily determined from sources whose
17
accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). Public records are properly
18
the subject of judicial notice because the contents of such documents contain facts that are not
19
subject to reasonable dispute, and the facts therein “can be accurately and readily determined
20
from sources whose accuracy cannot reasonably be questioned.” Id. Documents that constitute
21
“matters of public record” may be judicially noticed. Intri-Plex Techs., Inc. v. Crest Grp., Inc.,
22
499 F.3d 1048, 1052 (9th Cir. 2007). However, “[j]ust because the document itself is susceptible
23
to judicial notice does not mean that every assertion of fact within that document is judicially
24
noticeable for its truth.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018).
25
For this reason, courts should not take judicial notice of a fact contained within a document if that
26
fact “is subject to varying interpretations, and there is reasonable dispute as to what [the
27
document] establishes.” Reina-Rodriguez v. United States, 655 F.3d 1182, 1193 (9th Cir. 2011).
28
/////
16
1
In support of its opposition to the pending motion, defendant requests that the court take
2
judicial notice of two unpublished court orders (exhibits 5, 6) and six pertinent sections of
3
California’s workers’ compensation rules and regulations (exhibits 7–12). (Doc. No. 102-3.) As
4
for the former, judicial notice is not necessary because the court may consider the decisions of
5
other courts, even if those orders are unpublished, and the court will do so here. See Phillips v.
6
Nat’l City Bank of Ind. First Franklin Div., 462 F. App’x 666, *1 n.1 (9th Cir. 2011)17 (“Judicial
7
notice is not required for the court to consider the cited opinions as matters of law and potentially
8
persuasive precedents.”). As for the latter, the court will take judicial notice of the requested
9
exhibits, which consist of California’s rules and regulations pertaining to workers’ compensation
10
and the administration of the California Insurance Code, and are thus the proper subject of
11
judicial notice. See Mack v. S. Bay Beer Distribs., Inc., 798 F.2d 1279, 1282 (9th Cir. 1986),
12
overruled on other grounds by Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 104 (1991)
13
(“[A] court may take judicial notice of ‘records and reports of administrative bodies.’”).
Accordingly, defendant VForce’s request for judicial notice is denied as to exhibits 5 and
14
15
6, and granted as to exhibits 7–12.
16
C.
17
Defendant VForce’s Objections to Plaintiff’s Evidence
Defendant has filed objections to certain evidence submitted by plaintiff in support of its
18
pending motion. Specifically, defendant objects to certain statements made in the several
19
affidavits that plaintiff concurrently filed as evidentiary support for its motion for summary
20
judgment (Doc. Nos. 92-3–92-9). (Doc. No. 102-2.) Plaintiff did not file a response to
21
defendant’s evidentiary objections nor address them in its reply brief.
22
In Objection No. 1, defendant objects to the following statement made by Sheryl Totzke, a
23
legal collections specialist employed by Zurich and assigned to handle the VForce file, as hearsay
24
and lacking personal knowledge:
Recently Zurich’s counsel was advised by VForce’s counsel that
VForce is contending that some workers compensation claims made
by Accuire employees after the separate Accuire policy was issued
25
26
27
28
17
Citation to this unpublished Ninth Circuit decision is appropriate pursuant to Ninth Circuit
Rule 36-3.
17
1
2
are being handled by Zurich as if the claims are against the VForce
Policy. Zurich has asked VForce through counsel for the names of
claimants and documentation of this contention, but no evidence has
been provided.
3
4
(Doc. No. 102-2 at 2.) Because Ms. Totzke does not explain in her affidavit how she is aware of
5
these purported communications between the counsel in this case, defendant’s Objection No. 1 is
6
well taken and will be sustained.
7
In Objection No. 3, defendant objects to the following statement made by Mia
8
Comparetto, a senior account executive and underwriter at World Wide, as hearsay and lacking
9
personal knowledge: “Shortly before or after the issuance of the VForce policy, World Wide was
10
informed by Mr. Forbes that VForce was the owner of another temporary staffing agency named
11
Accuire, LLC. VForce requested that Accuire be added as an additional insured to the VForce
12
Policy.” (Doc. No. 102-2 at 3.) Because Ms. Comparetto does not explain in her affidavit how
13
she became aware of Mr. Forbes’s communication or VForce’s request, defendant’s Objection
14
No. 3 is likewise well taken and will be sustained. Though the court notes that defendant does
15
not dispute the truth these statements, which are undisputed facts. (See PUF ¶ 9.)
16
In Objection Nos. 4 and 5, defendant objects to the following statements made by Ms.
17
Comparetto: “World Wide issued Endorsement No. 3 to VForce, which added Accuire as an
18
additional insured to the VForce Policy,” and “[e]ffective with the issuance of the Accuire Policy,
19
World Wide issued Endorsement No. 23 to the VForce Policy removing Accuire as an additional
20
insured.” (Doc. No. 102-2 at 4.) In making its objection defendant merely refers to Rule 1002 of
21
the Federal Rules of Evidence, which provides that an original writing is required in order to
22
prove its contents. Fed. R. Evid. 1002. However, the originals of Endorsement Nos. 3 and 23
23
have been provided to the court on summary judgment as evidence. (Doc. No. 92-3 at 68, 321.)
24
For this reason, defendant’s Objection Nos. 4 and 5 are not well founded and will be overruled.
25
In Objection No. 7, defendant objects to the statement made by Mr. Thompson that “Mr.
26
Forbes relayed VForce’s acceptance of the VForce proposal” as hearsay. (Doc. No. 102-2 at 5.)
27
Because this statement does not specify to whom Mr. Forbes relayed VForce’s acceptance, and in
28
particular whether Mr. Forbes relayed such acceptance to Mr. Thompson directly, defendant’s
18
1
hearsay objection is well taken. Thus, defendant’s Objection No. 7 will be sustained. Though,
2
again, the court notes that defendant does not dispute the underlying fact that VForce accepted the
3
VForce policy. (See PUF ¶ 3.)
4
In Objection No. 8, defendant objects that Mr. Thompson lacked personal knowledge for
5
his statement regarding Ms. Comparetto’s follow-up efforts with Mr. Forbes to obtain the
6
documentation needed for underwriting of a separate policy for Accuire. (Doc. No. 102-2 at 5.)
7
Because Mr. Thompson did not describe how he was personally aware of Ms. Comparetto’s
8
efforts in this regard, defendant’s Objection No. 8 will be sustained. Though, the court notes that
9
defendant’s objection in this regard appears to be disingenuous because defendant itself cites the
10
objected-to statement as evidence supporting its response to one of plaintiff’s undisputed facts.
11
(See PUF ¶ 25.)
12
In Objection No. 12, defendant objects that Mr. Hawkins, Zurich’s premium audit director
13
who performed the payroll audit on the VForce Policy, lacks personal knowledge to make the
14
statement that, “[a]t no time during the audit process did Mr. Kontokanis or anyone else complain
15
that I was obtaining information from Mr. Brozaitis for the VForce payroll audit.” (Doc. No.
16
102-2 at 7.) The court does not agree with this contention. Reading this statement in context
17
with the preceding paragraphs in his affidavit—which describe and attach as an exhibit his emails
18
with Mr. Brozaitis, including emails in which Mr. Kontokanis was copied and replied to provide
19
the requested information—the court finds that Mr. Hawkins has sufficient personal knowledge to
20
support the admissibility of this statement as evidence on summary judgment. Thus, defendant’s
21
Objection No. 12 will be overruled.
22
In Objection No. 13, defendant objects to Mr. Hawkins’s statements regarding VForce’s
23
insurance broker contacting his department to request a revised payroll audit and his department
24
in turn contacting Zurich’s technical operations center to issue a revised audit dated July 6, 2016,
25
which it did. (Doc. No. 102-2 at 7.) Defendant’s objection based on lack of personal knowledge
26
is unavailing because Mr. Hawkins explained in his affidavit that he is the audit department
27
director and was the auditor on the VForce policy, and that he personally had submitted the
28
information for the issuance of the payroll audit results to Zurich’s technical operations center. In
19
1
addition, defendant’s objection based on hearsay is unavailing because Mr. Hawkins would be
2
able to testify and present this evidence “in an admissible form at trial.” Cherewick v. State Farm
3
Fire & Cas., 578 F. Supp. 3d 1136, 1157 (S.D. Cal. 2022); see also Fraser v. Goodale, 342 F.3d
4
1032, 1036–37 (9th Cir. 2003) (“At the summary judgment stage, [courts] do not focus on the
5
admissibility of the evidence’s form,” courts “instead focus on the admissibility of its contents.”)
6
(citation omitted). Further, it may well be that plaintiff does not offer Mr. Hawkins’s statement
7
for the truth of the matter asserted—i.e., that VForce requested a revised audit—in which case his
8
statement would not be hearsay. For all of these reasons, defendant’s Objection No. 13 will be
9
overruled.
10
In Objection Nos. 19, 20, and 21, defendant objects to the excerpts of three deposition
11
transcripts attached as exhibits to the affidavit of plaintiff’s counsel, Lincoln V. Horton, on the
12
grounds that they are inadmissible because counsel did not include the reporter’s certification as
13
required to properly authenticate those transcripts. (Doc. No. 102-2 at 10–11.) Defendant’s
14
objections in this regard are well taken. The Ninth Circuit has made clear that “[a] deposition or
15
an extract therefrom is authenticated in a motion for summary judgment when it identifies the
16
names of the deponent and the action and includes the reporter’s certification that the deposition
17
is a true record of the testimony of the deponent.” Orr, 285 F.3d at 774. “It is insufficient for a
18
party to submit, without more, an affidavit from her counsel identifying the names of the
19
deponent, the reporter, and the action and stating that the deposition is a ‘true and correct copy.’
20
Such an affidavit lacks foundation even if the affiant-counsel were present at the deposition.” Id.
21
(internal citations omitted). While courts routinely permit consideration of deposition transcripts
22
that are not authenticated with the moving papers if this failure is cured and the reporter’s
23
certification is provided along with the reply papers, see Bouissey v. Swift Transp. Co., No. 2:19-
24
cv-03203-VAP-KK, 2022 WL 16957830, at *3 (C.D. Cal. Sept. 27, 2022), here, for some
25
inexplicable reason, plaintiff did not bother filing the reporter’s certifications with its reply brief
26
to remedy this failure after it was pointed out by defendant. Accordingly, defendant’s Objections
27
Nos. 19–21 will be sustained.
28
/////
20
1
Finally, having reviewed defendant’s Objection Nos. 2, 6, 9–11, and 14–18,18 the court
2
has determined that it need not address these objections because the objected-to statements are
3
not relevant to the pending motion for summary judgment, and the court does not rely upon those
4
statements as evidence in resolving the pending motion. See Starz Ent., LLC v. Buena Vista
5
Television, Inc., No. 07-cv-1895-VBF-PJW, 2008 WL 11338633, at *4 (C.D. Cal. Sept. 18, 2008)
6
(“The evidence at issue is not pertinent to the Court’s analysis in this Motion and, therefore, it
7
need not address [the plaintiff’s] objection.”); Aguaristi v. Cnty. of Merced, No. 1:18-cv-01053-
8
DAD-EPG, 2022 WL 2392621, at *9 (E.D. Cal. July 1, 2022) (declining to address evidentiary
9
objections to a declaration because the court did not rely on that declaration in resolving the
10
motion for summary judgment).
In sum, defendant’s Objections Nos. 1, 3, 7, 8, 19, 20, and 21 are sustained, and
11
12
defendant’s Objections Nos. 4, 5, 12, and 13 are overruled.
13
D.
14
Plaintiff’s Motion for Summary Judgment
To prevail on a claim for breach of contract under California law, a plaintiff must show:
15
(1) the existence of a contract; (2) plaintiff’s performance under the contract or excuse for
16
nonperformance; (3) defendant’s breach; and (4) resulting damages to the plaintiff. Oasis W.
17
Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011).
In the pending motion, plaintiff argues that it has provided “the evidence necessary to
18
19
prove-up all of the elements required” to prevail on its sole claim against defendant for breaching
20
the Policy (a workers’ compensation insurance contract) by failing to pay the additional insurance
21
premiums it owes based on the results of the payroll audit, as required by the terms of the Policy.
22
(Doc. No. 92-1 at 12–13.) As to the first element, plaintiff points to the Policy (specifically,
23
Zurich workers’ compensation policy No. WC 5714367-00 that was issued to VForce for the
24
policy period December 15, 2014 to December 15, 2015) and the Policy’s endorsements to
25
establish the existence of a contract. (Id. at 13.) As to the second element, plaintiff points to the
26
18
27
28
Defendant made an error in numbering its objections, beginning with its 17th objection (which
is mistakenly numbered 15) and continuing through its 21st and final objection (which is
mistakenly numbered 19). In referencing defendant’s objections in this order, the court applies
the corrected sequential numbering.
21
1
undisputed fact that it performed under that contract by providing defendant and Accuire with
2
workers’ compensation insurance during the policy period pursuant to the Policy. (Id.) As to the
3
third element, to establish defendant’s breach of the contract, plaintiff points to the undisputed
4
fact that defendant has not paid any of the additional premiums due following the payroll audit as
5
required under the Policy. (Id.) As to the fourth and final element, plaintiff points to the payroll
6
audit results, which reflect additional premium owed in the amount of $612,656.00, as its
7
damages resulting from defendant’s breach of the Policy. (Id.)
In its opposition to the pending motion, defendant argues that plaintiff’s motion should be
8
9
denied because “there are genuine issues of material fact regarding: (1) the validity of the
10
Policy’s endorsements, most notably illegally adding Accuire to the Policy; (2) the accuracy of
11
Zurich’s internal audit; and (3) Zurich’s delay in removing Accuire from VForce’s policy.” (Doc.
12
No. 102 at 6.)
In its reply, plaintiff offers arguments and supporting evidence to rebut defendant’s
13
14
contentions and emphasizes that the evidence defendant has submitted is insufficient to establish
15
a genuine dispute as to any material fact. (Doc. No. 104.)
The court will address in turn the parties’ respective arguments as to the first, third, and
16
17
fourth elements of plaintiff’s breach of contract claim.19 For the reasons explained below, the
18
court finds that, based on the evidence before the court on summary judgment, plaintiff has
19
established that the Policy exists and is valid, and defendant breached the Policy by not paying
20
additional premiums due under the Policy, but the amount of plaintiff’s damages is subject to a
21
genuine dispute of material fact. Thus, the court will grant partial summary judgment in favor of
22
plaintiff only as to the first three elements of its breach of contract claim.
Existence of a Contract – Whether the Policy Endorsements are Valid
23
1.
24
As noted above, defendant does not dispute the existence of the Policy, including its
25
endorsements, but rather argues that the endorsements are “illegal, void, and unenforceable” for a
26
27
28
19
Defendant does not contest that plaintiff has satisfied the second element, and the undisputed
facts establish that plaintiff performed under the contract by providing workers’ compensation
insurance during the policy period.
22
1
few reasons, none of which are persuasive. (Doc. No. 102 at 11.) First, defendant contends that
2
because endorsements must be filed with the WCIRB to be valid under California Insurance Code
3
§ 11658, “the Policy’s endorsements are void and unenforceable because they were not filed with
4
the WCIRB.” (Id.)
5
Defendant is correct in asserting that § 11658 requires insurers to file their endorsements
6
with the WCIRB. See Am. Zurich Ins. Co. v. Country Villa Serv. Corp., No. 2:14-cv-03779-
7
RSWL, 2015 WL 4163008, at *16–17 (C.D. Cal. July 9, 2015) (concluding that policy
8
endorsements were void and unenforceable where the insurance company admitted that it had not
9
filed the endorsements with the WCIRB as required by § 11658); see also Nielsen Contracting,
10
Inc. v. Applied Underwriters, Inc., 22 Cal. App. 5th 1096, 1113–14 (2018) (holding that “[t]he
11
court properly found these provisions were void and unenforceable because defendants had not
12
filed these provisions with the Insurance Commissioner as required by § 11658”). However, as
13
noted above in footnote 6, defendant has not offered any evidence to support its conclusory
14
assertion that the Policy endorsements were not filed with the WCIRB. In contrast, plaintiff has
15
offered clear evidence—specifically, affidavits from its programs underwriter, its statistical
16
analyst, and World Wide’s underwriting supervisor—all of whom confirmed that the Policy
17
endorsements were filed with the WCIRB by automatic uploads via a direct link from Zurich to
18
WCIRB through Zurich’s policy writing system. (See Doc. Nos. 104-2 at ¶ 8; 104-3 at ¶¶ 2–3;
19
104-4 at ¶¶ 3–4.) Thus, defendant’s wholly unsupported argument that the endorsements are void
20
and unenforceable based on plaintiff’s purported non-compliance with § 11658’s filing
21
requirement fails.
22
Second, defendant contends that Endorsement No. 3 (adding Accuire to the VForce
23
Policy) is void and unenforceable because World Wide “simply added ‘Accuire’ as an ‘entity
24
name’ and ignored California rules for adding an additional named insured to a workers’
25
compensation policy.” (Doc. No. 102 at 14.) Notably, defendant does not cite to or discuss any
26
particular California “rule” that it contends World Wide ignored when adding Accuire to the
27
VForce Policy at VForce’s request. Rather, defendant asserts, without any context, that “‘each
28
name must be reported on a separate name record’ and with a code if the entity is being ensured
23
1
under common ownership, and the DBA must be in parenthesis.” (Id.) In this regard, defendant
2
merely cites generally to Exhibit 7 of its request for judicial notice, which defendant described as
3
“California Workers’ Compensation Uniform Statistical Reporting Plan–1995, Title 10,
4
California Code of Regulations Section 2318.6, Part 2 Policy Reporting Requirements, Section III
5
Additional Electronic Reporting Requirements.” (See Doc. Nos. 102 at 14; 102-3; 102-4 at 130.)
6
That exhibit contains three pages of text listing various requirements for electronic reporting,
7
such as “header record information” directing the filer to select the numeric code that best
8
represents the entity (e.g., individual, partnership, corporation, etc.), and “name record
9
information” directing the filer on the particular requirements for stating the name the entity (e.g.,
10
for individuals, the proper sequence of last name, first name, middle initial, and the proper
11
placements of commas; and for corporations, stating the name exactly as shown in the articles of
12
incorporation). (Doc. No. 102-4 at 132–134.) Defendant does not direct the court’s attention to
13
any particular requirement or provision. It is thus unclear what precisely defendant is contending
14
plaintiff failed to do with regard to these electronic reporting requirements and what evidence
15
defendant is relying on to establish such a purported failure. In its reply, plaintiff asserts that
16
defendant “makes several arguments that are poorly developed, lacking evidence, and lacking
17
legal authority that the remedy of some alleged technically error would be to invalidate the
18
addition of Accuire as an additional insured that VForce, itself, requested.” (Doc. No. 104 at 5.)
19
The court agrees with plaintiff’s observation.
20
Moreover, in its opposition brief, defendant selectively and inaccurately quotes the text of
21
Endorsement No. 3 in stating that the endorsement “describes the change to the Policy as adding
22
‘VForce Staffing Solutions’ as a ‘DBA name’ to ‘legal entity.’” (Doc. No. 102 at 14.) But the
23
text of that portion of Endorsement No. 3 actually states:
24
25
THE FOLLOWING DBA NAME HAS BEEN ADDED TO LEGAL
ENTITY: ACCUIRE, LLC: VFORCE STAFFING SOLUTIONS
26
(Doc. No. 92-3 at 68) (emphasis added). That is, defendant omitted “Accuire, LLC” from its
27
quoted excerpt, which further discredits defendant’s contention that Accuire LLC was not added
28
as an additional insured on the Policy.
24
1
Finally, as plaintiff points out in its reply, there is no evidence before the court on
2
summary judgment that the WCIRB ever rejected or challenged Endorsement No. 3 adding
3
Accuire as an additional insured on the Policy. (Doc. No. 104 at 7.) To the contrary, defendant
4
points to the WCIRB-created Workers’ Compensation Experience Rating Forms, attached as
5
exhibits to the affidavit of Mr. Buck, Zurich’s programs underwriter, which reflect that after the
6
issuance of Endorsement No. 3, the WCIRB began to refer to both VForce and Accuire as the
7
insureds on the VForce Policy. (Id.) (citing Doc. Nos. 92-7 at 11, 13; 104-2 at ¶ 12). Further, to
8
support its assertion that Accuire was not added to the VForce Policy, defendant relies on the two
9
criticism letters that Zurich received from the WCIRB regarding a “Policy Audit Error Query,”
10
which defendant argues constitute evidence that according to the WCIRB, Accuire had not been
11
added to the VForce Policy. (Doc. No. 102 at 14–15.) The only evidence that defendant offers to
12
support this argument is the deposition testimony of Mr. Thompson, World Wide’s president, but
13
that testimony does not substantiate defendant’s interpretation of the letters. (Id.) At his
14
deposition Mr. Thompson was asked what he “glean[ed]” from the letters and what he took them
15
to mean, and he answered by quoting the letter directly, “[t]he following name was not on prior
16
coverage for this policyholder about the criticism letters,” which he took to mean that Accuire
17
was not listed on the VForce Policy. (Doc. No. 102-4 at 76.) He further answered as follows:
18
19
20
21
22
There was some confusion whether -- I guess when they did an audit,
I don’t know what the date of this policy was. September 15. So
they must have done an audit and realized that Accuire was not
named on there or was named on there, and maybe there was some
other incident. I don’t really know why it would be that way, but.
[Question:] When you say “they” did an audit, who are you referring
to?
24
Well, it says here “The WCIRB’s audit of the referenced policy
detected the following data conditions. The following name was not
on prior coverage for this policyholder.” So to me that means that
Accuire wasn’t listed somewhere.
25
(Doc. No. 102-4 at 76–77.) This testimony reflects Mr. Thompson’s speculation as to what these
26
criticism letters mean, in his view, and does not constitute evidence of the WCIRB’s view as to
27
the addition of Accuire on the VForce Policy. Indeed, it is not clear on what basis Mr. Thompson
28
arrived at this view—aside from mere speculation—since a few moments earlier in his
23
25
1
deposition, Mr. Thompson had explained that World Wide never submits information to the
2
WCIRB and that it is Zurich who does so. (Doc. No. 102-4 at 73.) Whereas, Zurich’s programs
3
underwriter, Mr. Buck, explained in his affidavit that the two letters Zurich received from the
4
WCIRB actually acknowledge the addition of Accuire “as an insured to the VForce policy, and
5
request information about Accuire’s past policy history, given that Accuire was not previously on
6
VForce’s workers compensation coverage as a combinable entity.” (Doc. No. 104-2 at ¶ 13.)
7
More importantly, later in Mr. Thompson’s deposition testimony, he offered a speculative reason
8
for the criticism (“crit”) letters that differed from his earlier testimony and was actually consistent
9
with Mr. Buck’s explanation. Specifically, when later shown a copy of Endorsement No. 3, Mr.
10
Thompson was asked if the endorsement was submitted to the WCIRB, to which he answered that
11
he was sure the endorsement was submitted at some point by Zurich, and he provided the
12
following explanation:
13
14
15
16
17
18
They wouldn’t have sent a crit. They wouldn’t have known about it
at some point unless – or they wouldn’t have sent a crit out if they
didn’t get some information on it so. This is probably wondering –
now that you are showing me this, what this probably means is that
there was not a listing of Accuire having workers’ comp in place until
this happened so. . . .
They might have had some kind of lapse there, so they were
wondering where was the insurance. I’m guessing. I’m just guessing
because that would make sense.
19
(Doc. No. 102-4 at 80.) In light of Mr. Thompson’s full deposition testimony, when considered
20
in context, the court finds that defendant’s reliance on that testimony is insufficient to support its
21
assertion that the WCIRB criticism letters reflect that Accuire had not been added as an additional
22
insured on the VForce Policy. Accordingly, defendant has failed to present evidence establishing
23
a disputed issue of material fact in this regard.
24
In sum, the court finds that the evidence before the court on summary judgment
25
establishes the existence of a contract (i.e., the Policy and its endorsements), and the court rejects
26
defendant’s unsupported arguments that the Policy’s endorsements are illegal, void, and
27
unenforceable. Defendant has not shown that there is a genuine dispute of material fact as to the
28
validity of Endorsement No. 3 adding Accuire as an additional insured on the VForce Policy.
26
1
2.
Whether Defendant Breached the Policy by Failing to Pay An Additional Premium
2
In opposing the pending motion, defendant does not advance any arguments regarding its
3
obligation under the Policy to pay an additional premium following a “true-up” payroll audit.
4
Defendant challenges the validity of the two Policy endorsements issued for ex mod rating
5
increases and the several other endorsements issued to reflect the addition of class codes during
6
the policy period, which are used in calculating the additional premium due. (Doc. No. 102 at
7
15–16.) However, defendant’s challenge in this regard is predicated solely on Zurich’s purported
8
failure to file the endorsements with WCIRB—an argument the court has already rejected for the
9
reasons explained above. That is, defendant does not offer any argument that the ex mod rate
10
increases or class code additions were in any way erroneous, inapplicable, or otherwise
11
improperly used in calculating the additional premium due. To be sure, defendant disputes the
12
accuracy of the payroll audit results indicating additional premiums due in the amount of
13
$612,656.00, but defendant does not state what amount it calculates the accurate figure to be or
14
provide any evidence to substantiate its undisclosed calculation, nor does defendant offer any
15
evidence that it has already made a payment to Zurich in that amount (or any amount at all). In
16
other words, defendant effectively concedes that it has not paid any amount of additional
17
premiums, despite its obligation under the Policy to do so. Although the amount of damages here
18
is in dispute, as discussed below, defendant’s breach of the Policy by failing to pay additional
19
premiums as required under the Policy is entirely undisputed.
20
Thus, the court finds that based on the evidence before it on summary judgment, plaintiff
21
has established defendant’s breach of the Policy. There is no genuine dispute of material fact that
22
defendant has not paid any amount in additional premiums due under the Policy, which
23
constitutes a breach of the Policy.
24
3.
Whether Plaintiff has Established Damages in the Amount Demanded
25
Defendant argues that “a factual determination regarding the accuracy of Zurich’s audit is
26
necessary,” which precludes the granting of summary judgment in defendant’s favor on its breach
27
of contract claim. (Doc. No. 102 at 16.) The court agrees with defendant that the amount of
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27
1
damages is subject to a genuine dispute of material fact, though not for all of the reasons
2
advanced by defendant.
3
Defendant first argues that the audit results are inaccurate because Zurich did not
4
distinguish between VForce’s payroll and Accuire’s payroll during the entire policy period, and
5
“Mr. Hawkins did not make any distinguishment between VForce and Accuire for purposes of
6
evaluating the payroll pertinent to the payroll audit during the VForce policy period.” (Doc. No.
7
102 at 16, 17.) Whether the underlying purported fact (that Zurich did not distinguish the two
8
entities for the VForce payroll audit) is true or not has not been established by the evidence
9
presented by the parties on summary judgment. But this apparent factual dispute itself does not
10
preclude the granting of summary judgment because defendant contends that “this distinction is
11
essential, given that any payroll attributed to Accuire through the Policy’s endorsements are not
12
valid and enforceable.” (Id. at 17.) Yet the court has already concluded that the Policy’s
13
endorsements are valid, suggesting that the distinction between VForce’s and Accuire’s payroll is
14
not essential in assessing the accuracy of the audit.
In its reply, plaintiff rebuts defendant’s challenge to the accuracy of its audit results by
15
16
first asserting that the challenge is baseless “because the results are based on the payroll numbers
17
and class codes supplied to the Zurich auditor from VForce and Accuire’s (and their [professional
18
employer organization] PEO’s) own payroll records.” (Doc. No. 104 at 7–8.) However,
19
defendant argues that VForce did not participate in the audit, relying on the deposition testimony
20
of Mr. Kontokanis. (Doc. No. 102 at 19–20.) As discussed at length in footnotes 11 and 12
21
above, plaintiff has offered substantial evidence to show that VForce did provide documents
22
needed for the audit, and despite this evidence, Mr. Kontokanis maintains otherwise. As the court
23
does not weigh the evidence or determine a witness’s credibility at the summary judgment
24
stage—no matter how weighty or how uncredible—the court cannot determine based on the
25
evidence before it on summary judgment whether VForce (through Mr. Kontokanis or Mr.
26
Brozaitis, or someone else) assisted in the payroll audit by providing VForce’s documents as
27
requested by Mr. Hawkins.
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28
1
Defendant next argues that Zurich did not verify or validate the source information used
2
during its payroll audit. (Doc. No. 102 at 18.) In particular, in auditing the VForce payroll and
3
reviewing that audit, Zurich’s auditors (both Mr. Hawkins and Mr. Berrenson) did not verify class
4
codes, ex mod ratings, or which employees were paid by Accuire or VForce. (Id.) Defendant
5
emphasizes that even Mr. Berrenson admitted that there were errors in the audit and during his
6
deposition, he stated that he does not recall the errors and he “would have no idea” what those
7
errors were specifically. (Id. at 19) (citing Doc. No. 102-4 at 58–59). In its reply, plaintiff
8
acknowledges that Zurich made some small errors but discounts the significance of those
9
mistakes by noting that correcting the errors would result in defendant owing $2,616.00 more
10
than the $612,656.00 it is seeking in damages. (Doc. No. 104 at 8.) According to plaintiff, its
11
audit results may not be correct, but they are sufficient evidence that defendant owes “at least”
12
$612,656.00, and plaintiff is willing to accept that lesser amount. (Id. at 8–9.) The court is not so
13
readily persuaded that such “minor” errors are too insignificant to call into question the overall
14
accuracy of the audit results, particularly given that Mr. Berrenson’s audit review in preparation
15
for the pending motion involved reviewing only the audit recap summary and the information
16
provided by Mr. Hawkins; Mr. Berrenson did not review any native document from VForce or
17
Accuire or any class codes or ex mod rating information to verify accuracy. Accordingly, the
18
court finds that plaintiff has not established that the $612,656.00 amount of additional premium it
19
seeks in damages is an accurate figure, let alone an undisputed amount. See Zurich Am. Ins. Co.
20
v. UGS Priv. Sec., Inc., No. 22-cv-1163-GW-EX, 2023 WL 3565063, at *5 (C.D. Cal. Jan. 20,
21
2023) (denying insurance companies’ motion for summary judgment on a breach of contract
22
claim because they “insufficiently substantiated the provided audit report calculations,” “have not
23
provided this Court with the necessary documentation or data to support that [defendant’s]
24
reported payroll increased for both policy years,” and have “insufficiently describe[d] the source
25
of the data they used in the audit.”)
26
For these reasons, the court will grant partial summary judgment in favor of plaintiff only
27
as to the first, second, and third elements of its breach of contract claim, and will deny partial
28
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29
1
summary judgment on the issue of the amount of damages, which is subject to a genuine factual
2
dispute.20
3
CONCLUSION
4
For the reasons explained above,
5
1.
6
Defendant VForce, Inc.’s request for judicial notice (Doc. No. 27-1) is granted as
to exhibits 7–12 and denied as to exhibits 5 and 6;
7
2.
Plaintiff’s motion for summary judgment, or in the alternative, partial summary
8
judgment, (Doc. No. 92) is granted, in part and denied in part as follows:
9
a.
Plaintiff’s motion for partial summary judgment in its favor as to the first,
10
second, and third elements of its breach of contract claim against defendant
11
VForce, Inc., is granted; and
12
b.
Plaintiff’s motion for partial summary judgment in its favor as to the fourth
13
element of damages on its breach of contract claim against defendant
14
VForce, Inc., is denied; and
15
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20
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23
24
25
26
27
28
Defendant advances one additional argument, albeit without any evidentiary support or citation
to legal authority—that Zurich delayed removing Accuire from VForce’s Policy until midSeptember 2015 even though the ownership change occurred in May 2015. (Doc. No. 102 at 20.)
However, defendant fails to provide any evidence that VForce took any steps with Zurich to have
Accuire removed from its policy any sooner than it did in September 2015, or that Zurich had the
documents it needed to propose a separate policy for Accuire and remove Accuire from VForce’s
policy any sooner than it did in September 2015. To the extent VForce takes issue with Accuire
for not providing the documents that Zurich requested sooner, or contends that Accuire should be
liable to reimburse VForce for the additional premium attributable to the Accuire payroll for the
period after the change of ownership in May 2015, those issues are the subject of VForce’s thirdparty complaint against Accuire. Those issues do not preclude the granting of partial summary
judgment in favor of Zurich on Zurich’s breach of contract claim brought against VForce.
30
1
3.
The Clerk of the Court is directed to update the docket to reflect that defendant
2
Hybrid Financial Group, LLC was terminated as a named defendant in this action
3
on June 23, 2020. (See Doc. No. 72.)
4
5
6
7
IT IS SO ORDERED.
Dated:
February 2, 2024
DALE A. DROZD
UNITED STATES DISTRICT JUDGE
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