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Stinker Stores, Inc. v. Nationwide Agribusiness Insurance Co.

March 31, 2010


The opinion of the court was delivered by: Honorable Larry M. Boyle United States Magistrate Judge



This action is an insurance coverage dispute. Defendant Nationwide Agribusiness Insurance Co. ("Nationwide") insured Plaintiffs*fn1 under a series of general commercial liability policies and optional Employee Benefit Liability (EBL) endorsements. Plaintiffs made claims for defense and coverage under the EBL endorsements for several lawsuits filed against them by their former employees. Nationwide denied Plaintiffs both a defense and coverage for the lawsuits. Plaintiffs bring claims against Nationwide alleging breach of contract and bad faith, and seek declaratory relief.

The Court has before it Defendant's Motion for Summary Judgment (Doc. 29), Plaintiffs' Motion for Partial Summary Judgment (Doc. 40), Defendant's Motion to Strike Exhibits N and Q to Affidavit of Counsel In Support of Plaintiffs' Motion For Partial Summary Judgment (Doc 53), and Plaintiffs' Alternative Cross-Motion to Strike (Doc. 67).*fn2 The Court heard oral argument on January 13, 2010, on the parties' motions for summary judgment which were taken under advisement, and has determined that oral argument will not assist it further in deciding the cross-motions to strike expert testimony which will be decided on the parties' written briefing and submissions.

After careful review of the record, the briefs and argument of counsel, the Court issues the following Memorandum Decision and Order in which Defendant's Motion for Summary Judgment is denied in part and granted in part, Plaintiff's Partial Motion for Summary Judgment is denied in part and granted in part, and the parties' cross-motions to strike are both denied.


A. Background of the Underlying Lawsuits Against Plaintiffs

The following background of the underlying lawsuits that were filed against Plaintiffs (for which Plaintiffs seek defense costs and indemnification in this instant action) is taken directly from the Findings of Fact and Conclusions of Law in one of the underlying cases, Ted Roberts v. Fearless Farris Serv. Stations, Inc., et al., United States District Court, District of Idaho, Case No. 05-472-S-WFN, February 6, 2008:

Prior to November 18, 2002, Fearless Farris Service Stations, Inc. ("Fearless") was owned by Farris S. Lind, Kent Lind and H. Kent Johnson ("Lind/Johnson"). Sometime in the 1980s, Fearless established a retirement plan, referred to as the Fearless Farris Service Stations, Inc. Deferred Compensation Plan ("Plan"). According to the parties, the only documents evidencing the Plan were certain letters and memoranda distributed to Plan participants over the years, or in some cases placed in company files. Apparently, Fearless did not consult any legal advisors in establishing or maintaining the Plan.

According to the letters and memoranda, the Plan underwent several changes over the years. On December 19, 1995, the company indicated that the company was continuing to invest money to assist the participants in their retirement. It went on to state that the Plan would pay to the qualified employee or his surviving beneficiary, upon reaching the retirement age of 65 and having completed a minimum of 20 years of service to the company, a monthly sum of 25% of the average of his/her last 5 years of service for a period of 15 years. In the case of an employee pre-deceasing the retirement age of 65 years, but still meeting the years of service requirement, the Company would pay to the surviving beneficiary 50% of the employee's last 5-year average income, paid monthly for 15 years. Also, at various times, Fearless purchased and maintained life insurance policies on each of the Plan participants.

On August 22, 2002, Lind/Johnson sold the Fearless operations through a Stock and Asset Purchase Agreement with Charshaw, Inc., Davis-Jones, Inc. and Joshnik LLC ("Jones/Davis"). The deal was finalized on November 18, 2002. The change in ownership led to substantial changes in the Plan. The Purchase Agreement provided for retention of the insurance policies on the lives of Lind/Johnson by Lind/Johnson, and the other life insurance policies remained among the assets of Fearless. Prior to the sale, the insurance policies had been pledged as collateral to a bank, but after the sale, Jones/Davis paid off the loan and the life insurance policies were released free and clear. Subsequent to the sale, Jones/Davis surrendered the insurance policies for their combined cash value in excess of $600,000. The funds were placed in the corporate accounts of Fearless.

In July 2003, Jones/Davis held meetings with Plan participants, and distributed a memorandum informing the Plan participants that the Plan was terminated.*fn3 Fearless also informed the Plan participants that Fearless had no financial obligation to Plan participants as a result of the Plan termination.

Affidavit of Counsel in Support of Motion for Partial Summary Judgment (Doc. 40-2) ("Aff. Counsel PMPSJ"), Exh. E.

B. Plaintiffs' Insurance Coverage for Employee Benefit Liability.

Plaintiffs were insured by three general commercial liability policies effective March 1, 2003 to March 1, 2004 ("2003 Policy"), March 1, 2005 to March 1, 2006 ("2005 Policy") and March 1, 2007 to March 1, 2008 ("2007 Policy"). Each policy included optional EBL coverage endorsements which gave Plaintiffs continuous coverage from March 1, 2003 to March 1, 2008 generally for "negligent errors, acts or omissions" that occur "in the administration" of an employee benefit plan.

C. The Underlying Lawsuits And Nationwide's Response to Plaintiffs' Tender of Defense And Claims for Coverage

Four lawsuits were filed against Plaintiffs following Stinker's termination of the Plan, but the denial of defense and coverage is at issue in Plaintiffs' current complaint*fn4 in only two of these cases:

1. Roberts v. Fearless Farris Service Stations, Inc., et al., CV-05-472-S-EJL ("Roberts II")

Ted Roberts filed a lawsuit in this district court on November 18, 2005. Roberts alleged only one claim titled "Claim For Benefits" which he brought under ERISA. See Affidavit of Counsel in Support of Plaintiffs' Motion for Partial Summary Judgment (Doc. 40-2)(hereafter "Counsel Aff. PMPSJ"), Exh. F. Nationwide denied both a defense and coverage, and issued a coverage denial letter dated April 19, 2006, through coverage counsel. Counsel Aff. PMPSJ, Exh. G. The presiding judge in Roberts II subsequently found that the new owners, Stinker and The Plan had violated fiduciary duties owed to Roberts under ERISA in maintenance and termination of the Plan, and were liable to him for his vested benefits under the Plan. Accordingly, judgment was entered in favor of Roberts and Stinker was ordered to create and fund an annuity for Roberts. Stinker appealed, and the case settled while on appeal.

2. Brasley v. Fearless Farris Service Stations, Inc., et al., CV 08-173-S-BLW ("Brasley")

Edward Brasley filed a Class Action Complaint on April 17, 2008, on behalf of all present or former employees of Stinker who are or were Plan participants. In his original complaint, Brasley alleged four claims against Plaintiffs under ERISA which include breach of fiduciary duties, a claim for benefits, failure to provide information and sought equitable relief. Stinker tendered the suit to Nationwide on May 6, 2008. Nationwide denied Plaintiffs a defense and coverage, again by letter through coverage counsel, on August 14, 2008.

Brasley filed an Amended Class Action Complaint on September 8, 2008, adding Todd Wayment, Betty Newell, Vernon Elliott and Katherine Ryan as named plaintiffs. Stinker forwarded the Amended Complaint to Nationwide on September 10, 2008, but heard nothing further from Nationwide on defense or coverage for that action. Stinker negotiated a settlement with Katherine Ryan in the amount of $120,000. The remaining Brasley claims were recently tried to Judge B. Lynn Winmill and as of this date, his ruling has not been issued.

It is undisputed that Nationwide has paid no defense costs, attorney fees or settlement amounts to Plaintiffs for either of these two lawsuits. Plaintiffs' claims made in this instant action against Nationwide allege breach of contract, bad faith and entitlement to declaratory relief under the 2003 and 2005 Policies for the Roberts II litigation, the 2003 and 2007 Policies for the Brasley litigation, and for an award of attorneys' fees and costs.


Nationwide seeks summary judgment in its favor on all claims made against it in this instant action on the grounds that the policy language is clear in all policies that Plaintiffs are not entitled to coverage for any of the underlying lawsuits. On the other hand, Plaintiffs seek partial summary judgment in their favor on their claims for declaratory judgment and breach of contract based on Nationwide's refusal to at least provide a defense. Plaintiffs argue that either the policies actually do provide coverage, or the terms in the policies are at least ambiguous, and therefore, Nationwide's duty to defend was clear under Idaho law.

Both parties filed motions to strike the expert testimony that the parties submitted in support of their respective motion for summary judgment. These evidentiary objections will be addressed first.

A. Cross Motions to Strike Expert Testimony

Nationwide challenges the admissibility of Plaintiffs' expert reports on several grounds. First, Nationwide objects to the reports because they are not sworn statements as required by Fed. R. Civ. P. 56(e). After carefully considering the reports, and the applicable legal standards, the Court is satisfied that Plaintiffs' subsequently filed sworn statements adequately remedied the procedural deficiencies of the original filings. See Maytag Corp. v. Electrolux Home products, Inc., 448 F. Supp.2d 1034, 1046 (N.D. Iowa 2006) (collecting cases); see also. School District No. 1J, Multnomah County, OR v. ACandS, Inc., 5 F.3d 1255, 1261 (9th Cir. 1993) (citation omitted) ("When a party opposing summary judgment fails to comply with the formalities of Rule 56, a court may choose to be somewhat lenient in the exercise of its discretion to deal with the deficiency.")

Second, Nationwide contends that the expert opinions do not comport with Fed. R. Evid. 702. This rule, governing testifying expert qualifications generally, states:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.

Fed. R. Evid. 702.

After careful review of Waldner's report and the record, the Court sees no basis upon which to conclude that she is not qualified to render her expert opinion in this case, and that her opinions, discussed more fully below, will be helpful to the jury in understanding relevant issues of employee benefit administration and ERISA, and the application of relevant EBL policy language to the day-to-day practice of employee benefits administration.

Nationwide further objects to Waldner's and Tom Roberts' opinions because the experts fail to cite legal authorities for their opinions. Nationwide provides no authority for this argument or evidence that the information these experts relied upon is not that which is commonly relied upon by other experts within the industry. In the Court's view, Nationwide's objection goes more to the weight of the reports and credibility of the experts, rather than to the admissibility of their opinions.

Third, Nationwide objects to Plaintiffs' experts' opinions on the ground that the experts invade the province of the Court by testifying to the ultimate issues of law in this case by providing opinions on coverage. "It is well-established... that expert testimony concerning an ultimate issue is not per se improper." Hangarter v. Provident Life and Accident Insur. Co., 373 F.3d 998, 1016 (9th Cir. 2004) (citing Maukhtar v. Cal. State Univ., Hayward, 299 F3d 1053, 1066 n. 10 (9th Cir. 2002)). "Testimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact." Fed. R. Evid. 704(a). "That said, an expert witness cannot give an opinion as to her legal conclusion, i.e., an opinion on an ultimate issue of law. Similarly, instructing the jury as to the applicable law is the distinct and exclusive province of the court." Nationwide Tranpsort Finance v. Cass Information Systems, Inc., 523 F.3d 1051, 1058 (9th Cir. 2008)(citing Hangarter v. Provident Life & Accident Ins. Co., 373 F.3d 998, 1016 (9th Cir.2004) (internal citations and quotation marks omitted); Fed. R. Evid. 702 (requiring that expert opinion evidence "assist the trier of fact to understand the evidence or to determine a fact in issue.")).

This Court agrees that some of Waldner's and Roberts' opinions may embrace the legal questions of the meaning and interpretation of the EBL endorsement, or whether the claims against Plaintiffs were covered by the endorsement. See Waldner Affid. (Exh. N), Sec. E in part; Roberts' Affid., (Exh. Q), ¶¶ 25, 26, 32, 35 & 41. If this testimony were offered solely for that purpose, it may be inadmissible. See McHugh v. United States Auto. Assoc., 164 F.3d 451, 454 (9th Cir. 1999). However, the testimony is admissible for other purposes in this case.

Specifically, this testimony is relevant as foundation to the experts' opinions as to whether Nationwide's refusal to provide either a defense or indemnification was done in bad faith. The experts must set forth Nationwide's duty in interpreting the contract, and their opinion that Nationwide did or did not comply with the duty, before the experts can offer any opinion as to whether or not Nationwide's conduct was reasonable and/or breached any applicable industry standards. Accordingly, although the experts' testimony embraces ultimate issues for the Court, it is nonetheless admissible for other relevant purposes.

Furthermore, the majority of the experts' testimony does not merely address the legal meaning of the contracts but is admissible testimony regarding Nationwide's duty to defend and/or indemnify, and whether Nationwide committed bad faith. For example, Waldner's testimony is largely focused on explaining the claims against the Plaintiffs, how they are or are not administrative acts, and clarifying ERISA in a manner that is helpful in determining whether the applicable policy coverage provision or exclusion may apply. Roberts discusses the insurance industry standards, Nationwide's internal Best Practices guidelines and explains Nationwide's internal documentation regarding the Plaintiffs' claims. Further, Roberts offers his opinion as to how he believes Nationwide acted unreasonably by, among other things, falling below the industry standards and acting contrary to its own Best Practices guidelines in handling these claims.

With the foregoing in mind, the Court declines to strike the experts' testimony. The Court will and has considered the testimony of the two experts only to the extent that it is admissible and does not constitute merely an opinion regarding the meaning of the plain language of the policies. See McHugh v. United States Auto. Assoc., 164 F.3d 451, 454 (9th Cir. 1999).

Plaintiffs move to strike Nationwide's expert affidavits only if the Court grants Nationwide's motion to strike, and on the same grounds. Because Defendant's Motion to Strike is denied, Plaintiffs' alternative motion is moot and therefore denied. Obviously, the same standards of consideration apply to ...

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