Seagate Technology LLC v. National Union Fire Insurance
Docket: No. 09-04120 CW
Court: District Court, N.D. California; July 21, 2010; Federal District Court
The court denied the motion by Defendants National Union Fire Insurance Company and Insurance Company of the State of Pennsylvania to compel arbitration and stay the case. It granted Plaintiffs Seagate Technology and its affiliates' motion for partial summary judgment, determining that ISOP breached its duty to defend. The case revolves around the duty to defend and unpaid attorneys’ fees, not indemnity. National Union and ISOP issued liability insurance policies to Seagate covering personal and advertising injury from September 30, 2006, to September 30, 2008, which required them to defend any suits until their liability limits were exhausted. Seagate initiated multiple legal actions against various eSys entities, leading to counterclaims alleging defamation against Seagate. Seagate tendered these counterclaims to National Union and ISOP, who agreed to defend under a reservation of rights. Throughout the litigation, Seagate's defense counsel provided regular updates and submitted significant invoices for defense costs, totaling over $15 million across different actions. However, Defendants have made minimal payments, totaling only $130,579.40 for the Singapore action, while nothing has been paid for the Santa Cruz action or the arbitration.
On September 4, 2009, Seagate initiated a lawsuit against National Union and ISOP, citing breach of contract regarding the duty to defend and tortious breach of the implied covenant of good faith. Defendants claim that California Civil Code section 2860 mandates arbitration for the case, which stipulates that when an insurer has a duty to defend and a conflict of interest arises, it must provide independent counsel and that disputes over attorney fees must be arbitrated unless otherwise agreed. Seagate contends that Defendants cannot enforce this section to compel arbitration due to a breach of the duty to defend.
Seagate seeks partial summary judgment against ISOP, asserting that summary judgment is appropriate when there are no genuine disputes of material fact and the moving party is entitled to prevail as a matter of law. The burden is on the moving party to demonstrate the absence of material factual disputes, while the court must accept the opposing party’s evidence as true and draw reasonable inferences in their favor.
ISOP acknowledges its duty to defend Seagate in various underlying actions but disputes whether it breached this duty by only partially covering costs from the Singapore action and not at all for Santa Cruz and arbitration matters. ISOP claims it withheld payment pending further information and contends that the recoverable fees must be determined before Seagate can claim a breach of duty. However, ISOP's reliance on a precedent case regarding the timing of defense counsel selection does not apply to the timing of bill payments, as the referenced case did not address the obligation to pay defense bills after independent counsel is appointed. The legal principle established states that when an insurer has a duty to defend, it must adequately finance that defense.
To defend effectively, an insurer must provide a full defense in mixed actions where some claims are potentially covered and others are not. Parsing these claims is considered impractical and may breach the duty to defend. Hartford's acceptance of only 13% of the defense burden is treated as a denial of defense, as any defense obligation must be fully accepted. The insurer may seek reimbursement for defense costs not covered by the policy after fulfilling its duty to defend entirely. This duty is crucial for invoking arbitration rights under section 2860, which requires the insurer to accept the defense with a reservation of rights. Failure to adequately defend, as seen with ISOP’s inadequate payments for various claims, results in a breach of duty that precludes the insurer from leveraging arbitration provisions. Both ISOP and National Union are found to have breached their duties, leading to the denial of their motion to compel arbitration and the granting of Seagate’s motion for partial summary judgment. The Court does not address whether the defendants waived their right to assert section 2860.
