Preview
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
FRANK FALZETTA, Cal. Bar No. 125146
ROBERT A. SANDERS, Cal. Bar No. 210186 FILED
NO
333 South Hope Street, 43rd Floor é C
Los Angeles, CA 90071 L 0
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Telephone: (213) 620-1780 5 | NOVO? 2023 | N
Facsimile: 213) 620-1398 aii N y | o\
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mail: alzetta@sheppardamullin.com Cc T PERIORICOURT
rane Sh oan BY PKA J
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SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
DB
JEFFREY S. CROWE, Cal. Bar No. 216055
650 Town Center Drive, 10th Floor
Costa Mesa, California 92626
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Telephone: 714.513.5100
Facsimile: 714.513.5130 ;
Email: jcrowe@sheppardmullin.com
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Attorneys for Defendant
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SAFECO INSURANCE COMPANY OF
AMERICA
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
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COUNTY OF GLENN - ORLAND COURTHOUSE
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OF
PAUL BETENBAUGH, an individual,, | Case No. 22CV02982
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Plaintiff, Assigned to: Hon. Alicia Ekland,
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Dept. 2
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REPLY BRIEF IN SUPPORT OF
SAFECO INSURANCE COMPANY DEFENDANT SAFECO
DWDNAINI
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OF AMERICA, a New Hampshire INSURANCE COMPANY OF
corporation; GURNEE MASON AMERICA’S MOTION TO STAY
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RUSHFORD BONOTTO &
FORESTIERE LLP, a California Date: November 15, 2023
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limited liability partnership; PHILLIP Time: 2:30 p.m.
R. BONOTTO, an individual; TRACY | Dept.: 2
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W. FRITCH-THYM, an individual; oo
DOES 1-25, inclusive, Complaint Filed: September 16, 2022
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Trial Date: None
Defendants.
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SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
— I. INTRODUCTION}
In his Opposition Brief, plaintiff Paul Betenbaugh (“Betenbaugh”’) contends
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the Court should deny Safeco Insurance Company of America’s (“Safeco”) Motion
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to Stay, because the instant action and the Coverage Action involve different parties,
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different legal theories, and different causes of action. But that is not the correct
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legal standard.
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Rather, a court may stay a state court action pending resolution of a first-filed
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federal court action when the stay will avoid duplicative litigation, preserve judicial
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resources, and eliminate the potential for inconsistent rulings, even when the issues
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and parties are not identical. Caiafa Professional Law Corp. v. State Farm Fire &
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Casualty Co., 15 Cal.App.4th 800, 804 (1993). For the reasons stated in its Motion
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and below, Safeco has met that standard.
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As a threshold matter, notwithstanding Betenbaugh’s characterization of his
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claims against Safeco, they all involve a central theme — Safeco’s alleged failure to
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settle Gunderson’s claims against Betenbaugh. But that theory of liability fails in
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light of the federal court’s ruling that Safeco had no such duty, either under its
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Homeowners’ Policy or its Umbrella Policy. Once final, that ruling will negate
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Betenbaugh’s claims asserted against Safeco in the state court action.
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Betenbaugh argues that the federal court only accepted some of Safeco’s
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arguments, and not all of them. But that is a distinction without a difference.
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Regardless of the arguments that carried the day, the federal court agreed with
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Safeco that it owed no indemnity or settlement coverage to Betenbaugh, and that’s
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"Via Fax File"
what matters here to defeat Betenbaugh’s state court claims.
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' As an initial matter, Safeco agrees that the Court should determine co-defendants’
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Motion to Transfer before this Motion. If the Court grants the Motion to Transfer,
Safeco’s Motion to Stay should be heard and resolved by the Sacramento Superior
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Court.
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SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
Betenbaugh also argues that Safeco’s duty to defend under its Umbrella
Policy has not yet been determined in the Coverage Action. But that too is of no
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moment, because he acknowledges that Safeco defended him under its
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Homeowners’ Policy. To the extent Betenbaugh argues that Safeco is somehow
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vicariously liable for the alleged conduct of its appointed defense counsel, that
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theory also fails under California law.
In sum, a final judgment in Safeco’s favor in the Coverage Action will negate
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all (or nearly all) of Betenbaugh’s claims against Safeco in this action under the
doctrine of res judicata and/or issue preclusion. Therefore, the Court should stay
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this action pending final resolution of the Coverage Action to avoid duplicative
litigation, preserve judicial resources, and eliminate the potential for inconsistent
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rulings.
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Il. LEGAL ARGUMENT
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A. The Court May Defer Ruling on Safeco’s Motion to Stay.
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After Safeco filed its Motion to Stay, defendants Gurnee Mason Rushford
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Bonotto & Forestiere LLP, Phillip R. Bonotto, Esq., and Tracy W. Fritch-Thym,
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Esq. (the “Firm Defendants”) filed a Motion to Transfer Venue to the Sacramento
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County Superior Court. Neither Betenbaugh nor Safeco oppose the Firm
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Defendants’ motion. (Opposition, at pp. 4-5; Safeco’s Notice of Non-Opposition to
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Motion to Transfer Venue.) Ifthe Court grants the Firm Defendants’ motion,
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Safeco agrees that it can defer ruling on Safeco’s Motion to Stay to the Sacramento
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County Superior Court.
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**Via Fax File**
If the Court intends to deny the Motion to Transfer, then it can proceed to rule
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on Safeco’s Motion to Stay.
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B. The Court Has the Inherent Power to Stay This Action.
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Betenbaugh does not dispute that this Court has the inherent power to stay
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this action. Rather, Betenbaugh contends that the cases cited in Safeco’s Motion to
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Stay “are not directly on point” because “they were developed under different
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SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
— factual and legal settings not present here.” (Opposition, at pp. 6-8.) Safeco
disagrees.
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All of the cases cited in the Motion support that a court has the discretion to
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stay an action when a first filed action addresses the same or similar issues. More
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importantly, the cited cases support Safeco’s position that the Court should stay this
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action pending final resolution of the Coverage Action to avoid duplicative
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litigation, preserve judicial resources, and eliminate the potential for inconsistent
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rulings. (Motion, at pp. 11-14.)
C. The Court Should Stay This Action, or At Least Betenbaugh’s
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Claims Against Safeco, Pending Resolution of the Coverage Action.
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Betenbaugh claims that the Court should deny Safeco’s Motion to Stay
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because: (1) this action involves Safeco’s alleged “wrongful conspiracy with the
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Attorney Defendants and corresponding tortious conduct related to the Underlying
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Action”; (2) the Coverage Action only involves Safeco’s declaratory relief claims as
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to whether it had a duty to defend and indemnify Betenbaugh in the Underlying
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Action; and (3) the instant action involves the Firm Defendants and his legal
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malpractice claims against them. (Opposition, at pp. 4-6.) Each of those arguments
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fail, as follows:
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1. The Federal Court’s Ruling, Once Finalized, Will Eliminate
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Betenbaugh’s Claims Against Safeco in this Action.
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Betenbaugh’s claims against Safeco in this action relate to Safeco’s alleged
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failure to settle the claims against him in the Underlying Action:
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**Via Fax File**
e In his Third Cause of Action for Breach of Contract, Betenbaugh
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alleges that Safeco breached the insurance contract by: (1) “denying
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payment of a covered claim and disclaiming any obligation to
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indemnify Betenbaugh”; (2) “failing to make a good faith offer of
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settlement in the Underlying Action”; (3) “failing to make a reasonable
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SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
offer to Gunderson’; and (4) “rejecting Gundersen’s settlement demand
without any basis.” (Complaint, §§ 77-81.)
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° In his Fourth Cause of Action for Fraudulent Concealment, Betenbaugh
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alleges that “Safeco purposefully, fraudulently, and unlawfully failed to
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disclose that Betenbaugh would have to spend an unreasonable amount
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of time (likely years on end) pleading and arguing with Safeco before
Safeco will pay what Betenbaugh is legally entitled to recover under
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the insurance Policies.” (Complaint, J 84-85.)
° In his Fifth Cause of Action for Breach of the Implied Covenant of
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Good Faith and Fair Dealing, Betenbaugh alleges that Safeco breached
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the implied covenant by: (1) “provid[ing] unreasonable and inadequate
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offers to settle the case”; (2) “unreasonably denying payment of a
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covered claim”; and (3) “refusing to negotiate a fair settlement of
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Gundersen’s claims.” (Complaint, 98-100.)
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As discussed in Safeco’s Motion to Stay, the duty to settle only applies to
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covered claims. Camelot by the Bay Condominium Owners’ Assn. v. Scottsdale Ins.
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Co., 27 Cal.App.4th 33, 53 (1994). The federal court has already decided that
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Safeco has and had no duty to indemnify Betenbaugh in the Underlying Action
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under either the Homeowners’ Policy or the Umbrella Policy. (RIN, § 4 & Exh. D,
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at pp. 9-12.)? Because Safeco owed no duty to indemnify Betenbaugh in the
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Underlying Action, Safeco cannot be liable for failing to settle the claims against
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| Betenbaugh in the Underlying Action.
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**Via Fax File**
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* Betenbaugh claims that Safeco “overstated” the federal court’s ruling on Safeco’s
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Motion for Partial Summary Judgment, because the court denied Safeco’s motion as
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to: (a) the business pursuits exclusions in the policies; and (b) whether Safeco had a
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duty to defend Betenbaugh under the Umbrella Policy. (Opposition, at pp. 2, 8-9.)
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That does not matter here, because the federal court granted Safeco’s motion on
other grounds that Safeco owed no duty to indemnify Betenbaugh. (RJN, 4 4 &
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Exh. D, at pp. 9-12.)
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SMRH:4R58-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
Unable to rebut that the federal court’s ruling (once final) will negate his state
court claims, Betenbaugh alleges that “Safeco committed bad faith in the handling
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of the defense” of the Underlying Action. (Opposition, at pp. 2-3.) But that claim
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will also fail in light of the federal court’s ruling that Safeco actually owed no duty
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to defend Betenbaugh under the Homeowners’ Policy. (RJN, §/ 4 & Exh. D, at pp.
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10-11.)
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As for the Umbrella Policy, Safeco’s alleged duty to defend Betenbaugh in
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the Underlying Action remains at issue in the Coverage Action. (Opposition, at p. 9,
fn. 2; RJN, | 4 & Exh. D, at p. 11.) That issue has been pending in federal court for
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over two years, and it will be resolved there. (RIN, 73 & Exh. C, at pp. 19-20;
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RJN,4 4 & Exh. D, at pp. 11, 15.)
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But that issues does not support Betenbaugh’s opposition to the Motion to
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Stay. That is because he acknowledges that Safeco defended him in the Underlying
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Action (and continues to defend him in the appeal) under the Homeowners’ Policy,
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subject to a reservation of rights. (RJN, § 3 & Exh. C, at J] 32-35; RIN, | 4 & Exh.
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D, at p. 4.) Safeco did so under California law, which allows an insurer to accept
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the insured’s defense under a reservation of rights and then seek a judicial
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determination of its rights and obligations under the policies. Great American Ins.
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Co. v. Sup. Ct. (Angeles Chem. Co., Inc.), 178 Cal.App.4th 221, 225 (2009) (when
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an insurer defending its insured under reservation of rights believes there is no
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coverage, it may bring an action to obtain a judicial determination that it need no
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longer do so).
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**Via Fax File**
So, even if Safeco owes a duty to defend under the Umbrella Policy, it would
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not trigger unless and until the Homeowners’ Policy is exhausted. See e.g. Diamond
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Heights Homeowners Ass’n v. Nat’l American Ins. Co., 227 Cal.App.3d 563, 577
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(1991) (absent contract language to the contrary, excess insurer has no duty to
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participate in defense until primary insurance exhausted).
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SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
Finally, to the extent Betenbaugh seeks to hold Safeco vicariously liable for
the alleged malpractice of his defense counsel, California law expressly rejects such
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claims. An insurer has neither the power nor ability to control the details of the
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performance of its appointed lawyer’s work and therefore is not responsible for the
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results. Merritt v. Reserve Ins. Co., 34 Cal.App.3d 858, 880-882 (1973) (because an
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insurance carrier is not authorized to practice law and therefore must delegate the
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defense to trial counsel, any remedy is “found in an action against counsel for
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malpractice and not in a suit against counsel’s employer to impose vicarious
liability”). Rather, Safeco’s obligations to Betenbaugh arise from its duties under
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the Policies. Jd. at 882. And the federal court has already ruled that Safeco has no
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duty to defend Betenbaugh in the Underlying Action under the Homeowners’
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Policy, and no duty to indemnify Betenbaugh under the Homeowners’ Policy or the
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Umbrella Policy. (RIN, J 4 & Exh. D, at pp. 9-12.)
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Thus, whether Betenbaugh bases his claims against Safeco on theories of
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breach of contract, bad faith, conspiracy, or fraud, a final judgment in Safeco’s favor
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in the Coverage Action will negate Betenbaugh’s claims against Safeco in this
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action under the doctrine of res judicata and/or issue preclusion. DKN Holdings
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LLC v. Faerber, 61 Cal.4th 813, 824 (2015) (“Issue preclusion prohibits the
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relitigation of issues argued and decided in a previous case, even if the second suit
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raises different causes of action.”’).
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2. The Court Has the Discretion to Stay Betenbaugh’s Claims
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Against Safeco, Even if it Allows Him to Proceed Against the
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**Via Fax File**
Firm Defendants.
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Contrary to Betenbaugh’s arguments, a stay is proper even when the issues
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and parties before the related proceedings are not identical. Landis v. N. Am. Co.,
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299 US. 248, 254-55 (1936) (to stay a proceeding pending resolution of a related
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action, the parties to the two cases need not be the same); Leyva v. Certified Grocers
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of California, 593 F.2d 857, 863 (9th Cir. 1979) (holding that a trial court may stay
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7.
SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
an action pending resolution of proceedings in another case even when the issues
involved in the other case are not controlling of the action before the court).
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Therefore, the Court has discretion to stay this entire action pending resolution of
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the Coverage Action. And if it does so, Betenbaugh can pursue his claims against
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the Firm Defendants when the Court lifts the stay of this action.
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Alternatively, the Court has the inherent power to sever Betenbaugh’s claims
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in this action so that Betenbaugh can pursue his claims against the Firm Defendants
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while the claims against Safeco are stayed. Landis, supra, 299 U.S. at 254-55;
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Briggs v. Brown, 3 Cal.5th 808, 852 (2017); Cal. Civ. Proc. Code § 128.
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Ill, CONCLUSION
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Therefore, Safeco respectfully asks this Court to grant its Motion and stay this
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action, or at least the claims against Safeco, pending final resolution of the Coverage
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Action.
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Dated: November 7, 2023
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SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
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By: /s/ Robert A. Sanders
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FRANK FALZETTA
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JEFFREY S. CROWE
ROBERT A. SANDERS
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Attorneys for Defendant
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SAFECO INSURANCE COMPANY OF
AMERICA
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**Via Fax File**
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SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
PROOF OF SERVICE
STATE OF CALIFORNIA, COUNTY OF LOS ANGELES
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At the time of service, I was over 18 years of age and not a party to this
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action. I am employed in the County of Los eae State of California. M
ce address is 333 South Hope Street, 43rd Floor, Los Angeles, CA 90071-
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On November 7, 2023, I served true copies of the following document(s)
described as REPLY BRIEF IN SUPPORT OF DEFENDANT SAFECO
HD
INSURANCE COMPANY OF AMERICA’S MOTION TO STAY on the
interested parties in this action as follows:
ON
Ognian A. Gavrilov, Esq. Attorneys for Plaintiff
Michael Coleman, Esq. PAUL BETENBAUGH
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Alexandra Darling, Esq.
GAVRILOV & BROO S
2315 Capital Avenue
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Sacramento, CA 95816
Telephone: (916) 504-0529
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Facsimile: (916) 727-6877
EMAIL: Ognian@gavrilovlaw.com
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PF
Daniel V. Kohls, Esq. Attorneys for Defendants
Leighton B. Koberlein, Esq. GURNEE MASON
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HANSEN, KOHLS, SOMMER & JACOB, LLP RUSHFORD BONOTTO &
1520 Eureka Road, Suite 100 FORESTIERE LLP; PHILLIP
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Roseville, California 95661 R. BONOTTO; and TRACY
Telephone: (916) 781-2550 W. FRITCH-THYM
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Facsimile: (916) 781-5339
EMAIL: dkohls@hansenkohls.com
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EMAIL: Ibkoberlein@hansenkohls.com
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BY E-MAIL OR ELECTRONIC TRANSMISSION: I caused a copy of
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the document(s) to be sent from e-mail address vcastro@sheppardmullin.com to the
persons at the e-mail addresses listed in the Service List. I did not receive, within a
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reasonable time after the transmission, any electronic message or other indication
that the transmission was unsuccessful.
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I declare under penalty of perjury under the laws of the State of California
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that the foregoing is true and correct.
**Via Fax File**
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Executed on November 7, 2023, at Los Angeles, California.
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/s/ Vicki Castro
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Vicki Castro
HN NO
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SMRH-4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY
Preview
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP FRANK FALZETTA, Cal. Bar No. 125146 ROBERT A. SANDERS, Cal. Bar No. 210186 FILED NO 333 South Hope Street, 43rd Floor é C Los Angeles, CA 90071 L 0 WO Telephone: (213) 620-1780 5 | NOVO? 2023 | N Facsimile: 213) 620-1398 aii N y | o\ fF mail: alzetta@sheppardamullin.com Cc T PERIORICOURT rane Sh oan BY PKA J Un a i SHEPPARD, MULLIN, RICHTER & HAMPTON LLP DB JEFFREY S. CROWE, Cal. Bar No. 216055 650 Town Center Drive, 10th Floor Costa Mesa, California 92626 ON Telephone: 714.513.5100 Facsimile: 714.513.5130 ; Email: jcrowe@sheppardmullin.com Oo Attorneys for Defendant CO SAFECO INSURANCE COMPANY OF AMERICA — KK SUPERIOR COURT OF THE STATE OF CALIFORNIA [| NY COUNTY OF GLENN - ORLAND COURTHOUSE W OF PAUL BETENBAUGH, an individual,, | Case No. 22CV02982 fh Fe Plaintiff, Assigned to: Hon. Alicia Ekland, Wn KF Dept. 2 V. KH FH REPLY BRIEF IN SUPPORT OF SAFECO INSURANCE COMPANY DEFENDANT SAFECO DWDNAINI KF OF AMERICA, a New Hampshire INSURANCE COMPANY OF corporation; GURNEE MASON AMERICA’S MOTION TO STAY FF RUSHFORD BONOTTO & FORESTIERE LLP, a California Date: November 15, 2023 KO KF limited liability partnership; PHILLIP Time: 2:30 p.m. R. BONOTTO, an individual; TRACY | Dept.: 2 CO NO W. FRITCH-THYM, an individual; oo DOES 1-25, inclusive, Complaint Filed: September 16, 2022 KB HNO Trial Date: None Defendants. NYO ’gr NH WY HO &8 Sk HN r ON HN NN HN NO on NO -|- SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY — I. INTRODUCTION} In his Opposition Brief, plaintiff Paul Betenbaugh (“Betenbaugh”’) contends NY the Court should deny Safeco Insurance Company of America’s (“Safeco”) Motion WO to Stay, because the instant action and the Coverage Action involve different parties, ff different legal theories, and different causes of action. But that is not the correct On legal standard. DH Rather, a court may stay a state court action pending resolution of a first-filed NI federal court action when the stay will avoid duplicative litigation, preserve judicial mA resources, and eliminate the potential for inconsistent rulings, even when the issues Oo and parties are not identical. Caiafa Professional Law Corp. v. State Farm Fire & CO Casualty Co., 15 Cal.App.4th 800, 804 (1993). For the reasons stated in its Motion KK =| and below, Safeco has met that standard. NBO OS As a threshold matter, notwithstanding Betenbaugh’s characterization of his WO OF claims against Safeco, they all involve a central theme — Safeco’s alleged failure to Rh KF settle Gunderson’s claims against Betenbaugh. But that theory of liability fails in NH KF light of the federal court’s ruling that Safeco had no such duty, either under its HD FF Homeowners’ Policy or its Umbrella Policy. Once final, that ruling will negate FF DWN Betenbaugh’s claims asserted against Safeco in the state court action. HF Betenbaugh argues that the federal court only accepted some of Safeco’s HO HF arguments, and not all of them. But that is a distinction without a difference. TOD NO Regardless of the arguments that carried the day, the federal court agreed with KH NHN Safeco that it owed no indemnity or settlement coverage to Betenbaugh, and that’s NY NH "Via Fax File" what matters here to defeat Betenbaugh’s state court claims. WOW HO FP NH AW NH ' As an initial matter, Safeco agrees that the Court should determine co-defendants’ DN NH Motion to Transfer before this Motion. If the Court grants the Motion to Transfer, Safeco’s Motion to Stay should be heard and resolved by the Sacramento Superior NO ont Court. NO -2- SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY Betenbaugh also argues that Safeco’s duty to defend under its Umbrella Policy has not yet been determined in the Coverage Action. But that too is of no NY moment, because he acknowledges that Safeco defended him under its WO Homeowners’ Policy. To the extent Betenbaugh argues that Safeco is somehow ff vicariously liable for the alleged conduct of its appointed defense counsel, that Dn theory also fails under California law. In sum, a final judgment in Safeco’s favor in the Coverage Action will negate ON all (or nearly all) of Betenbaugh’s claims against Safeco in this action under the doctrine of res judicata and/or issue preclusion. Therefore, the Court should stay Oo this action pending final resolution of the Coverage Action to avoid duplicative litigation, preserve judicial resources, and eliminate the potential for inconsistent S| rulings. OES Il. LEGAL ARGUMENT FEF A. The Court May Defer Ruling on Safeco’s Motion to Stay. PF After Safeco filed its Motion to Stay, defendants Gurnee Mason Rushford KF Bonotto & Forestiere LLP, Phillip R. Bonotto, Esq., and Tracy W. Fritch-Thym, KF Esq. (the “Firm Defendants”) filed a Motion to Transfer Venue to the Sacramento KF County Superior Court. Neither Betenbaugh nor Safeco oppose the Firm KF Defendants’ motion. (Opposition, at pp. 4-5; Safeco’s Notice of Non-Opposition to KF Motion to Transfer Venue.) Ifthe Court grants the Firm Defendants’ motion, NO Safeco agrees that it can defer ruling on Safeco’s Motion to Stay to the Sacramento NO County Superior Court. NO **Via Fax File** If the Court intends to deny the Motion to Transfer, then it can proceed to rule NH on Safeco’s Motion to Stay. NH B. The Court Has the Inherent Power to Stay This Action. NO Betenbaugh does not dispute that this Court has the inherent power to stay NO this action. Rather, Betenbaugh contends that the cases cited in Safeco’s Motion to NO Stay “are not directly on point” because “they were developed under different NO a4. SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY — factual and legal settings not present here.” (Opposition, at pp. 6-8.) Safeco disagrees. NY All of the cases cited in the Motion support that a court has the discretion to WO stay an action when a first filed action addresses the same or similar issues. More fh importantly, the cited cases support Safeco’s position that the Court should stay this On action pending final resolution of the Coverage Action to avoid duplicative KH litigation, preserve judicial resources, and eliminate the potential for inconsistent mAaAnN rulings. (Motion, at pp. 11-14.) C. The Court Should Stay This Action, or At Least Betenbaugh’s Oo Claims Against Safeco, Pending Resolution of the Coverage Action. CO Betenbaugh claims that the Court should deny Safeco’s Motion to Stay K| = because: (1) this action involves Safeco’s alleged “wrongful conspiracy with the NY OES Attorney Defendants and corresponding tortious conduct related to the Underlying WW OF Action”; (2) the Coverage Action only involves Safeco’s declaratory relief claims as Bh PR to whether it had a duty to defend and indemnify Betenbaugh in the Underlying NH KF Action; and (3) the instant action involves the Firm Defendants and his legal KH KF malpractice claims against them. (Opposition, at pp. 4-6.) Each of those arguments KF HN fail, as follows: HF 1. The Federal Court’s Ruling, Once Finalized, Will Eliminate HO HF Betenbaugh’s Claims Against Safeco in this Action. CO HN Betenbaugh’s claims against Safeco in this action relate to Safeco’s alleged KH HN failure to settle the claims against him in the Underlying Action: NY WN **Via Fax File** e In his Third Cause of Action for Breach of Contract, Betenbaugh ND alleges that Safeco breached the insurance contract by: (1) “denying FF ND payment of a covered claim and disclaiming any obligation to On NH indemnify Betenbaugh”; (2) “failing to make a good faith offer of Nn NO settlement in the Underlying Action”; (3) “failing to make a reasonable NO nN Oo NO Ail SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY offer to Gunderson’; and (4) “rejecting Gundersen’s settlement demand without any basis.” (Complaint, §§ 77-81.) NY ° In his Fourth Cause of Action for Fraudulent Concealment, Betenbaugh WO alleges that “Safeco purposefully, fraudulently, and unlawfully failed to ff disclose that Betenbaugh would have to spend an unreasonable amount Dn of time (likely years on end) pleading and arguing with Safeco before Safeco will pay what Betenbaugh is legally entitled to recover under ON the insurance Policies.” (Complaint, J 84-85.) ° In his Fifth Cause of Action for Breach of the Implied Covenant of Oo Good Faith and Fair Dealing, Betenbaugh alleges that Safeco breached CO the implied covenant by: (1) “provid[ing] unreasonable and inadequate SS KF offers to settle the case”; (2) “unreasonably denying payment of a NYO OES covered claim”; and (3) “refusing to negotiate a fair settlement of WO PF Gundersen’s claims.” (Complaint, 98-100.) fh KF As discussed in Safeco’s Motion to Stay, the duty to settle only applies to HAH KF covered claims. Camelot by the Bay Condominium Owners’ Assn. v. Scottsdale Ins. KH KF Co., 27 Cal.App.4th 33, 53 (1994). The federal court has already decided that KF WAN Safeco has and had no duty to indemnify Betenbaugh in the Underlying Action HF under either the Homeowners’ Policy or the Umbrella Policy. (RIN, § 4 & Exh. D, DO HF at pp. 9-12.)? Because Safeco owed no duty to indemnify Betenbaugh in the CO KN Underlying Action, Safeco cannot be liable for failing to settle the claims against KH HN | Betenbaugh in the Underlying Action. NYO KH **Via Fax File** WH HO * Betenbaugh claims that Safeco “overstated” the federal court’s ruling on Safeco’s fh Motion for Partial Summary Judgment, because the court denied Safeco’s motion as KH to: (a) the business pursuits exclusions in the policies; and (b) whether Safeco had a nH HN duty to defend Betenbaugh under the Umbrella Policy. (Opposition, at pp. 2, 8-9.) N HN That does not matter here, because the federal court granted Safeco’s motion on other grounds that Safeco owed no duty to indemnify Betenbaugh. (RJN, 4 4 & NO oH Exh. D, at pp. 9-12.) NO -5- SMRH:4R58-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY Unable to rebut that the federal court’s ruling (once final) will negate his state court claims, Betenbaugh alleges that “Safeco committed bad faith in the handling NY of the defense” of the Underlying Action. (Opposition, at pp. 2-3.) But that claim WO will also fail in light of the federal court’s ruling that Safeco actually owed no duty fF to defend Betenbaugh under the Homeowners’ Policy. (RJN, §/ 4 & Exh. D, at pp. Hn 10-11.) HN As for the Umbrella Policy, Safeco’s alleged duty to defend Betenbaugh in mon the Underlying Action remains at issue in the Coverage Action. (Opposition, at p. 9, fn. 2; RJN, | 4 & Exh. D, at p. 11.) That issue has been pending in federal court for Oo over two years, and it will be resolved there. (RIN, 73 & Exh. C, at pp. 19-20; O&O RJN,4 4 & Exh. D, at pp. 11, 15.) S| KF But that issues does not support Betenbaugh’s opposition to the Motion to NY OES Stay. That is because he acknowledges that Safeco defended him in the Underlying WO Fr Action (and continues to defend him in the appeal) under the Homeowners’ Policy, Rh KF subject to a reservation of rights. (RJN, § 3 & Exh. C, at J] 32-35; RIN, | 4 & Exh. a HF D, at p. 4.) Safeco did so under California law, which allows an insurer to accept KH HF the insured’s defense under a reservation of rights and then seek a judicial WDHNH KF determination of its rights and obligations under the policies. Great American Ins. HH Co. v. Sup. Ct. (Angeles Chem. Co., Inc.), 178 Cal.App.4th 221, 225 (2009) (when §— HO an insurer defending its insured under reservation of rights believes there is no OO HN coverage, it may bring an action to obtain a judicial determination that it need no KH HO longer do so). NYO KH **Via Fax File** So, even if Safeco owes a duty to defend under the Umbrella Policy, it would NH RW not trigger unless and until the Homeowners’ Policy is exhausted. See e.g. Diamond HO Heights Homeowners Ass’n v. Nat’l American Ins. Co., 227 Cal.App.3d 563, 577 HN NN (1991) (absent contract language to the contrary, excess insurer has no duty to NH participate in defense until primary insurance exhausted). NH CoN NO hes SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY Finally, to the extent Betenbaugh seeks to hold Safeco vicariously liable for the alleged malpractice of his defense counsel, California law expressly rejects such NY claims. An insurer has neither the power nor ability to control the details of the WO performance of its appointed lawyer’s work and therefore is not responsible for the fh results. Merritt v. Reserve Ins. Co., 34 Cal.App.3d 858, 880-882 (1973) (because an Hn insurance carrier is not authorized to practice law and therefore must delegate the HD defense to trial counsel, any remedy is “found in an action against counsel for AN malpractice and not in a suit against counsel’s employer to impose vicarious liability”). Rather, Safeco’s obligations to Betenbaugh arise from its duties under Oo the Policies. Jd. at 882. And the federal court has already ruled that Safeco has no O&O he duty to defend Betenbaugh in the Underlying Action under the Homeowners’ KS KF Policy, and no duty to indemnify Betenbaugh under the Homeowners’ Policy or the FEF NY Umbrella Policy. (RIN, J 4 & Exh. D, at pp. 9-12.) WO Fr Thus, whether Betenbaugh bases his claims against Safeco on theories of fF KP breach of contract, bad faith, conspiracy, or fraud, a final judgment in Safeco’s favor Hn KF in the Coverage Action will negate Betenbaugh’s claims against Safeco in this KD KF action under the doctrine of res judicata and/or issue preclusion. DKN Holdings WBN KF LLC v. Faerber, 61 Cal.4th 813, 824 (2015) (“Issue preclusion prohibits the KF relitigation of issues argued and decided in a previous case, even if the second suit KF OO raises different causes of action.”’). HN 2. The Court Has the Discretion to Stay Betenbaugh’s Claims KH HO Against Safeco, Even if it Allows Him to Proceed Against the NY NH **Via Fax File** Firm Defendants. WO NH Contrary to Betenbaugh’s arguments, a stay is proper even when the issues BP HO and parties before the related proceedings are not identical. Landis v. N. Am. Co., nH HN 299 US. 248, 254-55 (1936) (to stay a proceeding pending resolution of a related Nn NH action, the parties to the two cases need not be the same); Leyva v. Certified Grocers T NO of California, 593 F.2d 857, 863 (9th Cir. 1979) (holding that a trial court may stay Co NO 7. SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY an action pending resolution of proceedings in another case even when the issues involved in the other case are not controlling of the action before the court). NY Therefore, the Court has discretion to stay this entire action pending resolution of WO the Coverage Action. And if it does so, Betenbaugh can pursue his claims against ff the Firm Defendants when the Court lifts the stay of this action. nH Alternatively, the Court has the inherent power to sever Betenbaugh’s claims DB in this action so that Betenbaugh can pursue his claims against the Firm Defendants NT while the claims against Safeco are stayed. Landis, supra, 299 U.S. at 254-55; OA Briggs v. Brown, 3 Cal.5th 808, 852 (2017); Cal. Civ. Proc. Code § 128. Oo Ill, CONCLUSION CO Therefore, Safeco respectfully asks this Court to grant its Motion and stay this S| KF action, or at least the claims against Safeco, pending final resolution of the Coverage EF NY Action. WO SF BR HF Dated: November 7, 2023 vA KF SHEPPARD, MULLIN, RICHTER & HAMPTON LLP KH FF KF WH By: /s/ Robert A. Sanders KF FRANK FALZETTA ODO FS JEFFREY S. CROWE ROBERT A. SANDERS CO NHN Attorneys for Defendant KH NH SAFECO INSURANCE COMPANY OF AMERICA NYO NH **Via Fax File** WY KH BR HN MH HN DWN bt WH on NO -8- SMRH:4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES NYO At the time of service, I was over 18 years of age and not a party to this WW action. I am employed in the County of Los eae State of California. M ce address is 333 South Hope Street, 43rd Floor, Los Angeles, CA 90071- fh UA On November 7, 2023, I served true copies of the following document(s) described as REPLY BRIEF IN SUPPORT OF DEFENDANT SAFECO HD INSURANCE COMPANY OF AMERICA’S MOTION TO STAY on the interested parties in this action as follows: ON Ognian A. Gavrilov, Esq. Attorneys for Plaintiff Michael Coleman, Esq. PAUL BETENBAUGH Oo Alexandra Darling, Esq. GAVRILOV & BROO S 2315 Capital Avenue CO he Sacramento, CA 95816 Telephone: (916) 504-0529 S| K—§ Facsimile: (916) 727-6877 EMAIL: Ognian@gavrilovlaw.com NY OES WO PF Daniel V. Kohls, Esq. Attorneys for Defendants Leighton B. Koberlein, Esq. GURNEE MASON fh PF HANSEN, KOHLS, SOMMER & JACOB, LLP RUSHFORD BONOTTO & 1520 Eureka Road, Suite 100 FORESTIERE LLP; PHILLIP A KF Roseville, California 95661 R. BONOTTO; and TRACY Telephone: (916) 781-2550 W. FRITCH-THYM KH HF Facsimile: (916) 781-5339 EMAIL: dkohls@hansenkohls.com KF WON EMAIL: Ibkoberlein@hansenkohls.com HF BY E-MAIL OR ELECTRONIC TRANSMISSION: I caused a copy of UO KH the document(s) to be sent from e-mail address vcastro@sheppardmullin.com to the persons at the e-mail addresses listed in the Service List. I did not receive, within a CO HN reasonable time after the transmission, any electronic message or other indication that the transmission was unsuccessful. KH HN I declare under penalty of perjury under the laws of the State of California NY HY that the foregoing is true and correct. **Via Fax File** WO NY Executed on November 7, 2023, at Los Angeles, California. Rh NH OW HO /s/ Vicki Castro HN Vicki Castro HN NO CoN NO -9- SMRH-4858-1071-0413.4 REPLY BRIEF IN SUPPORT OF SAFECO’S MOTION TO STAY