Film Allman, LLC v. New York Marine and General Insurance Company, 2:14-cv-07069

Background

Film Allman insured by New York Marine under three policies: CGL ($1M), Umbrella ($4M), and WC/employers-liability. A deadly train-accident on set gave rise to multiple lawsuits, including the Jones wrongful-death action.
New York Marine defended and ultimately settled the Jones action for $6.5M, paying $5M (the $1M CGL limit + $4M umbrella); Rayonier contributed $1.5M.
Payment of the Jones settlement exhausted the CGL and Umbrella limits; New York Marine then declined to continue defending Film Allman in remaining suits.
Film Allman sued for breach of contract (CGL and WC policies), breach of the implied covenant of good faith and fair dealing (both policies), and declaratory relief; New York Marine moved for summary judgment.
Court concluded (1) insurer properly exhausted coverage and could settle within limits; (2) WC policy did not require defense because workers’ compensation benefits were not owed by Film Allman; (3) no bad-faith claim; and (4) declaratory relief failed without underlying claims.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether New York Marine breached the CGL policy by stopping defense after settling Jones	New York Marine failed to explain coverage status, didn’t reserve rights, and should have continued defending or provided independent counsel	NY Marine had contractual right to defend and to settle within policy limits; duty to defend can terminate upon exhaustion of limits	No breach: duty extinguished when limits were exhausted by settlement; summary judgment for NY Marine
Whether NY Marine breached the WC policy by refusing to defend remaining suits	WC policy should cover defense after CGL exhaustion; Part 2 ‘gap’ coverage applies	Part 1 only covers statutorily required workers’ comp benefits (not civil defense); injured parties filed WC claims against the payroll company, so Film Allman never owed WC benefits; Part 2 inapplicable	No breach: WC policy does not require defense here; summary judgment for NY Marine
Whether NY Marine breached implied covenant of good faith and fair dealing	Insurer acted unreasonably in terminating defense and in settlement handling	No contractual breach occurred; insurer’s conduct objectively reasonable in settling and exhausting limits	No bad-faith: covenant claim fails when contract claim fails; summary judgment for NY Marine
Whether declaratory relief claim stands alone	Seeks declaration of coverage obligations	Relief dependent on underlying contract/bad-faith claims	Dismissed: declaratory claim cannot stand without substantive cause of action; summary judgment for NY Marine
Whether Court should reconsider earlier partial summary judgment (based on alleged new FBI investigation)	FBI probe undermines prior finding that criminal trespass supported exclusion; new facts warrant reconsideration	Movant offers only hearsay/rumor and reargues prior points; no new material facts or law	Denied: motion for reconsideration disfavored; no new material facts shown

Key Cases Cited

Montrose Chemical Corp. v. Superior Court, 6 Cal.4th 287 (1993) (insurer’s duty to defend arises on tender of potentially covered claim)
Buss v. Superior Court, 16 Cal.4th 35 (1997) (duty to defend may be extinguished when coverage cannot be found or limits are exhausted under settlement)
Murphy v. Allstate Ins. Co., 17 Cal.3d 937 (1976) (insurer may be liable for bad faith if it fails to settle within policy limits and exposes insured to excess judgment)
La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co., 9 Cal.4th 27 (1994) (workers’ compensation coverage language confines Part 1 to statutorily required WC benefits, not civil defense)
Seltzer v. Barnes, 182 Cal.App.4th 953 (2010) (insurer can pay policy limits to resolve covered claims)
Scott v. Harris, 550 U.S. 372 (2007) (summary judgment standard and construing facts favoring nonmovant)
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (standard for genuine dispute of material fact on summary judgment)
Addisu v. Fred Meyer, 198 F.3d 1130 (9th Cir. 1999) (conclusory testimony insufficient to create genuine issue of material fact)