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GEICO Indemnity Co. v. Smith

United States District Court, D. Arizona

October 4, 2016

GEICO Indemnity Company, Plaintiff,
v.
Darinda Kay Smith, et al., Defendants. Hillary Rider, et al ., Counterclaimants
v.
GEICO Indemnity Company, Counterdefendant

          ORDER AND OPINION [RE: MOTIONS AT DOCKETS 79 AND 85]

          JOHN W. SEDWICK SENIOR JUDGE

         I. MOTIONS PRESENTED

         At docket 79 plaintiff and counterdefendant GEICO Indemnity Company (“GEICO”) moves for partial summary judgment pursuant to Rule 56, supported by a separate statement of facts at docket 80. Defendants Darinda Kay Smith, Barry T. Webb, Hillary Rider, Amber Davis, and Nathan Davis (collectively, “Defendants”) oppose at docket 83, supported at docket 84 by a separate statement of facts and response to GEICO's separate statement of facts. GEICO replies at docket 91, supported by a supplemental statement of facts and objections to Defendants' separate statement of facts.[1]

         At docket 85 counterclaimants Hillary Rider and Barry T. Webb (collectively, “Rider”) move for partial summary judgment pursuant to Rule 56, supported by a separate statement of facts at docket 86. GEICO opposes at docket 93, supported by a controverting statement of facts and separate statement of facts at docket 94. Rider replies at docket 98, supported by a response to GEICO's separate statement of facts at docket 99.[2]

         Oral argument was heard on October 3, 2016.

         II. BACKGROUND

         This case arises from the tragic December 6, 2010 automobile collision between Darinda Kay Smith (“Smith”) and Garret Rider-Webb. Mr. Rider-Webb was killed in the collision, and Smith suffered a traumatic brain injury that rendered her incapable of remembering the accident or anything that happened before 2010.[3]

         Smith was driving a Cadillac Escalade that was formerly owned by her daughter Amber Davis (“Davis”) and Davis' then-husband Nathan Davis. The parties agree that Smith acquired ownership of the Escalade before the accident, but the date of the acquisition is disputed. The Escalade was still listed on the Davises' Farmers Insurance Company (“Farmers”) automobile policy, and Smith was listed as an insured driver.

         At the time of the accident Smith was also covered by an automobile insurance policy written by GEICO. The only vehicle listed in the GEICO policy is a 2006 Chevrolet Silverado 1500, and Smith's son Brandon is listed as an additional driver.[4]The policy has a $20, 000 per person bodily injury liability limit. Smith submitted to GEICO a claim for coverage in January 2011.[5] GECIO denied Smith's claim because the Escalade was “available and furnished for the regular use of [Smith] and it was not listed on the policy.”[6]

         Barry T. Webb and Hillary Rider are the deceased's parents. In September 2011 Rider made a settlement offer to both GEICO and Farmers, stating that she would settle all claims against Smith for the limits of both policies, provided that Smith confirmed that she lacked other insurance or “appreciable assets.”[7] Farmers agreed to pay the policy limits, [8] but GEICO rejected Rider's offer, stating that the loss was not covered under Smith's policy.[9]

         In December 2011 Rider sued Smith and the Davises for wrongful death and negligent entrustment.[10] In a letter dated May 3, 2012, Smith made a policy limits demand to GEICO.[11] She provided GEICO with a draft “Damron agreement”[12] between Smith, the Davises, and Rider under which Smith and the Davises would (1) stipulate to a $2 million judgment in Rider's favor; (2) assign any claims they had against GEICO to Rider; and (3) receive a covenant that Rider would not execute the judgment against them.[13] Smith informed GEICO that if GEICO did not pay the policy limit “to fully protect” Smith, then Smith, the Davises, and Rider would sign the agreement.[14] This demand obviously implies that if GEICO did pay the policy limit, Rider would dismiss her case against Smith and the Davises. Rider's counsel states that Rider never authorized Smith to make this settlement offer on her behalf.[15]

         On Smith's deadline GEICO informed Rider that it would pay her the policy limits.[16] It is unclear whether Rider ever responded to GEICO herself, but on May 18 Smith's counsel informed GEICO that Rider would not accept GEICO's policy limits offer and instead would seek the full amount of any judgment.[17]

         In June 2012 GEICO filed the instant action for a declaratory judgment that coverage does not exist.[18] In August, Smith, the Davises, and Rider executed the Damron agreement.[19] Rider then filed her counterclaim against GEICO, alleging that GEICO breached the insurance contract and the covenant of good faith and fair dealing.[20]

         GEICO's motion at docket 79 seeks summary judgment on its declaratory relief claim and on Rider's breach-of-contract claim.[21] Rider's motion at docket 85 seeks partial summary judgment on her claim that GEICO is liable for the excess judgment.[22]

         III. STANDARD OF REVIEW

         Rule 56(a) authorizes motions for partial summary judgment upon any part of a claim or defense. Summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[23] The materiality requirement ensures that “only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.”[24] Ultimately, “summary judgment will not lie if the . . . evidence is such that a reasonable jury could return a verdict for the nonmoving party.”[25] However, summary judgment is appropriate “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.”[26]

         The moving party has the burden of showing that there is no genuine dispute as to any material fact.[27] Where the nonmoving party will bear the burden of proof at trial on a dispositive issue, the moving party need not present evidence to show that summary judgment is warranted; it need only point out the lack of any genuine dispute as to material fact.[28] Once the moving party has met this burden, the nonmoving party must set forth evidence of specific facts showing the existence of a genuine issue for trial.[29] All evidence presented by the non-movant must be believed for purposes of summary judgment and all justifiable inferences must be drawn in favor of the non-movant.[30] However, the non-moving party may not rest upon mere allegations or denials, but must show that there is sufficient evidence supporting the claimed factual dispute to require a fact-finder to resolve the parties' differing versions of the truth at trial.[31]

         IV. DISCUSSION

         A. Whether the Escalade Was Covered Under GEICO's Policy

         GEICO seeks partial summary judgment that it did not breach the insurance contract by denying Smith's claim. It contends that Defendants cannot meet their burden of proving that the Escalade was covered.[32] Defendants respond by arguing that the Escalade was covered under either the newly-acquired or replacement-vehicle clauses of the policy.

         1. The newly-acquired-vehicle clause

         Smith's policy provides that a newly-acquired vehicle is covered if the insured acquires ownership of it during the policy period, GEICO insures all other vehicles owned by the insured, and the insured asks GEICO to add the new vehicle to the policy within 30 days of acquisition.[33] GEICO argues that Defendants cannot establish that this clause applies because they cannot show that Smith acquired the Escalade on or after November 6, 2010-i.e., 30 days before the collision. Defendants respond that the policy's reference to “acquiring ownership” is ambiguous and should be construed in their favor as meaning “obtaining title or some tangible evidence of ownership.”[34] Under this interpretation, Smith acquired the Escalade on November 18, 2010-the day Nathan Davis signed the title over to Smith.[35]

         Defendants' argument is inconsistent with Arizona law. In Yahnke v. State Farm Fire & Cas. Co., the Arizona Court of Appeals considered a similar newly-acquired-vehicle clause.[36] The court held that, under the plain meaning of the policy and construing the policy against its issuer, the date of acquisition refers to the date on which the owner had “full use and dominion over the vehicle, ” meaning “complete ownership or a right to the property.”[37] This date is not necessarily the date the insured obtained physical possession of the vehicle or the date title was transferred from the previous owner. To determine the date of acquisition, the court looks to the parties' intent.[38]

         Davis testified that she gifted Smith ownership of the Escalade without any expectation of payment.[39] She also testified that once Smith took possession of the Escalade and drove it from Davis' home in Colorado to her home in Arizona, she had exclusive custody and control of it, [40] and Davis no longer retained any interest in the vehicle.[41] Because Smith had full use and dominion over the Escalade at delivery, the date of delivery controls. The date the pink slip was executed does not control because Davis delivered the pink slip to Smith merely to complete the change in ownership.[42]

         Defendants point to the following evidence that tends to show that Smith took possession of the Escalade after November 6, 2010:

• Davis testified that Smith took possession of the Escalade “shortly before her accident.” Davis could not remember the exact date but said she knew it “was sometime before Thanksgiving.”[43]
• The signed pink slip, which is dated November 18.[44] Davis testified that, before Smith made any payments to Davis for the Escalade, Davis obtained the Escalade's title and mailed it to Smith.[45] She also testified that before the title was transferred to Smith the Escalade was in Colorado.[46]
• Smith wrote Davis an undated check for $300 with what appears to be “Ins.” written on the memo line, which Davis deposited into her bank account on November 17, 2010.[47] Smith did not write any checks to Davis in September or October, 2010.[48] Defendants argue that this suggests that the $300 check was one of the payments that Smith said she was going to make to Davis once she received the Escalade.[49]
• Davis testified that Smith and her son Brandon were supposed to have had an arrangement whereby Brandon would own the Silverado once Smith took possession of the Escalade.[50] Smith wrote checks to pay down her loan on the Silverado that are dated January 5, February 8, February 28, April 9, August 10, and October 27, 2010.[51] These checks either list her account number or the word “truck” on the memo line. Her check dated November 30, 2010, however, arguably has “Brand. Truck” written on the memo line, [52] suggesting that at that time that Brandon had acquired ownership of the Silverado and Smith was in possession of the Escalade.
• Call logs from a cell phone that may have been Smith's show that no calls were made between 1:31 pm on November 28 and 7:03 am on November 29, 2010.[53] Davis states that Smith “regularly drove at night when returning to Arizona from Colorado, usually leaving around 5 or 6 pm.”[54]
• Smith's bank records show three transactions dated Tuesday, November 30, 2010: two occurred in Show Low, Arizona, but the other occurred in Greeley, Colorado.[55]

         Defendants' evidence is sufficient to create a triable issue of material fact. The only party to the transaction with any memory of the events is Davis.[56] If the court draws the all justifiable inferences in Defendants' favor, Davis' testimony tends to show that the Escalade was in Colorado before the title was transferred to Smith, and the title document shows that title was transferred to Smith on or after November 18. This evidence is sufficient to allow a jury to reasonably conclude that it is more likely than not that delivery occurred on or after November 6. Questions of material fact preclude summary judgment in GEICO's favor.

         2. The replacement-vehicle clause

         Smith's policy also covers an automobile acquired during the policy period that replaces the vehicle described in the policy.[57] Courts interpreting similar “replacement-vehicle” clauses have held that such vehicles are those that “replace the car described in the policy, which must be disposed of or be incapable of further service at the time of replacement.”[58] “An owner acquiring a new car may decide that it will be used by another member of the family, that it will be used only for special purposes (such as long distance trips or camping), that it will immediately replace a presently owned car or . . . that it will eventually replace a presently owned car.”[59] To determine whether the new vehicle is a replacement, courts look to the owner's intent.[60]

         GEICO argues that Defendants lack evidence that Smith intended to replace her Silverado with the Escalade. In response, Defendants point to the following evidence:

• Davis' testimony that after Smith obtained the Escalade she was supposed to have transferred ownership of the Silverado to her son Brandon.[61]
• Smith's loan payment check for the Silverado dated November 30, 2010, which appears to have “Brand. Truck” written on the memo line.[62]

         This evidence is sufficient to permit a jury to reasonably conclude that Smith replaced her Silverado with the Escalade and disposed of the Silverado by transferring it to her son. Questions of material fact preclude summary judgment in GEICO's favor.

         B. Whether GEICO May Be Liable for the Excess Judgment

         Rider's cross-motion seeks partial summary judgment on her claim that GEICO may be found liable for the full amount of Smith's damages, not just the $20, 000 policy limit, because GEICO rejected a reasonable settlement offer. Implied in every insurance contract is a covenant of good faith and fair dealing that imposes on the insurer a duty to, among other things, give equal consideration to its insured's interests and to settle within policy limits where appropriate.[63] In deciding whether to accept a settlement offer the insurer must consider the insured's exposure to liability in excess of policy limits. An insurer that refuses to properly consider a reasonable settlement offer within the policy limits “will be liable to its insured for any judgment subsequently entered against the insured in excess of policy limits, [u]nless the insurer shows that an application of the equality-of-consideration test would not have required acceptance of the settlement offer.”[64] This is because the insurer's choice to reject the settlement offer was a proximate cause of the excess judgment.[65]

         It is undisputed that GEICO rejected Rider's September 2011 offer to settle her claims within the policy limit. Thus, at first blush, it would appear that GEICO is exposed to excess judgment liability. In Acosta v. Phoenix Indem. Ins. Co., the injured plaintiff's attorney made an offer to settle for the policy limit that the insurer rejected before the tortfeasor filed a bankruptcy petition.[66] After the bankruptcy discharge, the insurer conceded coverage and offered to pay the policy limit, but this time the plaintiff refused to settle.[67] The Arizona Court of Appeals held that the insurer was exposed to potential liability for the excess judgment based on its rejection of the pre-bankruptcy settlement offer without regard to the fact that the insurer later reversed course and attempted to settle.[68]

         GEICO raises two arguments for why it cannot be held liable for the excess judgment: (1) it reached a settlement agreement with Rider in 2012; and (2) equitable estoppel.

         1. The 2012 settlement offer

         GEICO argues that it cannot be held liable for the excess judgment because it agreed to Smith's May 2012 settlement offer. In that correspondence Smith's lawyer informed GEICO that Smith and Rider had negotiated a Damron agreement. The draft Damron agreement attached to Smith's settlement offer, which Smith's counsel represented that Rider was willing to sign, states that Smith gave GEICO “the opportunity to reconsider its refusal to indemnify.”[69] The draft is silent regarding the amount GEICO ...


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