SCOTTSDALE INSURANCE COMPANY v. PTB SALES, INC./July 16, 2020/Excerpts by Junfola


  1. No duty to defend
  2. Reservation of rights to seek reimbursement of defense and indemnity expenses
  3. California Civil Code Section 2860 – no duty to provide independent counsel
  4. No interference by Scottsdale in PTB’s counterclaim in underlying action


  • PTB purchased CGL policy from Scottsdale in 2016.
  • In 2017, Scottsdale funded PTB’s defense in action between PTB and Brooks.
  • Scottsdale contributed to settlement.
  • Scottsdale sued PTB seeking declaratory relief and reimbursement of defense costs and settlement expenses.
  • PTB countered for breach of contract and bad faith.
  • Scottsdale moved for summary judgment on its claims and on PTB’s counterclaims.
  • PTB opposed Scottsdale’s motion but did not itself move for summary judgment.
  • District court granted Scottsdale’s motion.
  • PTB appeals.
  • Affirmed/not for publication


  • Scottsdale had no duty to defend PTB.
    • Underlying allegations either not potentially covered under the personal and advertising injury coverage, or were excluded.
    • Duty to defend when there is a potential for coverage.
    • PTB failed to show a potential for coverage.
  • Scottsdale properly reserved its rights to recoup its defense costs and settlement expenses.
    • An insurer “properly reserve[s] its rights” to recoup its defense costs by advising its insured that it would provide a defense under a reservation of certain rights, including “[t]he right to seek reimbursement of defense fees paid toward defending causes of action which raise no potential for coverage.”
    • It repeated that reservation of rights in three subsequent communications with PTB.
    • To recoup its settlement expenses, an insurer must make “a timely and express reservation of rights.”
    • After an unsuccessful attempt to settle during the first mediation, Scottsdale sent PTB a letter reserving “the right to seek reimbursement for any judgment or settlement paid.”
    • During the second round of settlement negotiations, Scottsdale twice offered to “contribute $300,000 toward settlement of this matter, subject to its reservation of rights,” in response to Brooks’ $850,000 settlement demand.
    • Brooks then reduced its demand to $725,000 and Scottsdale increased its settlement offer to $350,000.
    • A reasonable party in PTB’s position would have understood Scottsdale’s reservation of the right to seek reimbursement for “any settlement” to apply to its offer to contribute $350,000, as both were made during the second attempt at settlement negotiations.
  • Scottsdale did not breach a duty to fund independent counsel for PTB under California Civil Code § 2860.
    • Under Section 2860, an insurer must provide independent counsel to the insured “[i]f the provisions of a policy of insurance impose a duty to defend upon an insurer and a conflict of interest arises.”
    • District court properly concluded that this claim failed as a matter of law because Scottsdale owed no duty to defend.
    • There was no conflict of interest, which arises “when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim.”
    • Coverage depended simply on a comparison of the allegations in Complaint against the terms of the Policy. In this case, that is a solely legal issue, and the provisions of the Complaint and the Policy are fixed and not susceptible to manipulation by appointed counsel.
  • District court did not err in granting summary judgment in Scottsdale’s favor on PTB’s counterclaim for bad faith interference with the prosecution of PTB’s counterclaims against Brooks.
    • PTB voluntarily settled its counterclaims against Brooks in exchange for $250,000.
    • PTB entered into the settlement agreement with notice that Scottsdale had reserved its rights to recoup any settlement expenses, yet PTB asked Scottsdale to fund the settlement, which it did.
    • There is simply no evidence that Scottsdale interfered with PTB’s successful and self-initiated effort to settle its claims against Brooks for $250,000.
    • The district court properly granted Scottsdale’s motion for summary judgment on PTB’s counterclaims against Scottsdale.

South Carolina Supreme Court Ex Parte: Builders Mutual and Nationwide Mutual, Appellants In Re: Palmetto Pointe v. Island Pointe/May 13, 2020 Excerpts/Summary by Junfola


  • Insurers not entitled to intervene in construction defect trial as a matter of right.
  • In subsequent DJ, Insurers have right to determination of which portions of damages are covered under CGL policies between the Insurers and Insureds.      


  • Insurers provided independent counsel to defend subject to ROR.
  • At end of discovery, Insurers motioned to intervene for limited purpose of participating in preparation of a special verdict form or a general verdict form accompanied by answers to interrogatories for submission to jury during trial.
  • Insurers hoped jury would determine which portions of the damages were covered, obviating need for the DJ.
  • Trial court denied motions; Insurers’ appeal was certified.


  • Decision to grant or deny within discretion of the trial court.
  • Court will not disturb decision absent manifest abuse of discretion that results in error of law amounting to a deprivation of rights of the party.
  • Entity seeking intervention must:

(1) Timely application;

(2) assert an (real, material, substantial) interest;

(3) demonstrate that without intervention, disposition of the action may impair or impede ability to protect that interest;

(4) demonstrate that its interest is inadequately represented by other parties.

  • Insurers are not “real parties in interest” cannot satisfy the four-part test and have not met the requirements to intervene as a matter of right.
  • Insurers’ intervention would (1) unnecessarily complicate the action, including altering the Association’s burden of proof and possibly delaying the trial, and (2) create a conflict of interest for the Insureds’ counsel, who were supplied to them by the Insurers.
  • It was not the intent in Newman to categorically foreclose a subsequent DJ to resolve a coverage dispute.  To the extent Newman may be read to foreclose an insurer’s subsequent DJ to resolve the coverage dispute, we modify Newman accordingly.
  • Harleysville neither mandates intervention nor forecloses a DJ to resolve a coverage dispute.
  • The parties offer varying approaches on the specifics of how a subsequent DJ should be tried. 
  • A significant point of contention is the Insurers’ concern that any coverage decisions in the DJs will be bound by factual determinations made in the construction defect action.


  • Insureds and the Insurers are not precluded from introducing evidence as to which damages are covered (or excluded from coverage).
  • The parties are bound by the jury verdict.
  • We reject the notion that, in a DJ, it is “improper and purely speculative” to allocate a general verdict into covered and non-covered damages.
  • We do not oppose the parties coming to an agreement on a framework for allocating damages, subject to the approval of the court.
  • Failing an agreement of the parties, we set forth a default approach that shall serve as the framework for use in DJs for allocating covered and non-covered damages. 
  • This default allows litigants in a DJ to use percentages, rather than exact dollar amounts, to determine the amount of covered and non-covered damages in a general verdict.
  • The primary source of evidence in the DJ should be the transcript of the merits hearing. 
  • In the discretion of the court, additional evidence may be presented that is relevant to the coverage dispute determination, such as expert testimony.
  • The additional evidence, if any, must be narrowly tailored to the coverage dispute question, as the transcript of the merits hearing will be the primary source of evidence. 
  • The trier of fact shall then make a determination allocating on a percentage basis what portion of the underlying verdict constitutes covered damages and what portion constitutes non-covered damages. 
  • Perfect precision in allocating damages is not always achievable. 
  • Where perfect precision is not achievable, a fair approximation must suffice. 
  • Our research persuades us that the percentage-based approach will best achieve a fair allocation of damages.

Fortitude/American Resistance in the Era of Outrage by Dan Crenshaw Grand Central Publishing, Kindle Edition

Releasing a book during a pandemic probably is not the ideal time to do so. But maybe now is exactly the right time for Dan Crenshaw’s Fortitude/American Resistance in the Era of Outrage. 

It’s about personal responsibility, self-discipline, and self-reliance. In a nutshell, it’s about mental toughness, something that, arguably, is in short supply these days and that is critically needed to counter the “self-pity, indulgence, outrage, and resentment” that characterizes much of our present culture.

I’ve read a number of books on self-improvement during my lifetime, too many of which were pop psychology babble, and I’ve learned that the dispenser of advice on how to improve oneself better have the bona fides to do so. Fortitude is the best book I’ve read, hands down, on self-improvement.

Crenshaw is 36 years old. It’s legitimate to question whether a such a young guy has the bona fides worthy of one’s attention.  One might think that the magical confluence of experience and education producing wisdom would occur much later in life. Crenshaw has what it takes.

A Navy SEAL Lieutenant Commander and now Congressman from Texas, Crenshaw is the epitome of mental toughness.  While in Afghanistan in 2012 he was wounded, lost his right eye and came perilously close to losing vision in his left.  He went on to earn a Master of Public Administration from Harvard’s Kennedy School of Government and was subsequently elected to Congress in November 2018.

His book is the antidote to toxic outrage, a pervasive weakness in our culture that is “the muting of rational thinking and the triumph of emotion.”  Crenshaw doesn’t pull any punches, as if you would expect something different from a SEAL.  The culture of outrage is something to overcome and this requires one to be mentally tough.

What is this outrage? “What used to be rare instances of political correctness, microaggressions, and irrational anger have metastasized into the outrage culture we see today—characterized not just by outrage and political correctness but also by identity politics and an increasingly polarizing media and digital environment.” It is “petty, weak-minded” and, ultimately, disempowering.  It breeds a dependence on government to take care of us, to alleviate our pain.

The media is complicit. Outrage is a poisonous hypersensitivity “cheered on by our media and opinion journalists who thrive on drama, conflict, and strife. Knowing that the most salacious headlines will get the most clicks, journalists are all too happy to oblige.”

The responsibility to change this and improve lies squarely on you. “If you’re losing your cool, you are losing. If you are triggered, it is because you allowed someone else to dictate your emotional state. If you are outraged, it is because you lack discipline and self-control. These are personal defeats, not the fault of anyone else. And each defeat shapes who you are as a person, and in the collective sense, who we are as a people.”

I highly recommend this book.

Don’t Let a Good Crisis Go To Waste

This is truly a watershed moment in our history.

Things suck (technical term meaning that things suck).

(Totally unrelated: it’s May 9, 2020.  I am in beautiful Cape May, NJ.  It is windy as hell and cold.  Took a drive this morning.  A sunny day with some clouds. I marveled at some of the walkers wearing winter coats.  Then I turned on my favorite Christmas music, sat by my fake fireplace, and am about to grab an Irish Coffee. Later today I plan to listen to In-A-Gadda-Da-Vida while painting. Helps with the sanity thing.)

I am looking forward to the countless books, articles, white papers, etc. that are/will be written about this pandemic.  Sociology, psychology, law, in particular constitutional law, science, medicine, politics and government, philosophy, religion, business, insurance (insurtech is fascinating), management and leadership principles, economics…what an opportunity to learn and grow.

Saw an article on LinkedIn about micromanagement and trust. It has always been a problem; now it’s front and center in terms of remote working.

I heard yesterday that some businesses in Florida filed suit against the SBA and how it is implementing the CARES Act.  I’m not a lawyer but I think this falls under the umbrella of the administrative state and the powers it has to implement laws enacted by Congress and signed by the President.  Setting procedures to implement a law and facilitate the intent of Congress and, ultimately, we the people is one thing.  At what point, however, does the administrative state cross that line where substantive changes are made by a government agency that is in contravention of the law?

I really hope that we have a comprehensive after-action review of our elected officials’ response to this pandemic that includes a thoughtful review of how these actions impacted all of society.

Let’s not waste this crisis.

501 EAST 51ST STREET, LONG-BEACH-10 LLC, Plaintiff and Appellant v. KOOKMIN BEST INSURANCE CO., LTD., et al., Defendants and Respondents. Filed 4/2/20; Certified for Publication 4/16/20 IN THE COURT OF APPEAL OF THE STATE OF CA SECOND APPELLATE DISTRICT Excerpts/Concepts by Junfola 4/17/20


  • Breach of covenant of good faith and fair dealing, aka bad faith
  • Efficient proximate cause
  • Genuine dispute doctrine


  • Defendants denied plaintiff’s claim for damages to its apartment complex caused by a ruptured underground water main.
  • Experts hired by plaintiff and defendants provided conflicting reports on the cause of the damage.
  • Plaintiff sued for bad faith, breach of contract, etc.
  • Defendants argued: “genuine dispute doctrine” provided a complete defense to a finding of bad faith. Denial was based on expert opinions that the damage was caused by long-term settlement and earth movement, which was not a covered loss.
  • Plaintiff appeals judgment following summary adjudication of plaintiff’s claim for breach of the covenant of good faith and fair dealing in favor of defendants.
  • Ruling: there is no material dispute whether defendants denied the claim in good faith based on an expert report concluding the damage was not caused by the broken water main, and affirm the judgment.