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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

CITIZENS OF HUMANITY, LLC et al v. WESTCHESTER SURPLUS LINES INSURANCE COMPANY

ATTENTION: It is possible that this information may no longer be current and therefore may be inaccurate. The index contains both open and closed cases and is not a complete list of cases in which an ACE Insurance Group company is involved. This information is provided to give interested persons an idea of the issues disputed in the indexed cases. For a full understanding of a case, one should read the rest of the court file, including the response. For the most up-to-date and complete information on a case, visit www.pacer.gov or contact the clerk of the relevant court.

Case Number: 
2:15-cv-02278 Search Pacer
Opposing Party: 
Citizens of Humanity, LLC
Court Type: 
Federal
US District Court: 
Central District of California
Date Filed: 
Mar 26 2015

Plaintiffs Citizens of Humanity, LLC, and CM Laundry, LLC, (collectively, the “COH
Insureds”) complain of defendants and allege as follows:

NATURE OF THE ACTION

1. The COH Insureds bring this lawsuit to enforce their rights under a Private Company
Management Indemnity Package insurance policy sold by Westchester Surplus Lines Insurance
Company ("Westchester”) to COH Holding Company, LLC, CM Laundry seeks coverage under the
Policy for thefts of millions of dollars committed through various schemes by a former employee
and several former vendors of CM Laundry. The COH Insureds also seek coverage for crosscomplaints
filed in a lawsuit entitled CM Laundry, LLC v. Rodriguez, Los Angeles Superior Court
Case No. BC526909 (consolidated cases: BC538402 and BC526910) (the “Rodriguez Lawsuit”).
1 2. Despite having CM Laundry’s claim for coverage for employee thefts for one and
2 one-half years and admitting to owing CM Laundry coverage under the policy for the employee
3 thefts, Westchester has failed to pay CM Laundry for any part of its losses. Additionally, despite the
4 breadth of its promised coverage, Westchester initially wrongfully denied coverage and then, after
5 belatedly acknowledging its defense duty, still failed to pay any part of the COH Insureds’ fees and
6 costs incurred in the defense against the cross-complaints in the Rodriguez Lawsuit. Westchester
1
7 also acted unreasonably and in conscious disregard of the COH Insureds’ rights, Therefore, the
8 COH Insureds seek compensatory and punitive damages against Westchester for breach of contract
9 and breach of the covenant of good faith and fair dealing,

THE PARTIES

11 3. COH Holding Company, a Delaware company with its principal place of business in
12 California, is named as the “Parent Company” in ACE EXPRESS Private Company Management
13 Indemnity Package Policy number G2435913A (the “Policy"). COH owns 100% of Citizens of
14 Humanity, LLC, which in turn owns more than 80% of CM Laundry, LLC. Citizens of Humanity
15 has acted as Manager of CM Laundry from its inception. CM Laundry has provided laundering
16 services to apparel industry clients, and provides such services to Citizens of Humanity,
17 4. The COH Insureds are informed and believe, and on that basis allege, that Ij
18 Westchester is a Georgia corporation, has its principal place of business in Georgia, and is
19 authorized to transact, and transacts, business in the State of California and County of Los Angeles.
20 5, Westchester is part of the ACE group of insurers. According to ACE’s website, in
21 2012, “ACE Westchester’s underwriting expertise, dedicated claims handling and efficient customer
22 service ensure that customers receive sophisticated solutions to complex insurance issues.”
23 http://web.archive.org/web/20120505102000/http://www.acegroup.com/us-en/...
24 surplus-lines.aspx (visited January 20, 2015). ACE claims:
25 Litigation against a company’s management doesn’t just affect large,
public companies; it also affects private companies. Many privately
held companies may underestimate or not even recognize their need
for such coverage. We’ve made a commitment to this market by
investing in our Private Company practice and creating a modular
policy for all private companies offering Crime, Fiduciary,
Employment Practices and Directors & Officers coverage.
http://www.acegroup.com/us-en/businesses/private-company-management-inde...,
aspx (visited January 19, 2015). ACE’s website advertises and promotes a Westchester
insurance policy for private companies known as the Westchester Private Company Management
Indemnity Policy, ACE’s website states that the benefits of the Westchester Private Company
Management Indemnity Package Policy include:
• National network with local expertise: Our nine regional offices are staffed with
managers averaging 10+ years of experience and we have approximately 50
underwriting professionals dedicated to the private company practice.
• Broad coverage capabilities: Broad coverage capabilities include a package policy
that offers separate or shared limits. We will entertain even the most complex
coverages.
• Back office support: We utilize a sophisticated, state-of-the-art underwriting
platform to rate, quote, bind, and issue (online) policies, providing you with speed
and local accessibility. We also offer direct billing capabilities and a dedicated
email box for further accessibility.
• Dedicated claims staff: We have a claims staff which only handles D&O, EPL,
Fiduciary and Crime claims.
Id.
6. The COH Insureds are informed and believe, and on that basis allege, that
Westchester and the other ACE companies hold themselves out as being knowledgeable,
experienced, reliable, willing to insure, and capable of insuring against employee theft as well as
against lawsuits directed at private companies and their officers alleging wrongful acts and/or
wrongful employment practices. For example, ACE’s pamphlet on the ACE Private Company
Management Indemnity Package Policy states:
• ‘’Operating a business in today’s environment is challenging enough without
having to worry about coverage for your client’s directors and officers. Litigation
against a company’s management doesn’t just affect large, public companies; it
1 also affects private companies. Many privately held companies may
I,
2 underestimate or not even recognize their need for such coverage.
3 At ACE USA, we’ve made a commitment to this market. We’ve invested in our
4 Private Company Practice, strategically locating experienced underwriters and
5 claims staff in our regional offices across the U.S. so we can provide you with the
6 best service.” j
7 http://www.acegroup,com/us-en/assets/ace-private-company-management-inde...
8 policy.pdf (visited January 19, 2015).
9 • “We offer you some of the broadest coverage in the marketplace: |
10 • Our coverage features no restricted classes
11 • We have a broad appetite, entertaining even the most complex risks
12 • We offer separate or shared limits
13 • Our coverage can be customized and tailored to fit a client’s specific needs”
14 http://www.acegroup.com/us-en/assets/ace-private-company-management-inde...
15 policy.pdf (visited January 19,2015).
16 7. In 2012 ACE and Westchester also held themselves out as offering excellent claims
17 services to customers:
18 • “Claims play a critical role in an insurance company. Our clients buy a promise
19 from us, so when a loss occurs we strive to make a difficult situation as positive
20 as possible.”
21 http://web.archive.org/web/20120505102243/http.7/www.acegroup,com/us-
22 en/claims-information/ (visited January 20, 2015).
23 • “ACE is committed to delivering a claims experience with a consistent level of
24 service and satisfaction,” Id.
25 • “Backed by consistently high ratings from the industry’s principal rating agencies,
26 ACE is financially strong and able to meet our obligations to our customers,” Id.
27 • “ACE has a unique depth and breadth to our claims capabilities and approaches:
, . . Our team is highly experienced: Our average industry experience: 18 years of
claims handling; Our staff has specialized training and skills .,
http://web.archive.org/web/20120603103233/http://www.acegroup.corn/usen/
claims-information/more-info-the-ace-difference.aspx (visited January 20,
2015).
8. The COH Insureds are ignorant of the true names and capacities, whether individual,
associate, partnership, corporate or otherwise, of the defendants fictitiously designated herein as
Does 1 through 10, and therefore sue those defendants by these fictitious names. The COH Insureds
will seek leave of Court to amend this complaint when the true names and capacities of these
fictitiously designated defendants have been ascertained. The COH Insureds are informed and
believe, and on that basis allege, that Does.l through 10, in some way unknown to the COH
Insureds, have underwritten or provided insurance coverage or insurance related services to the COH
Insureds or are otherwise responsible for the losses alleged herein, and that Does 1 through 10 are
authorized to, and do, transact business in the State of California and the County of Los Angeles.

THE INSURANCE POLICY

9. COH Holding Company has purchased Private Company Management Indemnity
Package policies from ACE companies, including Westchester, for at least three years to protect it
and the other insureds thereunder from, among other things, crime-related losses and lawsuits
alleging wrongfully employment practices and other wrongful acts. These policies, including policy
number G24188589, effective January 31,2011, to January 31, 2012, policy number G25055585,
effective January 31, 2012, to January 31, 2013, and policy number G2435913A, effective January
31, 2013, to January 31, 2014, are comprised of various coverage, including Crime Coverage,
Directors and Officers coverage, and Employment Practices Liability coverage.
10. Westchester issued the Policy to COH Holding Company for the period of January
31,2013, to January 31,2014, Like the prior policies that COH Holding Company purchased from
ACE, the Policy provides insurance for, among other things, crime-related losses and claims alleging
employment practices violations and wrongful acts.
11. COH Holding Company; Citizens of Humanity and its officers and directors,
including Gary Freedman and Anthony Miller, and CM Laundry are insureds under the Policy and
1 are entitled to the benefits due under the Policy. A true and correct copy of the Policy is attached
2 hereto as Exhibit A and incorporated herein by reference.
3 THE CRIME COVERAGE SECTION i
4 12, The Policy contains a Crime Coverage Section. This section provides $1,000,000 per i)
5 Occurrence in insurance for Employee Theft losses, subject to a deductible in the amount of
6 $25,000. Unlike the prior policies issued by Westchester or one of its sister ACE companies, the
7 Policy does not have an aggregate limit for losses insured under the Crime Coverage Section.
8 Indeed, the fact that the Policy does not have an aggregate limit is one of the very reasons that COH I
9 Holding Company procured the Policy, with the intent of having insurance subject only to a limit per £
10 occurrence, but not otherwise limiting the coverage available for multiple occurrences and thefts.
11 13. The Employee Theft Insuring Clause states in relevant part: y
12 a) Employee Theft
[Westchester] will pay for loss of or damage to Money, Securities and
13 Other Property resulting directly from Theft committed by an
Employee, whether identified or not, acting alone or in collusion with
14 others,
15 c) Client Property
[Westchester] will pay for loss of or damage to Money, Securities and
1 6 Other Property sustained by a Client resulting directly from Theft
committed by an identified Employee, acting alone or in collusion
17 with others.
18 Ex. A, Crime Coverage Section, § 1 .a) & c).1
19 14, The Policy defines “Theft” in relevant part as V
20 the unlawful taking of property to the deprivation of the Company. . . .
For the purpose of Insuring Agreement A. 1 ,c. only, Theft means the
21 unlawful taking of Money, Securities, or Other Property to the \
22
deprivation of the Company’s Client.
23 Id., Crime Coverage Section, § B.23. jl
it
24 15. The Policy defines “Occurrence” with respect to “Employee Theft” (section 1 a)) to i
25 include s
26 (i) An individual act;
27
(ii) The combined total of all separate acts whether or not related; or
1 Terms in bold are in bold in the Policy, indicating that they are expressly defined in the Policy.
1 (iii) A series of acts whether or not related; committed by an
b
2
Employee acting alone or in collusion with others , .,
3 Id., Crime Coverage Section, § B.16a). The Policy defines “Occurrence” with respect to Employee
4 Theft of Client Property (section 1 .c)) to include
5 (i) An individual act of event;
f
6
(ii) The combined total of all separate acts or events whether or not
related; or
7
(iii) A series of acts or events whether or not related; committed by a
person acting alone or in collusion with other persons or not
8
committed by any person . . . . |
9 Id., Crime Coverage Section, § B.16c),
10 16. The Policy defines “Client” to mean “any entity for whom the Company performs
11 services under a written contract." Id., Crime Coverage Section, § B.2.

12 THE EMPLOYMENT PRACTICES COVERAGE SECTION
13 17. The Policy’s Employment Practices Insuring Clause obligates Westchester to
14 pay the Loss of the Insureds which the Insureds have become legally
15
obligated to pay by reason of an Employment Practices Claim first
made against the Insureds during the Policy Period . . . for an
16
Employment Practices Wrongful Act taking placed prior to the end
of the Policy Period.
17 Id, Employment Practices Coverage Section, § A.l.
18 18. The Policy’s Employment Practices Coverage Section defines “Loss” to include
19 the damages, judgments, settlements, front pay and back pay, pre-
20
judgment or post-judgment interests awarded by a court, and Costs,
Charges and Expenses incurred by any of the Insureds.
21 Id., Employment Practices Coverage Section, § B.10.
22 19. The Policy’s Employment Practices section defines “Costs, Charges and Expenses” in
23 pertinent part to include
24 reasonable and necessary legal costs, charges, fees and expenses
25
incurred by the Insurer, or by any Insured with the Insurer’s consent,
in defending Claims. . . .
26 Id., Employment Practices Coverage Section, § B.3.
1 20. The Policy’s Employment Practices Coverage Section defines “Claim" to include any
2 “(a) Employment Practices Claim; or (b) Third Party Claim." Id., Employment Practices Coverage
3 Section, § B.l. \
4 21. The Policy’s Employment Practices Coverage Section defines “Employment i
5 Practices Claim” to include
6 (a) a written demand against an Insured for monetary damages or non- j
7
monetary or injunctive relief; [and]
8
(b) a civil, judicial, administrative, regulatory, arbitration or mediation
proceeding against an Insured seeking monetary damages or non- |
9
monetary injunctive relief, commenced by the service of a complaint
or similar pleading, including any appeal therefrom . . . . i
10 Id., Endorsement 6, f 1.
11 22. The Policy defines “Employment Practices Wrongful Act” to include
12 Any actual or alleged:
13 (a) violation of any common or statutory federal, state, or local law
14
prohibiting any kind of employment related discrimination; j
15
16
(c) abusive or hostile work environment, including workplace
bullying;
17 (d) wrongful discharge or termination of employment, whether actual
18
or constructive;
19
(e) breach of an actual or implied employment contract;
20
(f) wrongful deprivation of a career opportunity, wrongful failure or
refusal to employ, promote, or grant tenure, or wrongful demotion;
21
22 (h) wrongful failure or refusal to adopt or enforce workplace or
23
employment practices, policies, or procedures;
24
(i) wrongful discipline; [and]
25
(j) employment-related wrongful infliction of emotional distress,
mental anguish, or humiliation . . . .
26 Id., Employment Practices Coverage Section, § B. 6 & Endorsement 6, 2.
27 23. The Policy also provides:
1 It shall be the duty of the Insurer and not the duty of the Insureds to
defend any Claims. Such duty shall exist even if the allegations are
2 groundless, false or fraudulent. The Insurer’s duty to defend any
Claim shall cease when the Limits of Liability have been exhausted 1
3 by the payment of Loss including Costs, Charges and Expenses. f
4 Id., Employment Practices Coverage Section, § F.l.
5 THE DIRECTORS AND OFFICERS AND COMPANY COVERAGE SECTION I
6 24. The Policy’s Directors and Officers and Company Coverage Section obligates
7 Westchester to
8
9
10
11
pay the Loss of the Directors and Officers for which the Directors
and Officers are not indemnified by the Company and which the
Directors and Officers have become legally obligated to pay by
reason of a Claim first made against the Directors and Officers
during the Policy Period .. , for any Wrongful Act taking place prior
to the end of the Policy Period. i
. . . pay the Loss of the Company for which the Company has |
i
12 indemnified the Directors and Officers and which the Directors and
Officers have become legally obligated to pay by reason of a Claim
i)
13 first made against the Directors and Officers during the Policy
Period ,. , for any Wrongful Act taking place prior to the end of the
14 Policy Period.
15 . . . pay the Loss of the Company which the Company becomes
legally obligated to pay by reason of a Claim first made against the
i
1
16 Company during the Policy Period . . . for any Wrongful Act taking i
17
place prior to the end of the Policy Period. j
i
18 Id., Directors & Officers and Company Coverage Section, § A. 3. ■ i
19 25. The Policy’s Directors and Officers and Company Coverage Section defines “Claim” !
20 to include I
21
22
(a) a written demand against any Insured for monetary damages or
non-monetary or injunctive relief; [and]
(c) a civil proceeding against any Insured seeking monetary damages !
23 or non-monetary or injunctive relief, commenced by the service of a
24
complaint or similar pleading . . . .
25 Id., Directors and Officers and Company Coverage Section, § B.l,
26 26, The Policy’s Directors and Officers and Company Coverage Section defines “Costs,
27 Charges, and Expenses” to mean “reasonable and necessary legal costs, charges, fees and expenses
1 incurred by the Insurer, or by any Insured with the Insurer’s consent. . . Id., Directors &
F? [,
2 Officers and Company Coverage Section, § B.3.
3 27. The Policy’s Directors and Officers and Company Coverage Section defines 1
4 “Insureds” to mean “the Company and the Directors and Officers.” Id., Directors & Officers and g
5 Company Coverage Section, § B.5.
6
6 28. The Policy’s Director’s and Officers and Company Coverage Section defines “Loss” 2
7 to include
8 damages, judgments, settlements, pre-judgment or post-judgment i
interest awarded by a court and Costs, Charges and Expenses k 9 incurred by Directors and Officers . . . or the Company . . . .
10 Id., Directors & Officers and Company Coverage Section, § B.7,
11 29. The Policy’s Directors and Officers and Company Coverage Section provides: j:
12 It shall be the duty of the Insurer and not the duty of the Insureds to
i
13
defend any Claim. Such a duty shall exist even if any of the j
allegations are groundless, false, or fraudulent. The Insurer’s duty to . |
14
defend any Claim shall cease when the Limits of Liability have been \
exhausted by the payment of Loss including Costs, Charges and [
15
Expenses. |
i
16 Id., Directors & Officers and Company Coverage Section, § F.l. [
17 30. To the extent not waived or otherwise excused, the COH Insureds complied with all ]
18 terms and conditions contained in the Policy. Therefore, the COH Insureds are entitled to all
|
1
19 benefits and insurance provided by the Policy. i
20 THE THEFTS AT CM LAUNDRY i
21 31. On May 1,2007, CM Laundry hired Luis Rodriguez in accord with a written I
22 employment contract delineating his responsibilities.
23 32. CM Laundry terminated Mr. Rodriguez’s employment contract in September 2013 j
I
24 and hired John Banken to replace Mr. Rodriguez. Shortly thereafter, Mr. Banken met with one of j
. 25 CM Laundry’s vendors, Terry Mink, the owner of H&T Industrial Products. During the course of 1
26 this meeting, it came to light that Mr. Rodriguez had engaged in two criminal invoicing schemes
27 with Mr, Mink to the detriment of CM Laundry and Citizens of Humanity. Specifically, during the
28 course of this meeting Mr. Mink admitted that at Mr. Rodriguez’s direction, he had inflated by 20%
the amounts shown on H&T’s invoices to CM Laundry for goods delivered by H&T and that Mr.
Rodriguez retained the extra 20% as a “kickback.” Furthermore, Mr. Mink admitted that, at Mr.
Rodriguez’s direction, H&T had created and sent entirely fraudulent invoices to CM Laundry for
goods that H&T had never delivered, which CM Laundry paid. Mr. Mink also divulged that with
respect to these fraudulent invoices, Mr. Rodriguez received 80% of the total amount of each
fraudulent invoice, while H&T retained the remaining 20% of each fraudulent invoice,
33. A private investigation firm subsequently conducted videotaped interviews of Mr.
Mink during which Mr. Mink provided additional information regarding the inflated invoice scheme
and the fraudulent invoice scheme in which he and Mr. Rodriguez engaged. Mr, Mink also reviewed
invoices paid by CM Laundry to H&T from May 14, 2007, through September 9, 2013, and
indicated which were inflated or fraudulent. Based on this information, Citizens of Humanity and
CM Laundry are informed and believe, and on that basis allege, that H&T and Mr. Rodriguez
unlawfully took from CM Laundry at least $113,457.62 through their inflated invoice scheme and at
least $5,025,682.30, through their fraudulent invoice scheme.
34. After discovering the thefts perpetrated by Mr. Rodriguez and H&T, Citizens of
Humanity and CM Laundry began reviewing invoices and dealings between CM Laundry and other
vendors during Mr, Rodriguez’s employment at CM Laundry, Citizens of Humanity and CM
Laundry are informed and believe, and on that basis allege, that K&R Industrial Supplies, a past
vendor of CM Laundry, engaged in a separate fraudulent invoice scheme with Mr. Rodriguez.
Based on their review and investigation, Citizens of Humanity and CM Laundry are informed and
believe, and on that basis allege, that CM Laundry incurred losses in excess of $680,966 as a result
of thefts committed by K&R in collusion with Mr. Rodriguez.
35. After beginning his employment at CM Laundry, Mr. Banken contacted Antonio
Anguiano, an individual who had done business with CM Laundry as FI Products, as a supplier of
goods to CM Laundry during Mr. Rodriguez’s employment, Mr. Banken met with Mr. Anguiano.
During that meeting, Mr, Anguiano refused to answer certain questions and eventually walked out of
the meeting. Despite subsequently claiming an outstanding balance from CM Laundry, FI Products
refused to verify past invoices. From 2007 through 2013, CM Laundry paid invoices to FI Products
1 totaling over $3,707,458,00. CM Laundry is informed and believes, and on that basis alleges, that
1
i
2 all, or at least a substantial majority, of these invoices constitute thefts committed by FI Products in *
3 collusion with Mr, Rodriguez through different schemes. 1
4 36, CM Laundry also reviewed and analyzed $1,273,000 in reimbursement requests
5 submitted by Mr. Rodriguez during his employment at CM Laundry. The COH Insureds are
1E i,h
6 informed and believe, and on that basis allege, that a significant portion of the reimbursements made
7 to Mr. Rodriguez were pursuant to fraudulent requests and that Mr, Rodriguez unlawfully took ;
8 approximately $1,000,000 from CM Laundry through fraudulent reimbursement requests. [
i
9 THE RODRIGUEZ LITIGATION |
10 37. On or about November 6, 2013, CM Laundry filed a lawsuit against Mr. Rodriguez,
11 Genesis Electronics, Sam & Ken Services Inc., doing business as K&R Industrial Supplies, and Rene f
12 Bautista, K&R’s chief executive officer in Superior Court for the County of Los Angeles, Case No. |
13 BC526909 (the “K&R Lawsuit”).
14 38. Also on or about November 6, 2013, CM Laundry filed a lawsuit against Mr.
15 Rodriguez, Mr. Rodriguez’s business, Genesis Electronics, Inc., and Mr. Anguiano individually and 1
16 doing business as FI Products, in Superior Court for the County of Los Angeles, Case No,
17 BC526910 (the “FI Lawsuit”). |
18 39, On or about March 7, 2014, CM Laundry filed a lawsuit against Mr. Rodriguez, i
19 Genesis Electronics, and Terry Mink individually and doing business as H&T Industrial Products in <
20 Superior Court for the County of Los Angeles, Case No. BC538402 (the “ H&T Lawsuit”). i
21 40. On January 13,2014, Mr, Rodriguez filed identical First Amended Cross- Complaints ii
22 against Citizens of Humanity, Mr, Millar, CM Laundry, Mr. Freedman, and Moes 1 through 200, i
23 one in the K&R Lawsuit and the other in the FI Lawsuit (the "Amended Cross-Complaints”), He
24 asserted causes of action for (1) member’s derivative action, (2) fraud, (3) breach of employment i
25 agreement, (4) breach of covenant of good faith and fair dealing, (5) unfair business practices, and \
26 (6) unpaid wages - violation of Labor Code Section 201. On August 29, 2014, Mr. Rodriguez
27 subsequently dismissed the sixth cause of action for "unpaid wages.” True and correct copies of the
1 Amended Cross-Complaints are attached hereto as Exhibits B and C and incorporated herein by
S'
2 reference.
3 41, In the Amended Cross-Complaints, Mr. Rodriguez seeks, among other forms or 5
4 relief, “damages subject to proof,” “pre-judgment interest subject to proof,” “attorneys fees subject
5 to proof,” “punitive damages subject to proof,” “costs of suit incurred herein according to proof ’ and |i
6 “such other relief as the court deems just and proper.” See Exs. B, Prayer for Relief & C, Prayer for ;
7 Relief. !
8 42. Mr. Rodriguez seeks such damages as a result of the Citizens of Humanity and its !
9 managers purportedly forcing CM Laundry to engage in services with Citizens of Humanity on
10 unfair terms that allegedly caused CM Laundry to suffer losses and allegedly ultimately led to the
11 termination of Mr. Rodriguez’ employment contract. Furthermore, Mr. Rodriguez seeks damages as
12 a result of Citizens of Humanity and its officers allegedly fraudulently inducing him to enter into his
13 employment contract and remain employed by CM Laundry, allegedly to his detriment, Finally, Mr,
14 Rodriguez seeks damages to compensate him for CM Laundry and Citizens of Humanity’s alleged
15 wrongful termination of his employment contract, breach of the covenant of good faith and fair
16 dealing within the Employment Contract, and infliction of emotional distress. i
i
17 43. Mr. Rodriguez alleges that the COH Insureds perpetrated a wide range of Wrongful !
18 Acts and Employment Practices Wrongful Acts. His allegations include the following:
j
i
19 • “Mr, Rodriguez’s employment was terminated under the guise that CM Laundry ]
20 had been underperforming.” Exs. B & C, 28; J
21 ♦ “In reliance on Mr, Freedman and Citizen’s representations that they would work
22 together to make CM Laundry a profitable business, Mr. Rodriguez left his
23 previous employment of over 17steady years, and purchased shares of CM
24 Laundry in 2007,” ^ ,^ 5 7 ;
25 • “Cross-Defendants intended to defraud Mr. Rodriguez and induce Mr, Rodriguez
26 to rely on their representations that they would make CM Laundry a profitable
27 business to induce Mr. Rodriguez to continue his employment with CM Laundry
1 • “On or about September 20, 2013, CM Laundry breached the employment
2 agreement [with Mr, Rodriguez] because CM Laundry terminated Mr. Rodriguez f
3 despite the fact that none of the reasons to terminate him for “cause” had
j
4 occurred.” Id.,}166; i1
5 • “CM Laundry refused to give Mr, Rodriguez an opportunity to succeed and grow I
6 the company because it operated to the direction of Citizens of Humanity, to CM j
7 Laundry’s detriment and Citizen’s benefit.” Id\ ■
8 • “Citizens and CM Laundry also blamed Mr. Rodriguez for CM Laundry’s 1
9 operating losses, which was disingenuous in light of Citizens’ loans to CM i
10 Laundry of 9.5%, and Citizens forcing CM Laundry to under-price its washes so
11 that Citizens obtained them at lower than market value, causing rush jobs and not
12 paying a fair amount for such rush jobs, among other issues.” Id.;
13 • “As a further direct and proximate result of Cross-Defendants’ unlawful conduct,
14 Cross-Complainant has suffered extreme and severe anguish, humiliation. i
15 emotional distress, nervousness, tension, anxiety, and depression, the extent of
16 which is not fully known at this time, and the amount of damages caused by
17 cross-defendants’ conduct is not fully ascertained and will be proven at the time
18 of tidal.” Id., T[ 71; and
19 • “CM Laundry breached the covenant of good faith because it refused to give Mr.
20 Rodriguez an opportunity to succeed and grown the company because it operated
21 at the direction of Citizen of Humanity, to CM Laundry’s detriment and Citizens’
22 benefit.” Id., f 77.
23 44. All of the above-referenced claims were consolidated into one lawsuit, the K&R I
24 Lawsuit. The K&R lawsuit is pending as of the date of the filing of this complaint.

1 FIRST CAUSE OF ACTION
i
2 ("Breach of Contract bv CM Laundrv aeainst Westchester
3 Reeardine the Crime Coverage)
4 45. CM Laundry realleges and incorporates by reference herein each allegation in \
5 paragraphs 1 through 44 above. \
6 46. On or about September 27, 2013, COH sent a First Report of Loss to Westchester \
7 through the insurance broker involved in the procurement of the Policy. Subsequently on or about
8 October 25, 2013, COM sent four separate Proofs of Loss to Camilla Conlon, ACE’s Senior Claims 1
9 Specialist handling the claim on behalf of Westchester, COH included with each proof of loss a ’
10 narrative detailing the assorted methods utilized to fraudulently extract payments from CM Laundry
11 and the different companies and individuals implicated in the particular schemes. I
12 47, On November 26, 2013, Ms, Conlon sent an e-mail confirming receipt of CM
13 Laundry’s four separate Proofs of Loss. She stated that Westchester was reviewing the materials
14 submitted and reserved all rights. She further stated that despite receiving four separate proof of i
15 loss, Westchester would review the matter as one “Occurrence” and a “Single Loss.” Finally, she ij
16 stated that Westchester had already retained the law firm of Pattison & Flannery to assist in its i
17 investigation into the claims. i
18 48. On December 3, 2013, COH received a letter from Pattison & Flannery. Pattison &
19 Flannery stated that it had been “retained by ACE North American Professional Risk Claims, on
20 behalf of Westchester Surplus Lines Insurance Company (‘ACE’), to protect its interests in respect
21 of the [] claim(s).” Pattison & Flannery also requested a plethora of documents and information that
22 it claimed to need in order to investigate the claims, as well as Examinations Under Oath or
23 interviews of various individuals in connection with the claims.
24 49, On January 30, 2014, the insurance broker submitted a supplemental notice of CM
25 Laundry’s claims. CM Laundry detailed additional fraudulent activities by Mr. Rodriguez and
26 vendors and provided ACE with an update on the investigation into the thefts.
27 50, On February 19, 2014, COH, through its counsel, sent a letter to Pattison & Flannery
28 explaining the details surrounding the thefts at CM Laundry, the status of the investigation into those
DICKSTE1N
SHAPIRO LLP 15
COMPLAINT FOR BREACH OF CONTRACT, TORTIOUS BREACH OF THE COVENANT OF
GOOD FAITH AND FAIR DEALING, AND DECLARATORY RELIEF
Case 2:15-ev-02278-ODW-AJW Document 1-1 Filed 03/26/15 Page 18 of 71 Page ID #:22
1 thefts, and responding to all of Pattison & Flannery’s voluminous document and information
f
2 requests with both written responses and a robust document production, The letter also explained r
3 why the Policy covered the thefts and why the thefts constituted multiple “Occurrences" under the i
4 Policy. \
5 51, On March 10, 2014, Pattison & Flannery requested additional information and i
6 documentation from the COH Insureds, including labor-intensive work product. In total, they j!
7 requested 13 categories of documents and information, in addition to the nine categories of *
8 documentation and information requested in their December 3, 2013, letter. Pattison & Flannery also S
9 stated that it was “deferring ACE’s response to the policy coverage issues discussed in your letter,
10 until we have completed our investigation . . , . ”
11 52. On April 9, 2014, COH, through its counsel, sent a letter to Pattison & Flannery fI
12 providing the additional information and documentation requested by Pattison & Flannery. [
13 Furthermore, COH stated
!
14 More than six months have passed since Westchester received details
!
15
of its insureds’ loss, and Westchester has still not provided a formal
statement regarding whether it will provide coverage for the loss in i
16
accordance with its duties under the Policy and California law.
Therefore, please provide Westchester’s coverage position by April
17
18
25,2014.
53. On April 14, 2014, Pattison & Flannery responded on behalf of ACE and
i
1
i
19 Westchester, stating: ■
20 [I]t is ACE’s position that the allegedly dishonest activities involving
!
21
Mr. Rodriguez, if ultimately determined to be true, would constitute
one Occurrence under the Policy, and that the maximum payment by
22
ACE would be limited to one Policy limit, or $1,000,000,00.
23
In conclusion, Westchester will not be in a position to provide a
coverage determination with respect to all other coverage issues by i
24
April 25, 2014,
25 54. On May 1, 2014, Pattison & Flannery sent a letter to COH requesting “written
26 comments” from an employee of COH and a third party, deposition transcripts, and other back-up
27 documentation. ACE also said that it intended to interview certain vendors and take Examinations
1 private investigator hired by COH. However, in the letter Pattison & Flannery confirmed that ACE
fi
2 refused to conduct these interviews and Examinations Under Oath until after the deposition of Mr.
3 Rodriguez in the Rodriguez litigation was completed. i
4 55. On May 19, 2014, COH sent another letter to Pattison & Flannery providing J
5 additional responses and documents as requested, COH offered to produce the requested individuals 5
6 for Examination Under Oath anytime in May or June and requested that Westchester proceed as 1:
7 quickly as possible. Finally, COH pointed out that Westchester had still not responded to its
j
8 February 19, 2014, letter, explaining why the claims were multiple “Occurrences” under the Policy. \
9 56. Pattison & Flannery responded in a June 11, 2014, letter. It stated that it would not *
1 0 proceed with Examinations Under Oath until late July or August 2014 at the earliest. It also
1 1 provided ACE and Westchester’s “preliminary position” in response to COH’s explanation as to
1 2 why the claims constitute multiple “Occurrences” under the Policy. Via this letter, Westchester
13 continued to wrongfully insist that the losses constituted only one “Occurrence,” thereby depriving
14 CM Laundry of millions of dollars of insurance for its Employee Theft losses.
i
15 57. After transmitting the requested deposition transcripts to Pattison & Flannery, on
16 August 13,2014, COH, through its counsel, sent a follow-up letter asking if ACE still desired to take
17 Examinations Under Oath. COH also provided Pattison & Flannery with an update on the status of
18 the litigation and explained how recent factual developments in the litigation further showed that
19 COH’s claims constituted multiple “Occurrences” of Employee Theft under the Policy. COH
2 0 provided ACE with additional California law demonstrating that Westchester’s one “Occurrence”
2 1 position was incorrect. In light of the additional explanations, factual support, and law provided,
22 COH demanded that Westchester “reevaluate its ‘preliminary position’ and issue a definitive
23 coverage determination without further delay.”
24 58. On September 11, 2014, Pattison & Flannery sent COH a letter in which Westchester
25 finally admitted that there was coverage under the Policy. However, Westchester refused to
26 acknowledge the full extent of the insurance it owed:
[I]t is ACE’s position that Luis Rodriguez, former employee and
President of COH subsidiary CM Laundry, committed certain thefts of
COH’s property so as to implicate the coverage provisions of Insuring
1 Agreement A (as amended by Endorsement 11). The investigation
confirmed that, ,. the amount of the thefts during these periods
exceeded $1 million, excess of the applicable $25,000 deductible per *
occurrence.
As we previously advised, it is ACE’s position that the thefts
committed by Mr, Rodriguez constitute a single “Occurrence”, as that
term is defined in the Policy, and that they are, therefore, subject to a
single Policy limit of $1 million. ACE has not reached any conclusion f
as to the extent of Mr. Rodriguez’s thefts above the $1 million
figure.. . . k
7 Accordingly, ACE will make payment to COH in the amount of $1
million, against an appropriate Release and Assignment, covering all
the acts of Luis Rodriguez, including but not limited to, those acts
referred to each in the Proof(s) of Loss submitted by COH to ACE,
and in subsequent correspondence, etc. ji
10 59. On October 3, 2014, COH, through its counsel, sent a letter to Pattison & Flannery,
11 reminding ACE and Westchester that under California law an insurer’s failure to unconditionally |j
12 pay an amount that it undisputedly knows is owed constitutes bad faith. Therefore, COH stated that
i
13 it would not agree to waive, release, or assign its rights as to amounts exceeding $1,000,000. \
14 60, Pattison & Flannery sent COH a draft “Settlement Agreement” on October 17, 2014. ■ I
15 During a subsequent teleconference between Pattison & Flannery and COH’s counsel, COH
16 confirmed that it would not agree to a general release and that under California law, Westchester,
17 having admitted to coverage for one “Occurrence” of employee theft under the Policy, could not in |
18 good faith condition payment upon COH entering into a broad settlement or release. Subsequently, J
19 on November 25, 2014, COH’s counsel sent a revised draft release agreement that removed the iI
20 inappropriate and overly broad general release and settlement language from the proposed I
21 agreement,
22 61. On December 12, 2014, Pattison & Flannery requested the inclusion of additional
23 language in the proposed release, some of which was the same language that COH had deleted and ;
24 which required COH to forfeit rights in exchange for payment of $1,000,000. Specifically, Pattison i
25 & Flannery stated that the following language should be included: i
26 COH expressly acknowledges and agrees that, except as provided
27
herein, this release is intended to extinguish all claims arising from the
actual or alleged acts of employee dishonesty of Luis Rodriguez,
including those known and unknown and those suspected and
unsuspected, without regard to whether they are now known or
1 suspected, even if those claims may materially affect COH’s decision
I'
2
to enter into this release, Except as expressly provided herein, COH
expressly waives any right with respect to any claims of employee
3
dishonesty on Luis Rodriguez’ part except those herefore asserted by
COH in the four Proofs of Loss dated October 25, 2013, and to that
1
4
extent waives any right under California Civil Code Sec, 1542 . . . .
i
5 62. Neither COH nor CM Laundry agreed to accept the overly broad language or provide i
6 the requested relief. Nor has Westchester withdrawn from its position that COH or CM Laundry
7 needs to do so in order to receive the $1,000,000 payment that Westchester acknowledges as owing.
8 As of the date of the filing of this complaint, Westchester had not paid, or agreed to pay, the
9 $1,000,000 that it admits is owing under the Policy, and CM Laundry had not agreed to give up its
10 rights to pursue the additional coverage for its losses.
11 63. CM Laundry is informed and believes, and on that basis alleges, that Westchester had
12 a duty to reasonably construe its Policy’s coverage in light of California law and insurance industry i
13 standards, and knew, or should have known, of the following California law and insurance industry
14 standards regarding the interpretation of insurance policies, including the Policy, when investigating
15 CM Laundry’s claims and issuing its coverage determinations:
16 • An insurer bears the burden of establishing that coverage for a claim is
17 specifically and clearly limited;
18 • Coverage exclusions and limitations are strictly construed against the insurer and
19 liberally interpreted in favor of the insured;
20 • An insurer’s failure to use available language to exclude certain types of liability
21 gives rise to the inference that the parties intended not to so limit coverage;
22 • Even if an insurer’s interpretation of a policy provision is considered reasonable,
23 it still will not prevail on that interpretation unless it establishes that its
24 interpretation is the only reasonable one;
25 • The mutual intention of the insurer and insured at the time a contract is formed
26 governs that contracts interpretation; and
27 • An insurer’s failure to unconditionally pay an amount that it knows is
28 undisputedly owed to the insured constitutes bad faith.
64. Westchester had a duty under the Policy, the law, and industry custom, practices and
standards, to pay CM Laundry’s claim for multiple Occurrences of employee theft above the
retention and within the Policy limit.
65. Westchester breached its duties under the Policy by, among other things, failing to
pay for any part of the loss incurred by CM Laundry as a result of the myriad employee thefts
committed by Mr. Rodriguez and vendors of CM Laundry, by denying coverage for all but
SI ,000,000 of CM Laundry’s losses, and by failing to unconditionally pay CM Laundry for the
$1,000,000 portion of CM Laundry’s losses that Westchester did not, and does not, dispute.
66. Each ground that Westchester asserted for denying or restricting coverage was
unreasonable and incorrect in light of governing California law and insurance industry standards.
Westchester knew, or should have known, that its bases for denying or restricting coverage were
unreasonable and incorrect.
67. As a direct and proximate result of Westchester’s breach of its duties under the
Policy, CM Laundry has been damaged in the amounts articulated in its Proofs of Loss to
Westchester, which total approximately $10,000,000, subject only to any applicable limit of liability
in the Policy, plus interest at the legal rate.
SECOND CAUSE OF ACTION
/Breach of Contract by the COH Insureds against
Westchester regarding the Employment Practices Coverage and the
Directors and Officers and Company Coverage)
68. The COH Insureds reallege and incorporate by reference herein each allegation in
paragraphs 1 through 44 and 46 through 67 above.
69. On January 28,2014, the COH Insureds, via the insurance broker, provided notice to
Westchester of the multiple cross-complaints filed against them. The COH Insureds also
subsequently sent ACE copies of the two Amended Cross-Complaints filed by Rodriguez.
70. On February 10, 2014, the COH Insureds received a letter from ACE North American
Claims Customer Service acknowledging Westchester’s receipt of their claim for defense against the
Amended Cross-Complaints and stating that ACE was reviewing the submitted information.
Subsequently, on or about February 11, 2014, Colleen Reilly, ACE’s Claim Director, made a request
through the insurance broker for a conference with the insureds to obtain additional information
regarding the COH Insureds’ claim,
71. On February 12, 2014, the COH Insureds complied immediately, and spoke with Ms,
Reilly. During that telephone conference, Ms, Reilly stated that Westchester had no duty to defend
and there was no coverage under the Policy. Shortly thereafter on February 14, 2014, she sent an email
stating that “ACE will not be assigning counsel to defend the Insureds named in the Cross
Complaint.” By doing so, Westchester ignored and breached its duties to the COH Insureds,
72. Nearly five months later on July 1, 2014, and after denying coverage and refusing to
defend, Lisa Kerrigan, yet another Claims Specialist at ACE acting on behalf of Westchester, sent an
e-mail to the insurance broker stating that the COH Insureds’ claims for defense and indemnity had
been “transferred from the D&O claim department to the EPL” and that she was “in the process of
performing [a] coverage investigation and will issue ACE’s coverage position shortly.” For the first
time and only after wrongfully denying coverage, Westchester requested additional information.
73. On July 2, 2014, Ms. Kerrigan sent the COH Insureds a letter stating that the
investigation was still ongoing, but that Westchester would accept the claim under the Employment
Practices Liability Section of the Policy. By this letter, Westchester also purported to reserve certain
rights and to reserve the right to change its coverage position.
74. On July 10, 2014, the COH Insureds, via their counsel, sent a letter to Ms. Kerrigan,
responding to all of her requests for additional information and questions. They also explained the
history of the Rodriguez litigation and provided further explanation regarding the claims in the
Amended Cross-Complaints. They explained why coverage existed for causes of action in the
Amended Cross-Complaints with the possible exception of one very narrow (and subsequently
dismissed) claim involving wages. The COH Insureds also expressed their expectation that
Westchester would provide a complete defense in accordance with California law. Finally, they
explained that by wrongfully denying coverage and then failing to timely assume the defense of the
claims, thereby forcing the COH Insureds to retain defense counsel and protect their interests,
1 Westchester could not challenge their choice of defense counsel or impose rates lower than the
KV
2 reasonable rates charged by that counsel. There was no response to this letter. h
3 75, On August 25, 2014, the COH Insureds sent Ms. Kerrigan additional defense invoices 1
4 for reimbursement, along with an updated spreadsheet reflecting the total defense fees and costs ji
5 incurred to date. 1.
6 76. On August 28, 2014, ACE’s outside counsel, Jana Lubert, and the COH Insureds’ |
7 counsel engaged in a telephone conversation to discuss the ongoing litigation, The COH Insureds i
1
8 answered ACE’s questions pertaining to the claim. During that conversation, the COH Insureds’ ■ i
9 counsel again reminded ACE that the COH Insureds expected prompt reimbursement for defense 1
10 fees and costs incurred as well as a response to the COH Insured’s July 10, 2014, letter.
11 77. Over the next several months, the COH Insureds continued to send requested
12 documentation and information to Ms. Lubert and Ms. Kerrigan, including additional invoices for
13 reimbursement. They received no response.
14 78. On October 20,2014, the COH Insureds sent Ms. Lubert another letter. They
15 outlined Westchester’s improper conduct and violation of California law by, among other things.
16 failing to respond to correspondence and failing to reimburse them for any of their reasonable and
17 necessary defense fees and costs. They demanded confirmation that Westchester finally would
18 begin to honor its duties under the Policy and California law and reimburse its insureds, Again,
19 there was no response,
20 79. On December 17, 2014, nearly two months later and only after months of ignoring the
21 COH Insureds’ correspondence and its own coverage duties, Ms. Lubert represented to the COH
22 Insureds that Westchester was “in the process of making payments” on the defense invoices, various
23 of which had been submitted six months earlier and still had not been paid,
24 80. In January 2015, for the first time, Ms. Lubert said that it would not reimburse
25 defense fees and costs until the COH Insureds completed a “litigation report” and “budget,"
26 81. As of the date of the filing of this complaint, the COH Insureds have incurred more
27 than $550,000, on behalf of insureds under the Policy, in the defense of the Amended Cross-
28 Complaints. Despite all of the information provided by the COH Insureds and despite Westchester’s
1 representations that it would honor its defense duty and would pay for the insureds’ defense,
2 Westchester had not paid anything for, or reimbursed the COH Insureds for, the fees and costs i*i
3 incurred in the defense of the Amended Cross-Complaints. s
4 82. The COH Insureds are informed and believe, and on that basis allege, that B
5 Westchester had a duty to reasonably construe its Policy’s coverage in light of California law, and
6 knew, or should have known, of the following California law and insurance industry standards
I
\\
7 regarding the interpretation of insurance policies, including the Policy, when investigating the COH r
8 Insureds’ claims and issuing its coverage determinations: p
9 • While the burden rests on the insured to establish that a claim is within the basic
10 scope of coverage, the insurer bears the burden of establishing that a claim is
11 specifically and clearly excluded;
i:|f
12 • Coverage exclusions and limitations are strictly construed against the insurer and f
13 liberally interpreted in favor of the insured. Similarly, exceptions to exclusions 1?
14 are construed broadly in favor of the insured; ?
1
15 • A liability insurer owes a broad duty to defend its insureds against claims that
16 potentially seek damage within the coverage of the Policy;
17 • If an insurer determines that any allegation in a complaint is potentially covered.
18 the insurer must defend the entire action; i
19 • An insurer has a duty to respond to an insured’s tender of a claim within 15 days
20 and also to begin any necessary investigation of the claim within the 15 day
21 period;
22 • California law requires that an insurer conduct a full and complete investigation
23 and inquiry into all possible bases that may support an insured’s claim before
24 issuing a coverage determination; and
25 • An insurer has an immediate duty to assume its insured’s defense even though it
26 may not have completed its investigation of a claim, as the defense obligation
27 arises on tender of defense.
1 83. Each ground that Westchester asserted for denying or restricting coverage was
n
2 unreasonable and incorrect in light of applicable California law and insurance industry standards. *
3 Westchester knew, or should have known, that its bases for denying or restricting coverage were
4 unreasonable and incorrect.
5 84. Westchester had a duty under the Policy, the law, and insurance industry customs,
6 practices, and standards to provide the COH Insureds with a defense against the Amended Cross- f
7 Complaints at least from the time that it was notified of them through their final resolution. i
i.
8 85, Westchester breached its duties under the Policy, by, among other things, failing to I
9 defend the COH Insureds against the Amended Cross-Complaints, initially wrongfully denying
10 coverage, failing to pay for any part of the COH Insureds’ defense fees and costs after purporting to
11 assume its defense obligations, and for seeking to belatedly and improperly impose other conditions ■ i
12 on its purported assumption of its defense duty. ii
13 86. Asa direct and proximate result of Westchester’s breach of its duties under the i
i
14 Policy, the COH Insureds have been damaged in amounts to be proven at trial not less than |
ii
15 $550,000, plus interest at the legal rate, These damages continue to accrue. ;
16 THIRD CAUSE OF ACTION
17 (Breach of the Implied Covenant of Good Faith
18 and Fair Dealing bv the COH Insureds against Westchester)
19 87, The COH Insureds reallege and incorporate by reference herein each allegation
20 contained in paragraphs 1 through 44, 46 through 67, and 69 through 86 above.
21 88. Implied in the Policy is a covenant that Westchester would act in good faith and deal
22 fairly with the COH Insureds, that Westchester would do nothing to interfere with the COH Insureds
23 rights to receive the benefits of the Policy, and that Westchester would give at least the same level of
24 consideration to the COH Insureds’ interests as it gives to its own interest.
25 89. Westchester also had a duty under the Policy, the law, and insurance custom, practice.
26 and standards, to conduct a prompt and thorough investigation, including an investigation of all
27 bases that might support the COH Insureds’ claims for coverage, before asserting coverage defenses
28
1 90. Instead of complying with these duties, Westchester breached its implied covenant of
2 good faith and fair dealing by, among other things
3 • failing to promptly and fairly conduct a full and thorough investigation of CM %
4 Laundry’s claims for coverage arising out of the employee thefts and facts \
5 surrounding the claims, and asserting grounds for denying coverage based upon P
6 its inadequate investigation; \
7 • failing to unconditionally pay claims that it admitted and recognized were covered
8 by the Policy; (
9 • wrongfully denying coverage for the Amended Cross-Complaints without
10 conducting a full and thorough investigation of the allegations and the facts
11 surrounding the dispute, and asserting grounds for denying coverage based upon jf
12 its inadequate investigation;
1I
13 • failing to honor its promises and obligations in the Policy that it would defend the j
14 COH Insureds against lawsuits seeking damages as a result of covered Wrongful
j
i
15 Acts or Employment Practices Wrongful Acts; i
16 • artificially and narrowly interpreting the Policy provisions;
17 • asserting grounds for avoiding coverage that it knows are not supported by, and in
18 fact are contrary to, the terms of the Policy, the law, insurance industry custom,
19 practice, standards, and the facts;
20 • failing to fully inquire into possible bases that might support coverage for the
21 Amended Cross-Complaints and negate Westchester’s attempts to avoid its duty
22 to defend the COH Insureds;
23 • improperly seeking to impose conditions on the performance of its duties;
24 • ignoring California law and insurance industry standards;
25 • giving greater consideration to its own interests than it gave to the interests of the
26 COH Insureds; and
27 • otherwise acting as alleged above.
1 91. In breach of the implied covenant of good faith and fair dealing, Westchester did the
\
2 things and committed the acts alleged above for the purpose of consciously withholding from the
3 COH Insureds the rights and benefits to which they were entitled under the Policy, and without
4 considering their interests at least to the same extent as it did its own interests.
5 92. Westchester’s acts are inconsistent with the reasonable expectations of the COH
6 Insureds, are contrary to established insurance industry custom, practice, and standards, are contrary k
7 to legal requirements, are contrary to the express terms of the Policy, and constitute bad faith,
8 93, Pursuant to the holding in Brandt v, Superior Court, 37 Cal, 3d 813 (1985), the COH
9 Insureds are entitled to recover all attorneys’ fees and costs that they reasonably have incurred, and J
10 incur, in their efforts to obtain the benefits of insurance that have been wrongfully and in bad faith
11 withheld by Westchester.
12 94. Westchester’s conduct is despicable and has been done with a conscious disregard of
13 the COH Insureds’ rights, constituting oppression, fraud, and/or malice, in that Westchester engaged
14 in a series of acts designed to deny the benefits due under its insurance policy and to conceal and/or
15 misrepresent material facts.
16 95. Asa direct and proximate result of Westchester’s acts, the COH Insureds have been
17 damaged in the amount of approximately $11,000,000, with the damages continuing, plus the
18 attorneys’ fees that it has incurred, and is incurring, in its effort to obtain the benefits that
19 Westchester owes to it under the Policy, plus interest on these amounts at the legal rate.
20 96. In light of information, facts, and relevant law known by it or reasonably
21 ascertainable, Westchester, by acting as alleged above, consciously disregarded the COH Insureds
22 rights and forced them to incur substantial financial loss, without any assistance from it, thereby
23 inflicting substantial financial damage on the COH Insureds. Westchester consciously ignored the
24 COII Insureds interests and concerns, with the requisite intent to injure within the meaning of
25 California Civil Code section 3294. Therefore, the COH Insureds are entitled to recover punitive
26 damages from Westchester in an amount sufficient to punish and make an example of it and in order
27 to deter similar conduct in the future.
I FOURTH CAUSE OF ACTION
i
2 (Declaratory Relief by the COH Insureds aeainst Does 1 through 101
3 97. The COH Insureds reallege and incorporate by reference herein each allegation
4 contained in paragraphs 1 through 44, 46 through 67, 69 through 86, and 88 through 96 above.
5 98, The COH Insureds are informed and believe, and on that basis allege that, Does 1 i
6 through 10 dispute that the COH Insureds’ contentions as stated above and the duties that they owe
7 to the COH Insureds. Therefore, an actual and justiciable controversy exists between the COH .
8 Insureds, on the one hand, and Does 1 through 10, on the other hand, concerning the matters alleged
9 herein.
10 99. The COH Insureds therefore seek a judicial declaration as to their rights against Does
11 1 through 10 in connection with its claims, confirming that the COH Insureds’ contentions, as stated
12 above, are correct. A declaration is necessary at this time in order that the parties5 dispute may be
i
13 resolved and that the parties be aware of their respective rights and duties.
14
15 PRAYER FOR RELIEF
16 WHEREFORE, the COH Insureds pray for relief as follows:
17 On the First Cause of Action
18 1. For damages according to the proof at the time of trial, plus interest;
19 On the Second Cause of Action
20 2. For damages according to the proof at the time of trial, plus interest;
21 On the Third Cause of Action
22 3. For damages according to proof at the time of trial, including the reasonable attorneys’ fees
23 incurred in obtaining the benefits due under the Policy, plus interest;
24 4. For punitive damages in an amount to be determined at trial;
25 On the Fourth Cause of Action
26 5, For a declaration in accord with the COH Insureds’ contentions stated above;
27 On AH Causes of Action
28 6. For costs of suit incurred herein; and
7. For such other, further, and/or different relief as may be deemed just and proper.
DATED: February 26,2015 DICKSTEIN SHAPIRO LLP

DEMAND FOR JURY TRIAL
2 Plaintiffs Citizens of Humanity, LLC and CM Laundry, LLC hereby demand trial by jury.

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.

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