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SOUTHERN CALIFORNIA EDISON COMPANY v. ACE AMERICAN INSURANCE COMPANY et al complaint

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.

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COMPLAINT
SOUTHERN CALIFORNIA EDISON COMPANY
Patricia A. Cirucci (Cal. Bar No. 210574)
patricia.cirucci@sce.com
Southern California Edison
2244 Walnut Grove Ave, 3rd Floor
Rosemead, CA 91770-3714
Telephone: 626-302-6704
Facsimile: 626-302-6997
JENNER & BLOCK LLP
Brent Caslin (Cal. Bar No. 198682)
bcaslin@jenner.com
Kate T. Spelman (Cal. Bar No. 269109)
kspelman@jenner.com
633 West 5th Street, Suite 3600
Los Angeles, CA 90071
Telephone: 213 239-5100
Facsimile: 213 239-5199
JENNER & BLOCK LLP
John H. Mathias (Cal Bar No. 73409)
jmathias@jenner.com
353 N. Clark Street
Chicago, IL 60654-3456
Telephone:312 222-9350
Facsimile: 312 840-7317
Attorneys for Plaintiff
Southern California Edison Company
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN CALIFORNIA EDISON
COMPANY, a California corporation,
Plaintiff,
v.
ACE AMERICAN INSURANCE
COMPANY, a Pennsylvania
corporation; ESIS, INC, a Pennsylvania
corporation; and TIME WARNER
CABLE ENTERPRISES LLC, a
Delaware limited liability company,
Defendants.
Case No. 2:14-CV-06061
COMPLAINT FOR BREACH OF
CONTRACT; BREACH OF THE
IMPLIED COVENANT OF GOOD
FAITH AND FAIR DEALING; AND
DECLARATORY RELIEF
DEMAND FOR JURY TRIAL
Case 2:14-cv-06061-GW-JEM Document 1 Filed 08/01/14 Page 1 of 25 Page ID #:1
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COMPLAINT
Southern California Edison Company (“SCE”) complains against ACE American
Insurance Company (“ACE”), ESIS, Inc. (“ESIS”), and Time Warner Cable Enterprises
LLC (“Time Warner”) as follows:
NATURE OF THE CASE
1. SCE entered into an agreement with Time Warner in 2001, which permits
Time Warner to string its fiber optic cable on certain SCE utility poles (the “Pole License
Agreement”). As explained in more detail below, the original Pole License Agreement
was between SCE and Adelphia Cable Communications (“Adelphia”) but, as the result of
various transactions, Time Warner came to acquire certain assets of Adelphia, including
facilities covered by the agreement. As such, Time Warner now stands in the place of
Adelphia as a party to the Pole License Agreement. Under the Pole License Agreement,
Time Warner agreed, among other things, to obtain at least $2 million in comprehensive
liability insurance for SCE. Time Warner further agreed to help SCE obtain the benefits
of that insurance, if needed. The Pole License Agreement also placed certain obligations
on Time Warner in the event the insurance it obtained somehow failed to protect SCE,
including an obligation that Time Warner itself step in to defend SCE if the insurer failed
to do so.
2. On October 21, 2007, a substantial fire broke out in the area of one of the
utility poles covered by the Pole License Agreement. As a result, SCE was sued in two
cases entitled Rathje et al. v. Southern California Edison Co., et al. (Superior Court of
Ventura County, Case No. 56-2009-00360200) and California Department of Forestry
and Fire Protection et al. v. Southern California Edison Company et al. (Superior Court
of Ventura County, Case No. 56-2009-00360306) for damages caused by the fire. These
lawsuits were consolidated into one action in October 2010 (collectively, the “Rathje
Lawsuit”). The Rathje Lawsuit also asserted claims against Time Warner and expressly
sought damages from SCE for the alleged acts and omissions of Time Warner.
3. After the Rathje Lawsuit was filed, SCE requested that Time Warner and its
insurer, ACE, defend and indemnity SCE. SCE also requested from Time Warner and
Case 2:14-cv-06061-GW-JEM Document 1 Filed 08/01/14 Page 2 of 25 Page ID #:2
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COMPLAINT
ACE a copy of the relevant insurance policy. SCE repeated its requests many times
through letters, emails, and phone calls. Not only did ACE fail to provide SCE with either
a copy of the policy or a defense, but it completely ignored each request and never
responded in writing or otherwise about its coverage position. Similarly, Time Warner
refused to defend SCE or to provide it with a copy of the policy, referring it instead to
ACE. Instead of aiding SCE as required by the Pole License Agreement and the
insurance policy, these defendants concertedly attempted to prevent SCE from exercising
its contractual rights and left it to defend itself in the Rathje Lawsuit.
4. SCE seeks to recover in this civil action all of the direct and consequential
damages it has sustained as a result of the defendants’ contractual and tortious
misconduct, including attorneys’ fees and punitive damages proportional to the
defendants’ considerable misconduct. SCE also seeks a declaration of its contractual
rights going forward.
THE PARTIES
5. Plaintiff SCE is a privately-held public utility that provides electricity to over
14 million people across 50,000 square miles in central and southern California. SCE is a
California Corporation with its principal place of business in California.
6. Defendant ACE is an insurance company that provides insurance products,
including general liability insurance, to policyholders throughout the United States. ACE
is a Pennsylvania corporation with its principal place of business at 436 Walnut Street,
Philadelphia, Pennsylvania. It is a wholly-owned subsidiary of INA Holdings Corp., of
which ACE Group Holdings, Inc. is the ultimate parent company.
7. Defendant ESIS is an insurance claims administrator. ESIS is a Pennsylvania
corporation with its principal place of business in Pennsylvania. Like ACE, ESIS is a
wholly-owned subsidiary of INA Holdings Corp., of which ACE Group Holdings, Inc. is
the ultimate parent company. ESIS is located in the same offices as ACE at 436 Walnut
Street, Philadelphia, Pennsylvania.
8. At all times mentioned herein, ACE and ESIS were the agents of one another
Case 2:14-cv-06061-GW-JEM Document 1 Filed 08/01/14 Page 3 of 25 Page ID #:3
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COMPLAINT
acting in the full course and scope of said agency. Therefore, all references to “ACE” in
the instant complaint shall include “ESIS” and vice versa.
9. Further, on information and belief, at all times mentioned herein, ACE and
ESIS were the alter egos of one another. A unity of interest in ownership and other
interests between ACE and ESIS existed such that any separateness ceased to exist
between them, and each was the mere instrumentality of the other.
10. Defendant Time Warner is the surviving entity following a November 1,
2013 merger with Time Warner NY Cable LLC (“Time Warner NY”), the original Time
Warner entity named in the Rathje Lawsuit, and has assumed all of the liabilities and
obligations of Time Warner NY, the non-survivor. Time Warner is a wholly-owned
subsidiary of Time Warner Cable Inc., one of the largest providers of video, high-speed
data, and voice services in the United States. Time Warner Cable Inc. is incorporated
under the laws of Delaware with its principal place of business in New York.
JURSIDICTION AND VENUE
11. This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1332,
2201, and 2202. Plaintiff SCE is a citizen of California, where it is incorporated and has
its principal place of business. Defendants ACE and ESIS are citizens of Pennsylvania,
where they were incorporated and where their principal places of business are located.
Defendant Time Warner is a limited liability company, and its citizenship for diversity
purposes is determined by its members. The sole member of Time Warner, Time Warner
Cable Inc., is a citizen of Delaware (state of incorporation) and New York (principal place
of business). Therefore, Time Warner is a citizen of both Delaware and New York.
12. The amount in controversy exceeds the sum or value of $75,000, as SCE has
incurred millions of dollars in damages due to the misconduct of the defendants, exclusive
of interest and costs. There is an actual controversy among the parties regarding the rights
of SCE under the agreement with Time Warner and the ACE insurance policy, as well as
other legal duties owed to SCE, and the ongoing conduct of the defendants in their
continued refusal to protect SCE as required by contract and law.
Case 2:14-cv-06061-GW-JEM Document 1 Filed 08/01/14 Page 4 of 25 Page ID #:4
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COMPLAINT
13. Venue in the United States District Court for the Central District of
California is proper pursuant to 28 U.S.C. § 1391 because the events giving rise to the
dispute occurred within the Central District. The Rathje Lawsuit occurred in the District.
SCE’s headquarters is also in the Central District.
THE POLE LICENSE AGREEMENT
14. SCE maintains more than a million utility poles that act to support its
transmission and distribution lines serving electricity to large areas of California.
15. Under certain circumstances, SCE allows other utilities to place their
facilities on SCE poles pursuant to agreed-upon terms set forth in written license
agreements. Such license agreements require that all licensees procure and maintain
insurance providing defense and indemnity to SCE for claims by third parties alleging that
SCE is liable for the acts or omissions of the licensee.
16. On July 1, 2001, SCE entered into the Pole License Agreement granting
Adelphia a license to install cables and ancillary equipment on or near certain poles
owned solely or jointly by SCE. Upon information and belief, as a result of Time
Warner’s 2006 acquisition of substantially all of the cable assets of Adelphia, and through
a subsequent merger, Time Warner now stands in the place of Adelphia as a party to the
Pole License Agreement. A copy of the Pole License Agreement is attached hereto as
Exhibit A.
17. Section 15(b) of the Pole License Agreement requires Time Warner to
maintain at all times during the term of the agreement “Comprehensive Bodily Injury and
Property Damage Liability Insurance . . . with a combined single limit of not less than
$2,000,000 for each occurrence,” which must “(a) name SCE, its officers, agents, and
employees as additional insureds and loss payees, but only for [Time Warner’s] acts or
omissions; (b) be primary for all purposes; and (c) contain standard cross-liability
provisions.” In the event SCE becomes aware of any deficiency in insurance coverage,
Time Warner is required to “promptly provide acceptable proof of full compliance with
these insurance requirements.” Failure to “provide and maintain such insurance”
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COMPLAINT
constitutes a “default” under the Pole License Agreement, pursuant to Section 15(b).
18. Pursuant to Section 13(b) of the Pole License Agreement, in the event Time
Warner fails to “(1) obtain and maintain the required insurance; (2) name SCE as an
additional insured and loss payee; or (3) require its insurance provider to pay a third party
claim which is covered by the insurance required under Section 15,” Time Warner is
required to indemnify, defend, and hold SCE harmless from and against all liabilities,
“including, but not limited to, Liabilities claimed to result from . . . damage to or loss or
destruction of any property arising in whole or part out of the negligent performance or
nonperformance by [Time Warner] or its contractors of their obligations regardless of the
negligence of [SCE].”
19. Further, Section 13(a) of the Pole License Agreement requires SCE and Time
Warner to mutually indemnify and hold each other harmless from and against any
liabilities, “including, but not limited to, Liabilities claimed to result from . . . damage to
or loss or destruction of any property arising out of the Party’s negligent performance or
nonperformance of its obligations to the extent such Liabilities exceed the applicable
insurance coverage in Section 15 of this Agreement.”
20. As required by the Pole License Agreement, Time Warner provided SCE
with a certificate of insurance representing that Time Warner had purchased from ACE a
commercial general liability policy, number HDO G23726051, for the policy period June
1, 2007, to June 1, 2008, which contained a $3,000,000 per occurrence limit (the “ACE
Policy”). The certificate represented that SCE was an additional insured under the ACE
Policy, which provided to SCE “the extent of coverage and limits of liability required by
the [Pole License Agreement].” Time Warner did not provide SCE with a copy of the
ACE Policy, requiring SCE to rely instead upon the representations made in the
certificate. SCE reasonably believed that the contractually required insurance had been
obtained by Time Warner, that Time Warner had otherwise abided by all the terms of the
Pole License Agreement, and that Time Warner was fulfilling its obligations of good faith
and fair dealing.
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COMPLAINT
THE RATHJ E LAWSUIT
21. On October 21, 2007, a wildfire commonly known as the “Nightsky Fire”
raged through 53 acres of land in the Santa Rosa Valley in Ventura County, California.
Over two acres of the Rathje family’s commercial lavender farm located in the path of the
fire were destroyed.
22. On October 20, 2009, the Rathje family (“Rathje plaintiffs”) and the
California Department of Forestry and Fire Protection and Ventura County Fire Protection
District (“CalFire plaintiffs”) filed separate civil complaints against SCE and Time
Warner in Ventura County Superior Court.
23. The Rathje and CalFire plaintiffs alleged that the Nightsky Fire was caused
by a combination of electrical arcing (a phenomenon associated with sustained electric
currents) and sparks resulting from the wind-driven collision of lines owned by Time
Warner and SCE on poles owned or jointly-owned by SCE and licensed by Time Warner
pursuant to the Pole License Agreement.
24. The plaintiffs in both cases sought to hold Time Warner and SCE jointly
liable for the Nightsky Fire. The plaintiffs specifically alleged that Time Warner and SCE
were each responsible for the fire and were also responsible for the acts of the other. For
example, the Rathje plaintiffs’ First Amended Complaint, filed on October 28, 2009
against SCE and Time Warner, alleged that both companies were responsible for the fire,
repeatedly referring to the “Defendants’” allegedly wrongful conduct, and further alleging
that each of the defendants was the agent of the other and at all times acting within the
scope of that agency. Rathje FAC ¶ 5. Subsequently, the Rathje plaintiffs’ Third
Amended Complaint pleaded that:
[E]ach of those defendants was in some manner wrongfully and proximately
responsible for the events and happenings alleged in the Complaint and for
Plaintiffs’ injuries and damages . . . . At all times mentioned herein, each of
the Defendants . . . was the agent, servant, employee, or joint venturer, of the
co-defendants and each of them, and at all said times each Defendant was
acting in the full course and scope of said agency, service, employment or
joint venture.
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Rathje TAC ¶¶ 5-6. The CalFire plaintiffs’ original and amended complaints similarly
alleged that “each Defendant was the principal, agent, employer, and/or employee of the
other in doing the things alleged in this Complaint.” CalFire Compl. & FAC, ¶ 13;
CalFire FAC ¶ 13.
In other words, the Rathje and CalFire plaintiffs alleged in their lawsuits that SCE
was liable not only for its own acts and omissions but also for the acts and omissions of
Time Warner. This was precisely the type of claim (a) for which Time Warner was
required by the Pole License Agreement to procure insurance for SCE; and (b) which the
insurance certificate represented was covered by the ACE Policy. The Rathje and CalFire
cases were consolidated into one action — the Rathje Lawsuit — in October 2010.
25. Because the plaintiffs sought to hold SCE responsible for Time Warner’s acts
or omissions, SCE tendered the defense and indemnity of the Rathje Lawsuit to Time
Warner and ACE. By virtue of its relationship with ACE and Time Warner, and through
communications from SCE and others, including Time Warner, defendant ESIS also had
actual or constructive knowledge of SCE’s demands for coverage.
26. As described more fully below, SCE’s tenders to the defendants were
rebuffed or ignored, and the defendants acting in concert with one another abandoned SCE
to defend itself.
27. The Rathje Lawsuit eventually resulted in a judgment holding SCE and Time
Warner jointly liable for the plaintiffs’ damages. Time Warner and SCE have appealed,
and SCE continues to incur defense costs.
SCE’S DEFENSE REQUESTS ARE REBUFFED AND IGNORED
28. SCE tendered the defense of the Rathje Lawsuit to Time Warner on April 25,
2011, pursuant to Time Warner’s obligations under the Pole License Agreement. The
tender was made to Time Warner’s legal counsel, Wilson Elser Moskowitz Edelman &
Dicker LLP (“Wilson Elser”). In that April 25 correspondence, SCE specifically
requested that Time Warner notify the insurance carrier of the case and forward SCE’s
tender to the insurance carrier. SCE further demanded that Time Warner defend SCE if
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Time Warner had not maintained the required insurance coverage. SCE also asked for a
copy of the applicable insurance policy. By virtue of its relationship to Time Warner,
ACE simultaneously had (a) either actual or constructive knowledge of this tender; and/or
(b) actual or constructive knowledge that the Rathje Lawsuit had been filed naming both
Time Warner and SCE as defendants and alleging that SCE was liable for the acts and
omissions of Time Warner.
29. On May 4, 2011, Time Warner rejected SCE’s request because, according to
Time Warner, its indemnity obligation under Section 13(a) of the Pole License Agreement
was only triggered in the event the liabilities at issue exceeded the available insurance
coverage. Time Warner contended that, because it had procured from ACE the required
insurance for SCE in accordance with Section 15 of the Pole License Agreement, and
because the combined damages claimed in the Rathje Lawsuit did not exceed the
$3,000,000 in insurance coverage in place at the time of the Nightsky Fire, Time Warner
was under no obligation to indemnify or defend SCE. In other words, Time Warner
claimed that the proper insurance had been obtained and maintained as required by the
Pole License Agreement.
30. Following Time Warner’s refusal to defend and indemnify SCE, on May 10,
2011, and in reliance upon the representations made in the certificate of insurance that it
was an additional insured under the ACE Policy to the full extent required by the Pole
License Agreement, as well as Time Warner’s claim that SCE must first look to the
insurance company for protection, SCE tendered the defense and indemnity of the Rathje
Lawsuit to ACE. Although ACE was presumably already aware of the Rathje Lawsuit
from its relationship with Time Warner, SCE enclosed with its tender to ACE a copy of
the Rathje Third Amended Complaint. SCE requested a prompt response from ACE.
31. SCE had at this time never been provided with a copy of the ACE Policy by
ACE, ESIS, or Time Warner. SCE had no knowledge of any possible involvement by
ACE’s affiliate ESIS with respect to claims handling. By virtue of its relationship to ACE
through their common ownership, co-location of offices, and alter-ego relationship,
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however, ESIS had either actual or constructive knowledge of all of SCE’s
communications with ACE regarding demands for defense and indemnity coverage.
32. SCE received no response from either ACE or ESIS. On May 20, 2011,
Mary Dickinson of SCE called Adrian Logan of ACE to confirm that SCE had sent its
May 10 tender to the correct address. Ms. Logan confirmed that SCE had indeed sent the
letter to the correct address. Despite Ms. Logan’s confirmation, SCE received no
response from ACE.
33. On October 4, 2011, five months after SCE’s initial tender, SCE sent another
letter to ACE inquiring about the defense and indemnity of the Rathje Lawsuit. SCE
noted that it had heard nothing from ACE since its first letter, even though “[u]nder the
terms and conditions of [the] policy, . . . [ACE is] obligated to insure and represent SCE
in [the Rathje lawsuit].” Again, ACE failed to respond to SCE.
34. By letter dated April 16, 2012, SCE attempted once more to secure ACE’s
compliance with its contractual obligations to defend and indemnify SCE in the Rathje
Lawsuit. SCE enclosed another copy of the Rathje Third Amended Complaint and
requested a written response from ACE by April 19, 2012. April 19 passed with no
response from ACE.
35. ACE never substantively responded to any of SCE’s communications.
Though SCE followed up each of its three demand letters with phone calls to ACE, SCE
was ignored each time. Upon information and belief, ACE failed to engage in even the
most basic investigation into whether SCE is entitled to coverage under the ACE Policy in
connection with the Rathje Lawsuit.
36. As a result of the refusals from ACE and ESIS to comply with their
obligations under the ACE Policy, SCE has been forced to defend itself in the Rathje
Lawsuit, fronting all of the costs and time associated with the lengthy litigation. Potential
settlement opportunities were never engaged by ESIS or ACE, and a jury eventually
returned a verdict while ACE and ESIS abrogated their duties to defend SCE.
37. SCE’s most recent attempts to involve ACE in the Rathje Lawsuit have been
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similarly futile. By letter dated May 29, 2014, SCE requested that ACE attend a
mediation in the Rathje appeal on SCE’s behalf. ACE ignored the request.
38. On June 27, 2014, SCE again demanded that ACE begin complying with its
duty to defend SCE in the Rathje Lawsuit. SCE heard nothing from ACE in reply. Time
Warner subsequently confirmed that ACE and ESIS were aware of SCE’s requests.
39. Upon information and belief, ACE and / or ESIS have been providing Time
Warner coverage in connection with the Rathje Lawsuit and have been fully aware of the
case and all material developments in the case since its inception. ESIS and ACE have
made a conscious business decision to ignore and frustrate SCE’s claims as an additional
insured under the ACE Policy. Similarly, by virtue of its relationship to ACE, ESIS has
been fully aware of the Rathje Lawsuit and all material developments in the case since its
inception, yet has made a conscious business decision to ignore and frustrate SCE’s
claims as an additional insured under the ACE Policy.
RECENT ATTEMPTS TO OBTAIN THE POLICY ARE THWARTED
40. SCE had requested a copy of the applicable insurance policy from Time
Warner in its April 25, 2011 letter. Confronted with Time Warner’s refusal to defend and
indemnify SCE under the Pole License Agreement on the one hand, and ACE’s refusal to
respond to SCE’s demands for defense and indemnity under the ACE Policy on the other,
SCE delivered further requests to all of the defendants for a copy of the ACE Policy.
41. On January 12, 2014, an SCE representative emailed Time Warner’s law
firm Wilson Elser, requesting a copy of the ACE Policy. Instead of providing the ACE
Policy, however, Wilson Elser responded with a copy of its earlier May 4, 2011 letter
rejecting SCE’s original tender of defense because (according to Time Warner) the
appropriate insurance was in place. As the May 4, 2011 letter from Time Warner states:
“TWC procured the necessary insurance.” Even while continuing to claim that Time
Warner had obtained the appropriate insurance for SCE, Time Warner continued to
conceal the specific terms of that insurance from SCE.
42. On March 7, 2014, SCE issued a subpoena to ACE requiring production of
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the ACE Policy.
43. Time Warner, through its counsel—who was apparently acting on concurrent
instructions from Time Warner, ACE, and ESIS—objected to the subpoena, threatening to
file a motion to quash and to pursue sanctions against SCE if the subpoena was not
withdrawn. Although Time Warner, ESIS, and ACE never moved to quash the subpoena,
and it was never withdrawn by SCE, ACE ignored the subpoena and did not produce a
copy of the ACE Policy.
44. SCE sent multiple additional requests for the ACE Policy to Time Warner’s
counsel Wilson Elser between March 25, 2014 and June 1, 2014, which were repeatedly
rebuffed. The policy still was not produced by ACE, ESIS, or Time Warner.
45. During the week of May 19, 2014, an SCE representative telephoned Jean
Hawkins of ACE to inquire about the ACE Policy and why there had been no compliance
with the subpoena. Ms. Hawkins directed him to Angela Avakika of ESIS. SCE then
contacted ESIS and spoke with Sylvia Puentes, who in turn directed the SCE
representative to Karen Pembridge of ACE Risk Management.
46. On May 23, 2014, an SCE representative emailed Karen Pembridge to seek
her assistance in obtaining a copy of the ACE Policy. Ms. Pembridge referred the inquiry
to Time Warner’s insurance broker, Melissa Yee of the Marsh brokerage firm, only to be
told by Ms. Yee on March 27, 2014 that she needed to discuss SCE’s request for a copy of
the ACE Policy with Time Warner, and that she would get back to SCE’s representative.
Ms. Yee never responded to the March 27 communication or a follow-up telephone
message from an SCE representative.
47. SCE’s representative sent Ms. Hawkins of ACE a letter on May 29, 2014,
detailing SCE’s many unsuccessful attempts to obtain a copy of the ACE Policy and
demanding the ACE Policy again.
48. Two weeks later, SCE received a letter from Time Warner’s lawyers at
Wilson Elser referencing SCE’s May 29, 2014 letter demand to ACE. Wilson Elser
instructed SCE that “ACE has requested that all further communications on this topic be
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directed to our office only.” The letter confirmed that not only were Time Warner and
ACE working together, they were speaking with one voice to SCE to prevent SCE from
obtaining benefits due to SCE under the Pole License Agreement and the ACE Policy.
The letter made it appear that Wilson Elser represented ACE in connection with the
insurance communications. As ACE, ESIS, and Time Warner’s lawyers were well aware,
ethical rules would thus preclude SCE’s in-house counsel, who had been the individual
seeking the ACE policy, from having further communications directly with ACE except
through ACE’s apparent counsel at Wilson Elser.
49. Thereafter, SCE’s counsel followed ACE’s instructions and sent
correspondence to Wilson Elser on June 25, 2014 again demanding production of the
ACE Policy and invoking ACE’s obligation of good faith and fair dealing to SCE.
Wilson Elser responded by denying that it was acting for ACE and instructing SCE,
contrary to its previous letter, to communicate directly with ACE. SCE then sent ACE yet
another demand for the ACE Policy on June 27, 2014, directing its correspondence to the
ACE contact identified by the Wilson Elser law firm.
50. On June 30, 2014, over six months after SCE first began requesting a copy of
the ACE Policy, SCE received a copy from counsel at Wilson Elser, who stated he was
delivering it on behalf of ACE but that he does “not represent ACE Insurance Company”
and was “only corresponding with [SCE] for the sole purpose of getting [SCE] a copy of
the policy.” The Wilson Elser firm then revealed that the ACE individual it had formerly
directed SCE to communicate with actually worked for ESIS.
THE ACE INSURANCE POLICY
51. The ACE Policy confirms ACE’s duty to defend and indemnify SCE as an
additional insured against potential claims and liabilities arising out of Time Warner’s
actions, including those asserted in the Rathje Lawsuit. A copy of relevant excerpts from
the ACE Policy is attached hereto as Exhibit B.
52. The ACE Policy states that “[w]e will pay those sums that the insured
becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property
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damage’ to which this insurance applies.” The ACE Policy further provides that “[w]e
will have the right and duty to defend any ‘suit’ seeking those damages.” “[W]e” is
defined as “the company providing this insurance.” That company is ACE.
53. “[I]nsured” is defined under the Blanket Additional Insured Endorsement to
include “any person or organization you are required by written contract to include as an
insured,” including SCE as required by the Pole License Agreement. The Blanket
Additional Insured Endorsement also provides that SCE is insured “to the extent of
coverage and limits of liability required by the [Pole License Agreement].” Because the
Pole License Agreement requires at least $2,000,000 in coverage for SCE’s potential or
actual liability arising out of Time Warner’s acts or omissions (Section 15(b)), the
unambiguous language of the ACE Policy provides that coverage to SCE.
54. “[Y]ou” is defined in the ACE Policy as “the Named Insured shown in the
Declarations,” which is Time Warner, Inc. The term “you” does not include additional
insureds such as SCE.
55. Unknown to SCE until it was finally produced just recently, the ACE Policy
contains a “Deductible Endorsement” which discloses ESIS as a “Claims Handling
Organization” and states that “[y]ou have entered into an agreement . . . whereunder the
claims service organization shown in the Schedule [i.e., ESIS] . . . shall provide for the
defense of all claims or ‘suits’ arising under this policy.” Again, the term “you” does not
include SCE as an additional insured. Accordingly, ACE retained all of its defense
obligations to additional insureds including SCE under the ACE Policy. Alternatively,
ESIS assumed ACE’s defense obligations to additional insureds, including SCE, under the
ACE Policy.
56. The Deductible Endorsement provides for a $2,000,000 “Deductible Per
Occurrence, and states that “[y]ou [i.e., Time Warner] will pay all sums the insured
becomes legally obligated to pay within the Deductible Per Occurrence.” This
endorsement has no effect upon SCE’s rights as an additional insured under the ACE
Policy with respect to any deductible payment arguably owed by Time Warner to ACE.
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Moreover, the Blanket Additional Insured Endorsement provides that the ACE Policy
covers SCE “to the extent of coverage and limits of liability required by the [Pole License
Agreement]” and supersedes anything arguably to the contrary in the Deductible
Endorsement. Neither Time Warner nor ESIS are insurance companies, and neither can
provide the insurance coverage required by the Pole License Agreement and contractually
extended to SCE by the ACE Policy through the Blanket Additional Insured Endorsement.
57. Thus, pursuant to the terms of the ACE Policy, ACE and ESIS must defend
and indemnify SCE in the first instance against any claims or suits seeking damages for
the alleged misconduct of Time Warner. Any contractual rights which ACE or ESIS may
possess permitting either party to obtain payment from Time Warner for the deductible
amount have no effect upon SCE’s rights to performance from ACE or ESIS under the
ACE Policy or ESIS’s agreement to provide claims administration and defense.
CIVIL CONSPIRACY
58. Upon information and belief, SCE alleges that beginning at some point in
time which is not yet known, and continuing through the present, the defendants entered
into an agreement and a civil conspiracy to undertake a substantial portion of the wrongful
acts set forth and alleged in this Complaint.
59. These co-conspirators acted with a unity of interest in implementing their
scheme to deny SCE the defense and protections SCE had been promised and which were
due to SCE by law, as described further herein, including the co-conspirators’ apparent
agreement to improperly: (1) refuse to cooperate with SCE’s request for a defense of the
Rathje Lawsuit; (2) refuse to provide SCE with a copy of the ACE Policy for an extended
period of time; (3) confuse SCE with various inconsistent and false communication
demands; (4) send SCE around to various individuals at ACE and ESIS and other parties
to thwart SCE’s attempts to obtain a copy of the ACE Policy obtained for SCE’s benefit;
(5) refuse to honor a civil subpoena seeking a copy of the ACE Policy, then threaten
sanctions for SCE’s attempts to seek compliance with the subpoena; (6) conceal the true
terms of the ACE Policy from SCE while claiming the policy covered the Rathje Lawsuit;
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and (7) undertake the other acts of misconduct described herein for the purpose of
frustrating SCE’s attempts to obtain the benefits of the ACE Policy and other agreements
benefitting SCE.
60. As co-conspirators, the defendants are each liable for all of the wrongful acts
of the other conspirators, regardless of whether each conspirator was a direct actor and
irrespective of each conspirator’s degree of activity in the overall conspiracy and
implementation of that conspiracy.
61. Each of the defendants, with full knowledge, expressly and impliedly ratified
the acts of the other defendants in all respects and adopted as his or its own acts the acts of
the other defendants and each of them as set forth in detail herein.
FIRST CAUSE OF ACTION
(Breach of Contract Against ACE)
62. SCE realleges and incorporates by reference herein each allegation contained
in paragraphs 1 through 61 above.
63. The ACE Policy is a valid agreement under which ACE made certain
promises to insure—including promises to defend and indemnify—various parties.
Among other things, ACE is required by the ACE Policy to provide a full defense to SCE.
ACE is further required, among other things, to reimburse SCE for the costs incurred by
SCE in defending the Rathje Lawsuit.
64. SCE has done all of the things required of SCE under the ACE Policy.
65. All conditions required under the ACE Policy for ACE’s performance were
excused or have occurred, as detailed herein.
66. ACE breached its duties to SCE under the ACE Policy by, among other
things: (1) intentionally ignoring SCE’s repeated requests for defense and
indemnification; (2) failing to undertake any investigation of SCE’s claims for coverage
under the ACE Policy; (3) failing to provide SCE at any time with its coverage position;
and (4) failing to provide a defense or reimburse SCE for its defense of the Rathje
Lawsuit.
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67. As a direct and proximate result of ACE’s breach of contract, SCE has
suffered, and continues to suffer, direct and consequential damages in connection with the
Rathje Lawsuit, including the fees and costs incurred as a result of mounting its own
defense, as well as any settlements or judgments that SCE may become legally obligated
to pay.
SECOND CAUSE OF ACTION
(Breach of Contract Against ESIS)
68. SCE realleges and incorporates by reference herein each allegation contained
in paragraphs 1 through 67 above.
69. On information and belief, as outlined in the ACE Policy, Time Warner
“entered into an agreement with the claim service organization . . . [ESIS] . . .,
whereunder the Claims Services Organization shall provide investigation, administration,
adjustment, and settlement services, and shall provide for the defense of all claims or
‘suits’ arising under the policy.”
70. Though ESIS assumed ACE’s duty to defend Time Warner as the “Named
Insured” for all claims or suits arising under the ACE Policy pursuant to the Deductible
Endorsement, ACE retained the obligation to defend and indemnify all additional
insureds, such as SCE. Alternatively, if ESIS assumed all of ACE’s defense obligations
under the ACE Policy pursuant to the Deductible Endorsement, including duties owed to
additional insureds, ESIS has a duty under the ACE Policy to defend SCE for the Rathje
Lawsuit. Under a fair reading of the insurance policy, both ACE and ESIS have
contractual obligations to defend SCE in the Rathje Lawsuit.
71. SCE has done all of the things required of SCE under the ACE Policy,
including making numerous attempts to communicate with ACE and / or ESIS, all of
which have been rebuffed by ACE and / or ESIS.
72. On information and belief, all conditions required under the ACE Policy for
ESIS’s performance were excused or have occurred, as detailed herein.
73. By virtue of its relationship to ACE through their common ownership and co-
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location of offices, and from their communications among themselves and others, ESIS
had either actual or constructive knowledge at all relevant times of SCE’s
communications with ACE regarding demands for defense and indemnity coverage.
74. ESIS breached its duties by, among other things: (1) intentionally ignoring
SCE’s repeated requests for defense and indemnification; (2) failing to undertake any
investigation of SCE’s claims for coverage under the ACE Policy; (3) failing to provide
SCE at any time with its coverage position; and (4) failing to provide a defense or
reimburse SCE for its defense of the Rathje Lawsuit.
75. As a direct and proximate result of ESIS’s breach of contract, SCE has
suffered, and continues to suffer, direct and consequential damages in connection with the
Rathje Lawsuit, including the fees and costs incurred as a result of mounting its own
defense, as well as any settlements or judgments that SCE may become legally obligated
to pay.
THIRD CAUSE OF ACTION
(Breach of Contract Against Time Warner)
76. SCE realleges and incorporates by reference herein each allegation contained
in paragraphs 1 through 75 above.
77. Time Warner, by operation of law and through various merger and
acquisition agreements, is a party to and responsible for performing the Pole License
Agreement and for the acts of its predecessor entities in their performance and breach of
the Pole License Agreement.
78. Time Warner is required, under Section 13(b) of the Pole License
Agreement, to (1) obtain and maintain the required insurance pursuant to Section 15; (2)
name SCE as an additional insured and loss payee; and (3) require its insurance provider
to pay a third party claim which is covered by the insurance required under Section 15.
79. Pursuant to Section 13(b), if Time Warner fails to comply with any of these
requirements, Time Warner must indemnify, defend, and hold SCE harmless from any
liabilities—including damage to or loss or destruction of any property—arising in whole
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or in part from the negligence of Time Warner, regardless of SCE’s negligence.
80. Time Warner is further required, under Section 15(b) of the Pole License
Agreement, to promptly provide upon SCE’s request proof of full compliance with its
insurance obligations.
81. SCE has done all of the things required of SCE under the Pole License
Agreement.
82. All conditions required under the Pole License Agreement for Time Warner’s
performance were excused or have occurred, as detailed herein.
83. Time Warner breached its duties under the Pole License Agreement by
rejecting SCE’s requests for defense and indemnity in connection with the Rathje Lawsuit
after failing “to require its insurance provider to pay” the defense and liability expenses
incurred by SCE in connection with the Rathje Lawsuit. Not only did Time Warner not
“require” ACE or ESIS to comply with their obligations, but Time Warner actively
hindered SCE’s ability to receive its bargained-for coverage by continually interfering
with SCE’s attempts to obtain a copy of the ACE Policy and refusing to provide a copy of
the policy to SCE, all the while claiming that Time Warner had procured the necessary
insurance. Time Warner actively concealed the specific terms of the ACE Policy from
SCE until only recently.
84. Furthermore, if it were to be determined that ACE and ESIS have no duty to
defend or indemnify SCE in connection with the Rathje Lawsuit, Time Warner will have
breached the Pole License Agreement by failing to obtain and maintain the required
insurance under Section 15, which requires Time Warner to carry insurance for SCE
“with a combined single limit of not less than $2,000,000 for each occurrence.”
85. Under Section 15, failure to provide and maintain such insurance constitutes
a “default” under the Pole License Agreement and triggers Time Warner’s obligation to
indemnify and defend SCE under Section 13(b). Time Warner has refused to defend and
indemnify SCE in connection with the Rathje Lawsuit.
86. As a direct and proximate result of ACE’s breach of contract, SCE has
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suffered, and continues to suffer, direct and consequential damages in connection with the
Rathje Lawsuit, including the fees and costs incurred as a result of mounting its own
defense, as well as any settlements or judgments that SCE may become legally obligated
to pay.
87. Because of its several breaches of the Pole License Agreement, and pursuant
to Section 22(g) of the Pole License Agreement, Time Warner is also responsible to SCE
for all attorneys’ fees and costs associated with SCE’s claim against Time Warner,
including but not limited to “reasonable litigation expenses” and attorneys’ fees. SCE
also seeks to recover all such litigation costs and attorneys’ fees from Time Warner.
FOURTH CAUSE OF ACTION
(Breach of the Implied Covenant of Good Faith and Fair Dealing Against Time Warner)
88. SCE realleges and incorporates by reference herein each allegation contained
in paragraphs 1 through 87 above.
89. Implied in the Pole License Agreement is a covenant that the parties would
act in good faith and deal fairly with each other. The covenant of good faith and fair
dealing acts to prevent Time Warner from unfairly frustrating SCE’s right to receive the
benefits of the Pole License Agreement.
90. Time Warner breached the covenant of good faith and fair dealing when it
took actions, as described in this Complaint and which will be evidenced at the trial of this
matter, to deprive SCE of its right to receive the benefits of the Pole License Agreement
and the insurance promised to SCE in that agreement.
91. SCE has been damaged as a direct and proximate result of Time Warner’s
breach of the covenant of good faith and fair dealing. The actual amount of SCE’s
damages has not yet been precisely ascertained. When the precise amount of SCE’s
damages are known, it will assert those damages accordingly.
92. The misconduct of Time Warner, in concert with ACE and ESIS as described
herein, has resulted in SCE not receiving the benefit of the insurance and defense
protections promised by Time Warner in the Pole License Agreement.
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93. Because of its several breaches and pursuant to Section 22(g) of the Pole
License Agreement, Time Warner is also responsible to SCE for all attorneys’ fees and
costs associated with SCE’s claim against Time Warner, which are made “in connection
[]with” the Pole License Agreement, including but not limited to “reasonable litigation
expenses” and attorneys’ fees. SCE also seeks to recover all such litigation costs and
attorneys’ fees from Time Warner.
FIFTH CAUSE OF ACTION
(Breach of the Implied Covenant of Good Faith and Fair Dealing /
Insurance Bad Faith Against ACE and ESIS)
94. SCE realleges and incorporates by reference herein each allegation contained
in paragraphs 1 through 93 above.
95. Implied in the ACE Policy is a covenant that ACE would act in good faith
and deal fairly with SCE, that it would do nothing to interfere with SCE’s rights to receive
the benefits due under the ACE Policy, and that it would give at least the same level of
consideration to SCE’s interests as it gives to its own.
96. In breach of the implied covenant of good faith and fair dealing, ACE made a
conscious business decision to prevent SCE from obtaining the rights and benefits to
which it is entitled under the ACE Policy, thereby placing its own pecuniary interests
ahead of SCE’s best interests.
97. ACE wrongfully refused to defend and indemnify SCE and did not deal fairly
with SCE by (1) not responding to SCE’s repeated requests for defense and
indemnification, in violation of California Code of Regulations Title 10, Chapter 5,
Subchapter 7.5, Section 2695.5; (2) failing to conduct a reasonable investigation into
possible bases supporting coverage for SCE’s potential liabilities; (3) failing ever to
provide SCE with its coverage position; (4) unreasonably withholding benefits due to
SCE under the ACE Policy; and (5) working with Time Warner to frustrate SCE’s
attempts to obtain a copy of the ACE Policy.
98. ACE actively interfered with SCE’s rights to receive benefits under the ACE
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Policy by rebuffing SCE’s repeated requests for a copy of the ACE Policy and by instead
giving SCE the “run around” in the hope that SCE would abandon its efforts to obtain a
copy of the ACE Policy for the purpose of verifying and enforcing its rights to coverage.
99. ACE’s acts are inconsistent with reasonable expectations, are contrary to
established claims practices and legal requirements, and constitute bad faith conduct.
100. By virtue of its relationship to ACE through their common ownership and co-
location of offices, ESIS had either actual or constructive knowledge at all relevant times
of SCE’s communications with ACE regarding demands for defense and indemnity
coverage, yet acted both independently and through ACE to ignore and frustrate SCE’s
claims as an additional insured under the ACE Policy.
101. SCE has been damaged as a direct and proximate result of these breaches.
The actual amount of SCE’s damages has not yet been precisely ascertained. When the
precise amount of SCE’s damages are known, it will assert those damages accordingly.
102. As a direct and proximate result of the conduct of ACE and ESIS, it became
reasonably necessary for SCE to engage the services of legal counsel. SCE is entitled to
recover all attorneys’ fees that it reasonably has incurred and is incurring in its efforts to
obtain the benefits of the coverage that ACE has wrongfully withheld in bad faith, plus
interest. The total amount of these attorneys’ fees is currently unknown. When the
precise amount of damages is known, SCE will assert those damages accordingly.
103. The conduct of ACE and ESIS was malicious, oppressive, and/or fraudulent,
and has been done with willful and knowing disregard for SCE’s rights. ACE and ESIS
engaged in a series of acts designed to wrongfully deny SCE the benefits due under the
ACE Policy. Specifically, by acting as alleged above, in light of the information, facts,
and law to the contrary, ACE and ESIS consciously disregarded SCE’s rights and ignored
SCE’s interests and concerns, forcing SCE to incur substantial financial loss without any
assistance from ACE or ESIS, thereby inflicting undue hardship, including substantial
financial damages, on SCE. Therefore, SCE is entitled to recover punitive damages from
ACE and ESIS in an amount sufficient to punish and make an example of them and in
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order to deter similar conduct.
SIXTH CAUSE OF ACTION
(Declaratory Relief Against ACE and ESIS)
104. SCE realleges and incorporates by reference herein each allegation contained
in paragraphs 1 through 103 above.
105. An actual controversy exists between SCE and ACE, including ESIS,
concerning their respective rights and obligations under the ACE Policy. SCE asserts that
ACE and ESIS are contractually obligated to defend SCE with respect to the Rathje
Lawsuit. SCE also asserts that ACE is contractually obligated to indemnify SCE with
respect to the Rathje Lawsuit. ACE and ESIS have refused to accept responsibility for the
defense and indemnification of SCE with respect to the Rathje Lawsuit and have refused
to respond to SCE’s numerous coverage requests.
106. SCE requests a judicial determination of the rights and obligations of SCE
and ACE, including ESIS, under the ACE Policy, and a declaration that ACE and/or ESIS
are obligated to cover SCE for all of its expenditures incurred and to be incurred in
accordance with the ACE Policy and with respect to the Rathje Lawsuit. Such a
declaration is necessary and appropriate at this time in order that SCE may ascertain its
rights to coverage for the Rathje Lawsuit.
SEVENTH CAUSE OF ACTION
(Declaratory Relief Against Time Warner)
107. SCE realleges and incorporates by reference herein each allegation contained
in paragraphs 1 through 106 above.
108. An actual controversy exists between SCE and Time Warner concerning their
respective rights and obligations under the Pole License Agreement. SCE asserts that
Time Warner is contractually obligated to, among other things, defend SCE with respect
to the Rathje Lawsuit. Time Warner has refused to accept responsibility for its
obligations to SCE in connection with the Rathje Lawsuit.
109. SCE requests a judicial determination of the rights and obligations of SCE
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and Time Warner under the Pole License Agreement and a declaration that Time Warner
is obligated to cover SCE for all of its expenditures incurred and to be incurred in
accordance with the Pole License Agreement and with respect to the Rathje Lawsuit.
Such a declaration is necessary and appropriate at this time in order that SCE may
ascertain its rights to coverage for the Rathje Lawsuit.
PRAYER FOR RELIEF
WHEREFORE, SCE prays for relief and judgment as follows:
1. An award of the actual and consequential damages that SCE sustained as a result
of ACE’s and ESIS’s contractual breach, in an amount to be determined at trial;
2. An award of the actual and consequential damages that SCE sustained as a result
of Time Warner’s contractual breach, in an amount to be determined at trial;
3. An award of the actual and consequential damages that SCE sustained as a result
of Time Warner’s breach of the implied covenant of good faith and fair dealing,
in an amount to be determined at trial;
4. An award of the actual and consequential damages that SCE sustained as a result
of ACE and ESIS’s breach of the implied covenant of good faith and fair dealing
and their bad faith insurance conduct, in an amount to be determined at trial;
5. An award of attorneys’ fees and litigation costs under the Pole License
Agreement for the cost of this civil action;
6. An award of reasonable attorneys’ fees incurred in obtaining the benefits
unreasonably withheld under the ACE Policy, plus interest;
7. An award of punitive damages against ACE and ESIS in an amount to be
determined at trial;
8. A declaration in accordance with SCE’s contentions stated above; and
9. An award of such other, further, and different relief as may be just and proper.
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Dated: August 1, 2014 JENNER & BLOCK LLP
/s/ Brent Caslin
By: Brent Caslin
Attorney for Southern California Edison
Company
DEMAND FOR JURY TRIAL
SCE respectfully demands a trial by jury on all claims and causes of action triable
to a jury.
Dated: August 1, 2014 JENNER & BLOCK LLP
/s/ Brent Caslin
By: Brent Caslin
Attorney for Southern California Edison
Company
Case 2:14-cv-06061-GW-JEM Document 1 Filed 08/01/14 Page 25 of 25 Page ID #:25

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