Hecke v. Federal Insurance Co. CA6

Filed 12/14/20 Hecke v. Federal Insurance Co. CA6 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

LEO HECKE, H046369 (Santa Clara County Plaintiff and Appellant, Super. Ct. No. 17CV315410)

v.

FEDERAL INSURANCE COMPANY,

Defendant and Respondent.

Appellant Leo Hecke obtained a $21,750 judgment in a breach of contract and fraud action against Mall Teen Cards, LLC (MTC), which had been insured by respondent Federal Insurance Company (Federal). After Federal refused to pay the judgment, Hecke filed this action against Federal. The trial court granted Federal’s summary judgment motion and dismissed Hecke’s action. On appeal, Hecke contends that he was entitled to recover from Federal because he was a third party beneficiary of the insurance contract, the claim was a covered claim, and Federal’s exhaustion of the policy limits by paying the remaining limits to the insureds was illegal. We reject his claim that he was a third party beneficiary. As he therefore lacked a legal basis for a direct action against Federal, we affirm the judgment. I. UNDISPUTED FACTS Federal issued a directors and officers policy to MTC and Michael Ferguson as MTC’s managing member. This policy, which covered a period from January 2013 to March 2014, provided $1 million in coverage for MTC and an additional $500,000 in

coverage for executives. This policy provided that defense costs, including attorney’s 1 fees and expenses for investigation and defense of any claim, reduced the policy limits. The policy excluded claims for bodily injury or property damage. It also excluded claims “based upon” “any deliberately fraudulent act” and contract claims against MTC. The policy provided that Federal’s obligation to defend ceased upon exhaustion of the policy limits. In January 2014, Hecke filed an action against Ferguson, MTC, and others for fraud and breach of contract. Neither the original complaint nor the July 2015 amended complaint made any mention of negligence; both alleged breach of contract and intentional fraud. Hecke did not allege that he had suffered any bodily injury or property damage. Ferguson and MTC were defendants in multiple civil actions, and Ferguson was the defendant in a criminal action. By December 2015, Federal had reimbursed defense costs of $740,944.93 and funded $140,000 in settlements in these actions. These outlays had substantially reduced the $1 million policy limit, but the $500,000 policy limit remained unimpaired. In December 2015, Federal entered into a settlement agreement with MTC and Ferguson under which Federal agreed to pay $619,055.77, the remaining policy limits, to MTC in return for a release of all claims that Ferguson and MTC might have against the policy. Federal, MTC, and Ferguson agreed that “the Policy shall be deemed fully exhausted and null and void and of no force or effect whatsoever.” The settlement