United States Fidelity & Guaranty Co. v. Lee Investments LLC (551 F. Supp. 2d 1114, 2008)

MEMORANDUM DECISION DENYING LEE INVESTMENTS LLC’S MOTION FOR NEW TRIAL (Doc. 706)

OLIVER W. WANGER, District Judge.

Lee Investments LLC (hereafter referred to as Lee) moves for an order setting aside the Judgment entered on March 1, 2007 in favor of United States Fidelity & Guaranty Company (hereafter USF & G), American Specialty Insurance Services, Inc. (hereafter American Specialty or ASI), and Aon Risk Services Inc. of Central California Risk Services (hereafter Aon), and to grant Lee a new trial on every claim and every issue. Lee states as grounds for the motion:

1. Error in jury instructions;

2. Verdict against clear weight of evidence;

3. Prejudicial misconduct by opposing counsel; and

4. Clear error, abuse of discretion, and miscarriage of justice in Court’s refusal to admit certain deposition testimony of Christy Platt.

A. Governing Standards.

A motion for new trial “may be granted to all or any of the parties and on all or part of the issues ... for any of the reasons for which new trials have heretofore been granted in actions at law in the courts of the United States.” Rule 59(a), Federal Rules of Civil Procedure. “The grant of a new trial is ‘confided almost entirely to the exercise of discretion on the part of the trial court.’ ” Murphy v. City of Long Beach, 914 F.2d 183, 186 (9th Cir.1990).

B. Error in Jury Instructions.

“[E]rroneous jury instructions, as well as the failure to give adequate instructions, are ... bases for a new trial.” Murphy v. City of Long Beach, supra, 914 F.2d at 187.

With regard to Lee’s contention that it is entitled to a new trial on the basis of instructional error, Lee asserts that it timely objected to the instructions and lack thereof during the jury instruction conference pursuant to Rule 51, Federal Rules of Civil Procedure.

1.Whether An Element of an Application For Rescission Instructions was Excluded.

Lee contends that the failure to include the element of an 2 application in Jury Instructions Nos. 19 and 20 is error.

Jury Instruction No. 19, captioned “RESCISSION: MISREPRESENTATION OF FACTS”, stated:

USF & G claims that it is entitled to rescind the workers’ compensation policy it issued to Lee Investments because of false representations or concealment (whether intentional or unintentional) by Lee Investments, when Lee Investments applied for the policy of workers’ compensation insurance. The court will determine whether USF & G is entitled to rescission based on your findings. Your must determine whether USF & G has established each of the following by a preponderance of the evidence:

1. That Lee made a misrepresentation of fact that its employees would not perform construction or that Lee would not employ construction laborers, when Lee applied for the workers’ compensation policy; and

2. Whether USF & G reasonably relied upon such misrepresentation of facts in deciding whether or not to issue the workers’ compensation policy of insurance to Lee.

Jury Instruction No. 20, captioned “RESCISSION: CONCEALMENT OF MATERIAL FACTS”, stated:

USF & G claims that it is entitled to rescind the workers’ compensation policy it issued to Lee Investments because of concealment (whether intentional or unintentional) by Lee Investments, when Lee Investments applied for the policy of workers’ compensation insurance. The Court will determine whether USF & G is entitled to rescission. You must determine whether USF & G has established each of the following by a preponderance of the evidence:

1. Whether Lee Investments concealed material facts (whether intentionally or unintentionally) or failed to advise USF & G of material facts when Lee Investments applied for the workers’ compensation policy; and

2. If you find that any facts were concealed (intentionally or unintentionally) whether such facts were material; and

3. If USF & G had known any material facts concealed or not disclosed, it would probably and reasonably not have issued the workers’ compensation policy.

As used in this instruction, ‘material fact’ means any fact that, if known by USF & G, would probably and reasonably have caused USF & G to issue or not to issue the workers’ compensation insurance policy.

(Doc. 661, pp. 20-21).

In contending that the failure to include the element of an application in these instructions was error, Lee selectively and incompletely relies on the testimony during its cross-examination of Stanley Shee-han:

Q. In the course of doing underwriting, American Specialty reviewed applications; is that correct?

A. Yes, American Specialty reviews applications as a part of underwriting.

Q. And as a matter of policy and procedures, did you request a signed application?

A. A signed application is requested as part of the procedure.

Q. And that was true in 1998; correct?

A. Yes. That was true in 1998.

(Testimony of Sheehan, Feb. 7, 2007, 16:20-17:4).

Lee argues that this testimony establishes that an application for insurance by USF & G is an element of a claim for rescission. Lee cites CACI Instruction 2308, “Rescission for Misrepresentation or Concealment in Insurance Application— Essential Factual Elements”, as including in the elements of the claim the following:

1. That [name of insured ] submitted an application for insurance with [name of insurer];

2. That in the application for insurance [name of insured ] [intentionally] [failed to state/represented] that [insert omission or alleged misrepresentation ] ....

Lee contends that Lee never submitted an application for insurance with USF & G. Rather, Lee asserts in its Motion for Judgment as a Matter of Law:

American Specialty pieced together information from various outdated and incomplete sources to write the policy, including an unsigned application for insurance with Industrial Indemnity. The original application was in substantial conflict with other information American Specialty had within its Lee file, including, without limitation, another supplemental application submitted by Dibudio & DeFendis which clearly indicated Lee’s intent to construct and erect new slides with its employees. USF & G now seeks to rescind based on Lee’s alleged misrepresentations regarding the nature and scope of Lee’s employees work as it relates to assembling an unfinished water slide.

Lee argues that the failure to include the element of an application prejudiced Lee because the jury was lead to believe that an application was unnecessary in proving rescission and, if the element had been included, the jury would have been required to find that element, of which Lee asserts there is no evidence, before finding for USF & G. Lee contends:

Evidence was introduced at trial that the formality of the application puts the applicant on notice that the information provided will be used to determine whether to issue a policy. Here, the application, and the protections inherent to the applicant therein, were missing. This missing instruction on the element of an application clearly prejudiced Lee and lead to an unfavorable result.

USF & G responds that Lee’s position is incorrect as a matter of California law, contending that the provisions of California law governing the right to rescission under the California Insurance Code and case law impose no “requirement” of an application. Moreover, Lee’s position ignores all the evidence about insurance industry practice and the prior course of dealings between these parties.

USF & G cites Mitchell v. United National Ins. Co., 127 Cal.App.4th 457, 467-469, 25 Cal.Rptr.3d 627 (2005):

United National based its right to rescind the policy on Insurance Code sections 331 and 359. Insurance Code section 331 states: ‘Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance.’ Insurance Code section 359 similarly provides: ‘If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false.’

Insurance Code sections 331 and 359 are part of a larger statutory framework that imposes ‘heavy burdens of disclosure’ ‘upon both parties to a contract of insurance, and any material misrepresentation or the failure, whether intentional or unintentional, to provide requested information permits rescission of the policy by the injured party.’ Imperial Casualty & Indemnity Co. v. Sogomonian, 198 Cal.App.3d 169, 179-180, 243 Cal.Rptr. 639 (1988) ... Insurance Code section 332, for example, requires each party to an insurance contract to disclose, ‘in good faith, all facts within his knowledge which are or which he believes to be material to the contract ... ’ The disclosure obligations imposed by these statutes are directed specifically at the formation of the insurance contract. Insurance Code section 334 states: ‘Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.’ (Ins. Code, § 334, italics added.) Insurance Code section 356 provides: “The completion of the contract of insurance is the time to which a misrepresentation must be presumed to refer.”

Requiring full disclosure at the inception of the insurance contract and granting a statutory right to rescind based on concealment or material misrepresentation at that time safeguard the parties’ freedom to contract. ‘[An insurance company] has the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks.’ ....

USF & G contends that none of these Insurance Code provisions require an “application” before a contract of insurance may be rescinded because of misrepresentation or concealment.

USF & G further argues that Sheehan’s testimony that a signed application is requested by ASI during the underwriting process is irrelevant. It is also incomplete. USF & G points to Sheehan’s testimony that an unsigned application is often accepted by an insurer. USF & G also refers to the trial testimony of Hugh Aw-trey that signed applications are usually not required as part of the underwriting process:

Q. Let’s go down to the bottom of the page, please. This application was not signed; is that correct?

A. That is correct.

THE COURT: Is there some reason for that?

THE WITNESS: Unless companies require signatures, we generally don’t have signatures of apps. If they come back at the time of binding, sometimes I will come back and say before we bind coverage, we will need a signature, but otherwise, policies are done over the phone and we submit it and it’s written without a signature.

There are certain types of policies where I might come back and say we need a signature. Workers’ Compensation, there is generally never signatures on applications.

(Testimony of Awtrey, Feb. 8, 2007, 170:7— 20). USF & G also refers to the trial testimony of Bennett Bibel that an underwriter can use any form of documentation in making an underwriting decision:

Q. Do some workers’ comp insurers make determinations whether to issue policies to particular applicants based solely on this standard Acord application?

A. I would have to say that’s the norm. The normal circumstance. In most circumstances, the Acord application, which was developed by the insurance industry, answers or asks the questions that an underwriter needs to write.

Q. Okay. Is there some guideline as to what an underwriter has to have in order to write — to decide to write a workers’ compensation insurance policy?

A. At the risk of being facetious, he needs a contract to have the pen in order to be able to have the authority to write. Underwriting is an art as well as a science. And underwriters have wide latitude in the process of accepting or declining a given risk. And an underwriter on a given day may ask for something, another day he may not ask for it. It depends on how much he knows about the nature of a particular risk and who is submitting it.

(Testimony of Bibel, Feb. 17, 2007, 38:4-21).

USF & G further asserts as without merit Lee’s contention that it was prejudiced because the “formality” of the application would' have placed Lee on notice that the information provided would be used to determine whether to issue the policy:

As a matter of fact, Lee’s broker, Aon, obviously was aware that the information it was providing to American Specialty in the August 12, 1998 letter, which it drafted, would be utilized to determine whether to issue the policy.

Therefore, USF & G contends, Lee’s claim that it was prejudiced because the element of an application was not included in the jury instructions is without merit because “[i]ts broker knew the importance of the information sought by American Specialty and that knowledge is chargeable to Lee.”

In its reply brief, Lee asserts that USF & G previously cited Cohen v. Penn Mut. Life Ins. Co., 48 Cal.2d 720, 726, 312 P.2d 241 (1957), for the proposition that the fact the insurer asked specific questions on the application makes the answers material as a matter of law. Lee asserts that it previously argued that, without a corresponding request for certain information on the application, the information is presumed immaterial, citing Reserve Ins. Co. v. Apps, 85 Cal.App.3d 228, 231, 149 Cal.Rptr. 223 (1978) and Ashley v. American Mut. Liab. Ins. Co., 167 F.Supp. 125, 132 (N.D.Cal. 1958). Therefore, Lee argues, the application itself is such an important and necessary document that it may be used to prove or disprove the element of materiality. Lee argues that the issue of an application and the presence of it was key to show the absence of fraud and the lack of a misrepresentation:

As set forth in the cases above, the application gives notice to the applicant that the information sought is important. Along with this, is the assumption that the applicant will see and review the application, see the questions asked, review the questions with either the insurer or the applicant’s broker, and thus be informed of what the insurer wants to know and also to know that the information is sought for the purposes of an underwriting determination. All of these factors are the reasons for the importance, and necessity of an application. This is supported by the CACI instruction ... which lists an application as the first element of a claim for rescission.

At trial, USF & G failed to establish the existence of an application. This is not surprising because USF & G was unable to meet this element. In the present case, two separate applications were filled out on Lee’s behalf prior to the cancellation of the original policy issued by Industrial Indemnity. Neither were signed by Lee. The most recent application, and not surprisingly, the one not completed by Aon, clearly answered the question regarding whether the employees were building or erecting slides in the affirmative! The unequivocal testimony at trial was that this application was in the Lee file at ASI when the USF & G policy was issued. ASI testified that it reviewed the file in determining whether to issue the USF & G policy.

Accordingly, it was uncontroverted that on this earlier application Lee informed ASI that it intended to perform acts that USF & G would later construe as construction.

Moreover, Lee was not provided another ‘fresh’ application despite the change in circumstances and experience of Lee in operating the park. Lee knew what remained to be completed (the red slide) and that it intended, as long as Bruce Calomiris was a part of the operation, that Lee would maintain all the slides and might assemble the red slide if it was completed. On the other hand, Lee did not know the contents of the August 11, 1998 letter. Thus, Lee did not have sufficient notice of information which should have been in the application.

Lee’s position is without merit and spurious. A contract of insurance was issued to Lee by USF & G based on a specific request to Lee’s broker, Aon, that Lee represent in writing that it would not perform construction or utilize construction workers at the Island Water Park. The evidence was undisputed that Aon was Lee’s agent of record for the workers’ compensation policy, not DiBuduo & De-Fendis. ASI had the “pen” for USF & G and acted as underwriter for USF & G. Lee instructed ASI to find and obtain the coverage after Lee’s Industrial Indemnity workers’ compensation policy was can-celled due to Lee’s employees’ performance of construction work. Lee knew that USF & G would not issue it a workers’ comp policy without those express written representations of no construction activities.

Lee’s position would negate any ability of USF & G to rescind its policy merely because an application was not completed and signed by Lee. Lee’s arguments concerning the importance of the application pertaining to materiality were all presented to and decided adversely to Lee by the jury on the issue of liability. The jury found Lee’s position to be permeated with deceit and decided accordingly. As discussed in accompanying rulings on post-trial motions, there was no question that Lee fully understood the importance of its truthful representations about no construction activities before a policy would be issued, as evidenced by Lisa Erlich’s and Cindy Platt’s testimony. The requested instruction was misleading and would have confused the jury based on the unique facts of the case.

Lee’s motion for new trial on this ground is DENIED.

2. Lee’s Instruction Regarding Duties Created by American Specialty’s Representation of Special Expertise.

Lee contends that the refusal to give Lee’s proposed Jury Instruction No. 17 was prejudicial error.

Lee’s proposed Jury Instruction No. 17 was captioned “SPECIAL EXPERTISE” and stated:

Where an insurance company’s agent holds itself out as having a special expertise for the benefit of the prospective insured, the insurance company’s agent assumes duties to the insured and may be found to be an agent for both the insurer and the insured.

(Doc. 570-2, p. 22). The authority cited for the proposed instruction was Kurtz, Richards, Wilson & Co. v. Insurance Communicators Marketing Corp., 12 Cal. App.4th 1249, 1257, 16 Cal.Rptr.2d 259 (1993). (Doc. 570-2, p. 22).

Contending that ASI expressly marketed itself directly to Lee through its promotional brochures that touted its special expertise, Lee refers to the trial testimony of Matt Sackett:

Q. ... Now, American Specialty, in addition to the general statements about its expertise in sports and entertainment, risk management and insurance, it also holds itself out as having expertise in meeting water park insurance needs; is that correct? Or it did, at least, in 1998?

A. Per the marketing materials, 1998,1 believe it did, yes.

(Testimony of Sackett, Feb. 1, 2006, 165:15-21).

Lee states that “those same brochures described Lee as American Specialty’s ‘client.’ ” Lee asserts that it relied on these representations and expected ASI to use its expertise to protect Lee to the extent insurance could protect it, citing Lisa Ehrlich’s trial testimony:

Q. Had you ever developed any water parks?

A. No.

Q. Was this a totally new area for you and your dad?

A. Absolutely new.

Q. Okay. So was it important to you to have special expertise to assist you with the insurance needs for this new venture?

A. Yes.

Q. How important?

A. Extremely important on a number of different levels. Number one, we, having not operated a water park, we had no idea what kind of exposures there might be. We didn’t even know the types of insurance that you needed.

(Testimony of Lisa Ehrlich, Feb. 12, 2007, 11:5-17).

Kurtz, Richards, Wilson & Co. v. Insurance Communicators Marketing Corp., supra, 12 Cal.App.4th 1249, 16 Cal.Rptr.2d 259, involving review by a demurrer, stated in pertinent part:

On the element of duty, respondents argued that KRW had not and could not allege that ICMC or Hoge had breached any duty to KRW, because an insurance agent who is known to the insured to be an agent of the insurance company has no duty to the insured, but only to the insurer. Even if that were a correct statement of the law, the demurrer was improperly granted, since the complaint does not allege that the relationship of ICMC and Hoge to Union was disclosed to KRW, but only that it existed. More importantly, it is not a correct statement of the law.

At a minimum, an insurance agent has a duty to use reasonable care, diligence, and judgment in procuring the insurance requested by its client. An agent may assume additional duties by an agreement or by holding himself or herself out as having specific expertise. (Jones v. Grewe, supra, 189 Cal.App.3d 950, 954, 234 Cal.Rptr. 950 (1987).) These duties do not disappear because the agent is also the agent for an insurer. Dual agencies are not uncommon, and do not negate the agent’s duty to the client.....

Lee argues that the failure to give proposed Instruction No. 17 prejudiced Lee because the jury was led to believe that ASI did not have an agency relationship with Lee:

Had the jury been provided this instruction, the jury would have been able to determine that American Specialty had a duty to Lee and breached that duty. Without the instruction, Lee’s theories of liability against American Specialty, and its defenses against USF & G, were prejudicially undercut.

USF & G responds that proposed Instruction No. 17 misstates the law, is factually inapplicable under the circumstances, and is argumentative, all reasons it was rejected by the court.

In arguing that Lee misstates the law, USF & G refers to Kurtz’s conclusion:

When an insurance agent deliberately misrepresents a material fact in an application for insurance presented on behalf of a client who is unaware of the misrepresentation, the agent breaches the duty of reasonable care owed to the client. This is true whether or not those actions might also constitute a breach of a duty owed by the agent to the insurer. The cross-complaint thus states a cause of action for negligence.

12 Cal.App.4th at 1258, 16 Cal.Rptr.2d 259. USF & G contends:

There simply was no evidence that American Specialty had any role in preparing any application for insurance on behalf of Lee or made any representations in the application.

Lee replies, although Kurtz involved an affirmative misrepresentation by a broker, the dual agency described in Kurtz at page 1257, 16 Cal.Rptr.2d 259, is equally applicable “where a broker such as ASI fails to meet the standard of care by omission rather than an affirmative action.”

USF & G contends, the Kurtz court reversed on the ground that the insured should have an opportunity for trial of its claim of negligence by the agent of the insurer. Here, USF & G asserts, Lee unreservedly had that opportunity and introduced evidence in support of its claim that ASI professed its expertise in insurance for sports and entertainment risks and was negligent by not obtaining coverage for Lee’s construction activities. Lee also strenuously argued that ASI was a dual agent for Lee and USF & G. What Lee failed to establish, and the jury did not find, were any breaches of any duties to Lee by ASI.

With regard to the contention that proposed Instruction No. 17, based on Kurtz, was inapplicable under the circumstances, USF & G argues:

All those cases involve circumstances where an agent for an insurer directly dealt with and/or made misrepresentations to the applicant or insured. None of those cases involve the circumstances before the jury, where Lee was represented in the policy application process not only by Aon’s offices in Fresno, but by an extremely experienced and prominent entertainment risk broker, Aon/Al-bert G. Rubin [of Los Angeles]. The evidence clearly established that all of the communications from American Specialty went through Aon/Albert G. Rubin and/or Aon Risk Services before reaching Lee, or went from Lee through Aon to American Specialty. Indeed, specific communications in issue in this case all went through Aon. The August 11, 1998 letter from American Specialty went to Aon/Albert G. Rubin and the response, the August 12, 1998 letter, was drafted by Aon and forwarded by Aon to American Specialty.

The evidence overwhelmingly establishes that Lee’s chosen workers’ compensation insurance broker was Aon. Aon dealt with ASI for Lee on all policy formation issues. The manner in which the parties chose to conduct themselves in their dealings that led to issuance of the USF & G workers’ compensation insurance policy was disputed in all respects and for the jury to decide. The evidence at trial did not support the misleading and argumentative instruction Lee proposed which would not unequivocally leave the issue of ASI’s agency vis-a-vis Lee for the jury to determine.

USF & G refers to the trial testimony of Lee’s expert, Edgar Clark, that ASI was not acting as Lee’s broker in the transaction under which the USF & G policy was issued:

Q. I want to briefly go over what your understanding of the role of the various parties were in the transaction leading up to USF & G’s workers’ compensation policy.

You testified earlier that American Specialty was performing the function or role of the managing general agent; is that right?

A. Yes.

Q. Okay. And Aon was performing a function of Lee Investments’ broker in that transaction; is that—

A. Retail broker, yes.

Q. Retail broker. And American Specialty, in that transaction, was not acting as Lee’s broker; is that right?

A. That’s correct.

(Testimony of Clark, Feb. 16, 2007, 66:7-23).

Lee ignores its expert’s omission as it consistently ignores unfavorable evidence in this case, and replies that the trial testimony establishes that ASI held itself out to Lee as an expert in the field of entertainment risk management and that ASI courted Lee as a client, “seeking more of a relationship with Lee than holding itself out as merely the managing general agent for USF & G”. Lee asserts:

It is without dispute that ASI is a major, if not the major player in the sports/entertainment insurance business. Even Aon/Alfred G. Rubin, the sports/entertainment division of Aon, turned to ASI for the workers’ compensation insurance at issue here instead of turning to its own wholly owed subsidiary.

Even after the policy was issued Matt Sackett from ASI traveled to Fresno to meet with personnel from Lee at the water park to discuss the water park business and loss prevention strategies. However, he did not warn Lee that completion of the red slide or any other maintenance staff activity would void the subject policy.

However, seeking more insurance business as a managing general agent does not create an agency relationship with the insured, Lee, in the transaction at dispute, where Lee was represented by an independent insurance broker, Aon, and provided ASI as managing general agent, a representation statement to limit ASI’s direct dealings with Lee.

Citing Good v. Prudential Insurance Co., 5 F.Supp.2d 804, 808 (N.D.Cal.1998) and Lippert v. Bailey, 241 Cal.App.2d 376, 382, 50 Cal.Rptr. 478 (1966), USF & G contends that, under California law, an insured may not maintain a cause of action for negligence against an agent of an insurer unless it pleads facts establishing that the agent is either an independent broker or had a long-term relationship with the insured. Here, the facts before the jury established that any relationship between ASI and Lee existed barely six months from February or March 1998 until the policy issued in mid-August 1998.

Lee replies that “the relationship was more than a year old at the time of Diana Conley’s accident, and ASI knew that Lee was relying on its expertise in the water-park insurance business.” That is not the time the representations by Lee were made. By then, “the horse was out of the barn and long gone.”

Finally, USF & G argues that the refusal to give proposed Instruction No. 17 did not prejudice Lee because the jury found no negligence by Aon, ASI or USF & G and found for ASI and USF & G on five affirmative defenses, any one of which would have barred Lee’s insurance broker negligence claim even if, arguendo, the jury had found negligence. (Special Verdict of Trial Jury re Lee’s Claims, Doc. 686, pp. 33-38) Lee was fully permitted to and did argue to the jury that ASI touted its expertise in its marketing materials and proposals and breached duties of disclosure to Lee as a result. Referring to Instruction No. 41, requiring both a duty and a breach of duty, Lee failed to establish a breach and, even if it had, would have been barred from recovery by the findings in favor of USF & G and ASI on their affirmative defenses. USF & G notes that Aon, Lee’s broker, who had a direct relationship with Lee, was also found not liable to Lee, thereby negating Lee’s claim to have been prejudiced by the failure to give proposed Instruction No. 17. None of the third party defendants was found to have committed fraud, rather, Lee was found to have committed fraud and to have engaged in misconduct and to have itself been negligent in dealing with Aon and ASI.

Lee replies that the jury’s findings against it on the affirmative defenses were allegedly tainted by the failure to give proposed Instruction No. 17:

USF & G’s argument glosses over the severe impact the improper jury instruction had on the jury. The jury likely determined the underlying issue based on the flawed jury instruction and made sure its other decisions, including any affirmative defenses, were consistent. Thus, the jury’s findings on the affirmative defenses do not establish harmless error.

Even if, arguendo, the failure to give proposed Instruction No. 17 was error, it was harmless because the jury’s found no negligence or fraud of any other party except Lee. Lee’s explanation for the jury’s findings on the affirmative defenses is speculative, self-serving, and wrong.

Lee’s motion for new trial on this ground is DENIED.

3. Instruction That American Specialty Could Be Liable for Breach of Oral Contract.

Lee argues that the limitation in Jury Instruction No. 30 of breach of oral contract to Aon, excluding ASI, was error because evidence admitted at trial was sufficient for a jury to find that ASI, through its oral communications with Aon, entered into and breached an oral agreement to obtain an insurance policy for Lee to replace the Industrial Indemnity policy that had been cancelled.

Lee refers to the trial testimony of Hugh Awtrey:

Q. Right. Did you understand at this period of time, when you are starting to communicate with American Specialty about a new policy of insurance that they were now a Managing General Agent for USF & G?

A. Matt Sackett informed me that they had a 20 new company coming in that they were kind of rolling their business into and that they would approach them with this risk and it should not be a problem to have it written there.

Q. Did you understand that this was an exclusive type of relationship between American Specialty and USF & G?

A. I don’t know if I really knew exactly the relationship. I assumed it was a program they had.

Q. Now, Mr. Awtrey, as I understand it, you did not discuss with Lisa Ehrlich the possibility of getting another policy besides the USF & G policy; is that correct?

A. That is correct.

Q. And that was because Mr. Sackett, at American Specialty, had assured you that American Specialty would take care of obtaining a replacement policy for the Industrial Indemnity policy; is that correct?

A. Correct. And I had a conversation with Christy Platt, who I had talked to, if there was going to be construction, we could do a State Fund policy, but she said, ‘We are not going to need it.’

Q. When was that discussion with Christy Platt:

A. Somewhere in that time, I’m not sure.

Q. All right. But in any event, you had been assured by American Specialty that American Specialty would obtain a replacement for the Industrial Indemnity policy; is that correct?

A. That is correct.

Q. Well, did you understand that it was a condition for American Specialty to issue the USF & G policy for Lee to make a representation to USF & G regarding the construction laborers?

A. We were never told that if they did not do a letter saying they weren’t doing this, that there would be — -we would not issue a policy, if that’s what you are asking me.

THE COURT: All right. Let’s rephrase the question. And you are being asked, in your capacity as broker, considering getting new coverage, whether, at the that specific time, which is after the Notice of Cancellation has come, in the period of time that we are talking about, after the loss report hadn’t been provided to you, but it had been received, at that time, what was your knowledge about American Specialty’s willingness to issue Workers’ Compensation coverage to your client, Lee, if Lee was engaged, its employees were engaged in construction?

THE WITNESS: At a later date, not at this time, did I know that the construction was an issue. At a later date, I knew that USF & G and American Specialty had an issue with construction. MR. CHARLSTON: Okay.

Q. At some point in time before the policy was actually issued by USF & G, okay, I’m now talking about, I’m giving you a time period here, ultimately, in that process, before the policy was issued by USF & G, you knew, as Lee’s broker, that if Lee was going to be engaging in construction, American Specialty wouldn’t issue the policy, correct?

A. American Specialty never told us, We are not issuing this policy if there is not construction,’ but they showed they had a big concern that the construction exposure would no longer be there.

(Testimony of Awtrey, Feb. 8, 2007, 112:12-23, 158:22-159:15; Feb. 9, 2007, 192:10-15; Feb. 8, 2007, 118:18-119:18).

This testimony, Lee asserts, shows that “American Specialty had orally agreed with Lee’s agent to replace the coverage, Aon relied on the oral commitment, the oral commitment was never withdrawn and if, arguendo, ASI attempted to withdraw it, the attempted withdrawal was too late as an oral contract had already arisen.” Lee claims the failure to include ASI in Jury Instruction No. 30 prejudiced Lee because the jury was led to believe that ASI’s breach of oral contract was not an issue and that, had the jury considered ASI’s breach of oral contract, Lee would have been entitled to damages as a result of that breach.

This is nonsense. The evidence showed that Aon told Lee there was an alternative market to cover construction work, the State Fund. Ms. Platt, Lee’s authorized agent and employee, told Aon it wouldn’t be needed. ASI told Aon’s Mr. Awtrey that it had another workers’ compensation carrier, USF & G, from which it could get coverage. This was before any underwriting analysis by ASI for USF & G. Lee is talking “apples and oranges”, ie., ASI did not make any direct contract with Lee, because ASI well knew Lee was represented by Aon and that USF & G was never a contracting party with Lee, as the jury found. Lee continues to ignore the disputed facts were decided against it.

USF & G responds that Lee’s requested instructions concerning Lee’s claim for breach of an oral agreement against ASI were denied because the evidence at trial failed to provide any evidence upon which the jury could find an oral contract between ASI and Lee, or any breach thereof. The Court found that the evidence introduced at trial by Lee failed to establish any basis for a “meeting of the minds” on the requisite and definite terms. See Weddington Productions, Inc. v. Flick, 60 Cal.App.4th 793, 811, 71 Cal.Rptr.2d 265 (1998):

An essential element of every contract is ‘consent.’ ... The ‘consent’ must be ‘mutual.’ ... ‘Consent is not mutual, unless the parties all agree upon the same thing in the same sense.’ .... ... If there is no evidence establishing a manifestation of assent to the ‘same thing’ by both parties, then there is no mutual consent to contract and no contract formation.

Moreover, the proposed jury instruction was argumentative and without support in the evidence. USF & G argues that Lee failed to establish any mutual assent to the same, definite and certain terms. Aw-trey’s testimony relied upon by Lee is a hearsay statement by Awtrey that Matt Sackett told him that ASI “had a new company coming in that they were kind of rolling their business into and that they would approach them with this risk and it should not be a problem to have it written there.” This testimony, USF & G contends, does not establish mutual consent to the “samething” but, at most, provides evidence of a proposal or preliminary negotiations, that as managing general agent, ASI had another market for workers’ compensation coverage, both of which are insufficient to form an oral contract. “In order for acceptance of a proposal to result in the formation of a contract, the proposal ‘must be sufficiently definite, or must call for such definite terms in the acceptance, that the performance promised is reasonably certain.’” Weddington Productions, Inc., id. “If ... a supposed ‘contract does not provide a basis for determining what obligations the parties have agreed to, and hence does not make possible a determination of whether those agreed obligations have been breached, there is no contract.’ ” Id. USF & G argues that the Court properly determined that Lee did not provide any evidence of the terms, including premium, for any new contract of workers’ compensation insurance arising from Sack-ett’s statement to Awtrey that Sackett would approach the insurer. “ ‘It is a necessary requirement that an agreement, in order to be binding, must be sufficiently definite to enable the courts to give it an exact meaning.’ ” Weddington, id. “Whether a contract term is sufficiently definite to be enforceable is a question of law for the court.” Ladas v. California State Auto. Assn., 19 Cal.App.4th 761, 770 n. 2, 23 Cal.Rptr.2d 810 (1993).

USF & G further argues that the refusal to give Lee’s proposed instructions was not error because Lee did not establish the existence of any consideration on the part of ASI to provide workers’ compensation insurance to Lee.

USF & G additionally asserts that even if, arguendo, the refusal to give the requested instruction was error, Lee was not harmed. The jury found in favor of ASI on all affirmative defenses, except laches, including affirmative defenses of fraud, negligent misrepresentation, estoppel, waiver and unclean hands. Any of these affirmative defenses would have prevented Lee from recovering even if the jury had found an oral contract with ASI.

Ignoring the evidence and the jury’s verdicts, Lee replies that the evidence at trial was sufficient for the jury to find an oral contract between Lee and ASI:

The evidence at trial was uncontroverted that ASI, by agreeing with Hugh Aw-trey, agreed to write a workers’ compensation policy for Lee through USF & G. In fact, the agreement was so defined and certain that Awtrey and Aon did absolutely nothing more to obtain a replacement policy for Lee after the agreement was reached. The Court disregarded this fact and ignored the reliance placed on the understanding by Awtrey, which could be nothing other than an oral agreement by ASI to provide Lee with a workers’ compensation insurance policy. There was little more to agree on as all Workers’ Compensation policies are integrated, cover all employees, and charge a premium based on California rate classification and the payroll assigned to those classifications. Of course the policy would be subject to audit, where the premium amount could be retroactively adjusted to accurately reflect the risk actually assumed under the policy. Because of the ‘flexibility’ in the premium, sufficient detail was exchanged between the parties to allow the Court to instruct the jury on the issue of oral contract.

The evidence established nothing of the sort. The jury found no contract between Lee and ASI, because ASI’s alleged promise was to Aon as agent for a disclosed principal.

Lee’s motion for new trial on this ground is DENIED.

4. Requirement of Expert Testimony to Determine Broker/Managing General Agent Negligence.

Jury Instruction No. 43, captioned “PROFESSIONAL NEGLIGENCE-STANDARD OF CARE", stated in pertinent part:

You must determine the level of skill and care that other reasonably careful insurance brokers or managing general agents would use in similar circumstances based only on the testimony of the expert witnesses who have testified in this case.

(Doc. 661, p. 45).

Lee contends that this instruction was error because Aon’s failure to market the policy through someone other than ASI/USF & G during the thirty-day period after notice of cancellation of the Industrial Indemnity policy and whether ASI should have informed Aon that ASI would not market the policy does not require someone with specialized knowledge to determine whether these inactions breached the duty of care owed by an insurance broker. Lee responds that this is within the common knowledge and experience of any juror and argues that an expert witness may not testify as to opinion on matters of common knowledge and experience. Lee cites Rule 702, Federal Rules of Evidence (“If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert ... may testify”); Godfrey v. Steinpress, 128 Cal.App.3d 154, 186, 180 Cal.Rptr. 95 (1982) (“California courts ... hold expert testimony is not required where a question is ‘resolvable by common knowledge’ ”); Meier v. Ross General Hospital, 69 Cal.2d 420, 429, 71 Cal.Rptr. 903, 445 P.2d 519 (1968) (“The courts ... have established an exception to this requirement for the testimony of experts if the subject matter of the litigation is such that laymen could infer as a matter of common knoivledge that the injury would not have occurred unless the defendant were negligent”). This diversity action is governed by the Federal Rules of Evidence.

Lee argues that Instruction No. 43 prejudiced Lee because the jury was unable to consider non-expert testimony, including their own common knowledge, with regard to the standard of care and that, had the jury considered non-expert witness testimony, the jury likely would have determined that Aon’s conduct in failing to market the policy was negligent as was ASI’s in failing to tell Aon that it would not market the policy. This is more nonsense and an unmitigated misstatement of the law. The standards of performance and care for insurance brokers and specialized professional and industry agents within the highly regulated insurance industry are not generally known to lay persons or even to lawyers and judges. An example was the “expert” testimony of Lee’s workers’ compensation insurance “expert” who gave testimony so bizarre and unexpected about the meaning of “construction” and “construction activities” that no lay person, let alone an attorney or judge, could have been expected to have such opinions expressed as within matters of common understanding or experience. These definitions of the alleged specialized meaning of construction were allegedly required to be known and applied by Aon and ASI in procurement of a new workers’ comp policy-

USF & G and Aon argue that the authorities upon which Lee relies do not support Lee’s contention that requiring expert opinion on the standards of care for commercial insurance brokers is error because such matters are allegedly common knowledge to lay persons. USF & G asserts that, because Lee’s claim against ASI was for negligence as a managing general agent, Lee had to satisfy the requirements for proof of professional negligence by a commercial insurance broker. In support of this position, USF & G cites Valentine v. Membrila Ins. Services, Inc., 118 Cal.App.4th 462, 474-475, 13 Cal.Rptr.3d 125 (2004), holding that the proper method of calculating damages in an action for negligence against an insurance broker is based upon the standards for evaluating liability for professional negligence. USF & G asserts that professional negligence can only be established by the testimony of an expert that the broker’s conduct does not satisfy the standard of care, citing 1 Witkin, California Evidence (3rd Ed.) § 525(1), and BAJI 6.37.4.

USF & G refers to the trial testimony of Lee’s expert, Edgar Clark:

Q. I want to briefly go over what your understanding of the role of the various parties were in the transaction leading up to USF & G’s workers’ compensation policy.

You testified earlier that American Specialty was performing the function or role of the managing general agent; is that right?

A. Yes.

Q. Okay. And Aon was performing a function of Lee Investments’ broker in that transaction; is that—

A. Retail broker, yes.

Q. Retail broker. And American Specialty, in that transaction, was not acting as Lee’s broker; is that right?

A. That’s correct.

(Testimony of Clark, Feb. 16, 2007, 66:7-23). USF & G correctly contends that the duties of a managing general agent of an insurance company, particularly where Lee had its own broker, are not within the knowledge of the average lay juror. Although Lee retained Mr. Clark to testify as to his opinions concerning the alleged acts or omissions of ASI, Mr. Clark did not testify that ASI breached the standard of care by failing to market Lee’s policy in circumstances where Lee had its own broker:

Q. Okay. Now, would you please state your opinions as they related to ASI. A. ASI held itself out as an MGA. ASI held itself out to have particular expertise in the entertainment business. They also had the pen for an insurer to write the insurance for that kind of risk, the entertainment kind of risk, which is what the water parks are included in generally. It — I found that they did not meet the standard of care of an experienced MGA in the entertainment business by not coping with the problem of construction with the water park.

I find it very difficult to fathom that almost any operation, not just an entertainment risk or a water park risk, any operation has some kind of repair and maintenance construction repair going on almost all the time. I am sure that this courthouse has people doing repair and maintenance work. Which is why I never understood why they objected to writing construction type risk within the water park operation. I just never understood it. Which I think they did not follow—

THE COURT: Is that within the standard of care now or are you venturing into some personal subjective—

THE WITNESS: No, it’s not subjective. I really, Your Honor, believe that it one holds oneself out to be a certain expert — I don’t mean expert, but a certain — have certain expertise in underwriting certain risks, one can — should not then say they don’t have that expertise.

(Testimony of Clark, Feb. 16, 2007, 30:19-31:19). USF & G argues that a proper inference can be drawn from Mr. Clark’s testimony that Lee did not have him testify that ASI did not meet the standard of care in marketing Lee’s application in circumstances where Lee had its own broker because Mr. Clark would not give that opinion.

Lee responds that expert opinion was not required on these issues:

... [N]o expert is needed to know that a wholesale broker like ASI, who promises to obtain a replacement policy must do so, or inform the retail broker that the replacement policy will not be issued in time to allow the cancelled policyholder to seek a substitute policy elsewhere ... [I]t is also within the common knowledge of any juror that the wholesale broker must notify the retail broker of a change in its marketing relationships when it no longer has unlimited markets for its policy and instead has converted to an exclusive relationship that does not allow a true marketing of the risk.

USF & G further argues that the failure to give Lee’s requested instruction did not prejudice Lee. Even if the jury had found that ASI breached the standard of care based on lay opinion, such claim would be barred by the jury’s findings in favor of ASI on the affirmative defenses of Lee’s fraud, negligent misrepresentation, waiver, estoppel, and unclean hands.

Again, Lee argues that the jury’s findings of the affirmative defenses was tainted by the failure to give an instruction concerning lay determination of the standard of care:

USF & G’s argument glosses over the severe impact the improper jury instruction had on the jury. The jury likely determined the underlying issue based on the flawed jury instruction and made sure its other decisions, including any affirmative defenses, were consistent. Thus, the jury’s findings on the affirmative defenses do not establish harmless error.

Aon argues in opposition to this claim for a new trial that Lee’s expert, Edgar Clark, admitted that Aon did not breach the standard of care and, therefore, a new trial based on Lee’s contention of instructional error is not required:

Q. Okay. I want you to assume that Lee told Aon our park is open on August 6th, our operation will no longer employ construction laborers and any construction work would be performed by independent contractors with their own certificates of insurance.

With these assumptions in mind, was Aon still obligated to offer a State Fund policy to Lee?

A. No.

Q. I want you to assume that Lisa Ehrlich had a conversation with Hugh Awtrey about this letter, that she understood that the insurance company wanted a letter saying all the construction laborers are gone and any future construction work would be performed by independent contractors. I want you to further assume that Ms. Ehrlich authorized Ms. Platt to sign a letter consistent with Ms. Ehrlich’s conversation with Mr. Awtrey, that Ms. Platt reviewed this letter drafted by Mr. Awtrey, discussed its contents with Ms. Ehrlich and signed it. And further assume that Ms. Ehrlich testified, after reading it, that all of these statements are true.

Under those circumstances, was Aon still obliged to give a State Fund policy option to Lee in August?

A. No.

(Testimony of Clark, Feb. 17, 2007, 62:20-63:17).

Lee replies that Mr. Clark did not admit that Aon did not breach the standard of care:

Aon ignores Lee’s primary contention against Aon ... Lee contends that Aon should have re-marketed the policy. However, the underlying issue is that Aon should have done something to make sure (including re-marketing the policy) that Lee had the opportunity to review and consider replacement policies prior to the cancellation of the original Industrial Indemnity policy. The overwhelming evidence was that there was little, if anything, done by Aon to confirm the availability of a policy from ASI or seek a policy from another market. Had Aon pressed ASI regarding the replacement policy, the issue of construction would have come up in a timely manner and been adequately discussed, eliminating the confusion relating to what Lee employees could and could not do. Moreover, had the issue been adequately explained, Lee could have directed Aon to re-market the policy, or could itself have gone to the State Compensation Fund and obtained a policy absolutely clear of any underwriting position relating to construction. That a broker should preserve its client’s rights in such a manner is within the common knowledge of a juror and no expert testimony should be required.

Lee refers to the trial testimony of Mr. Clark:

Q. Mr. Clark, assume these following facts. That a retail insurance broker with resources within his or her organization of vast amusement experience represents a newly constructed and recently owned amusement park owned by persons without personal knowledge in operating and insuring amusement risks and who had their original workers’ compensation insurance that was placed with the same broker canceled due to a purported increased risk related to unexpected exposures of construction laborers.

Assume also, please, that the broker received a letter from a managing general agent for an insurer that believed it was replacing — from a managing general agent that the broker believed was replacing the canceled policy and that MGA stated the concern with the loss run of the original insurer and sought help to prove to the underwriter that park employees will not perform tasks outside the designated classifications and that construction has ceased and that workers’ comp claims arising from construction will not be reported under the workers’ comp policy at issue.

Would — in that factual circumstance, does the standard of care — what does the standard of care require of a broker as it relates to the policy and potential underwriting position?

A. The standard of care would be, first of all, that the large risk broker in a complex case such as this explain to the insured what all that means. And provide solutions to the problem.

Q. By ‘solutions,’ what do you mean?

A. Replacement of the insurer. Replacement of the MGA. Change in approach. Could be several different solutions.

Q. And what do you mean by ‘explain’?

A. Communicate and document, document, document.

(Testimony of Clark, Feb. 16, 2007, 32:16-33:25). Lee asserts that Mr. Clark’s testimony does not absolve Aon from liability and does not cure the prejudice of the jury not being instructed that expert testimony was not required. Lee asserts that it was entitled to an instruction that expert testimony was not required concerning the standard of care applicable to ASI and Aon “concerning the timing of providing the replacement policy, the effect of the representation, and the failure to re-market the policy in a timely manner.” However, as Mr. Clerk’s testimony demonstrates, the issues were so complex that an explanation to the insured of “what all that means” was required.

Aon contends that the jury could not reasonably rely on their own common knowledge to conclude that Aon should have re-marketed Lee’s workers’ compensation insurance:

Aon recently had marketed Lee’s insurance needs — about four months before the Industrial Indemnity cancellation. At that time only State Fund and Industrial Indemnity (through American Specialty) were willing to entertain the risk and Lee picked the less expensive Industrial Indemnity policy. Shortly after notice of the Industrial Indemnity cancellation Matt Sackett told Hugh Awtrey that American Specialty had another ‘market’ (or insurance company) which likely would write the insurance. If anything, the jurors’ common sense would tell them that in this context a broker should not have to re-market Lee’s risks to some other insurance company. This is especially true since Lee apparently did not want coverage for construction risks, and the premium rate for construction employees is more expensive (per dollar of payroll) than the premium rate covering most other classes of non-construction employees. Accordingly, there was no error in the instruction given.

Aon argues that the failure to give Lee’s requested instruction did not prejudice Lee because of the jury’s findings in favor of Aon on its affirmative defenses.

Lee responds that the failure to give the instructions with regard to Aon prejudiced Lee:

The jury finding of no comparative fault against Aon is clearly against the weight of the evidence. Aon failed to monitor ASI during the cancellation period while ASI was purportedly ‘marketing’ the policy to USF & G. Aon did nothing to follow up with ASI, nor discover its ‘underwriting position’ until contacted by ASI on August 11, the day the original Industrial Indemnity policy was to cancel. Finally, there was absolutely no evidence that any person at Aon explained to Lee the potential devastating consequences of the representations made in the August 12, 1998 letter. This, coupled with the failure to consider the State Compensation Insurance Fund as an alternative market, was clearly a breach by Aon of the standard or care that should have subjected Aon to liability for its share of comparative fault. The failure to include this instruction resulted in the jury failing to attribute significant fault to Aon.

Lee seems to be confused. As to Aon, Lee’s expert did testify with regard to Aon’s duty of care and its breach. Given that testimony, Lee cannot be prejudiced by the alleged failure to give an instruction that the duty of care can be determined by lay persons with regard to whether Aon breached the duty of care because of Aon’s failure to re-market the policy before the cancellation date of the Industrial Indemnity policy.

Lee’s motion for new trial on this ground is DENIED.

5. Failure to Instruct Jury That It Could Not Consider the August 1998 Letters to Contradict the Coverage That USF & G Agreed to Provide.

Lee contends that it was error not to give Lee’s Proposed Instruction No. 11, captioned “LIMITED PURPOSE OF AUGUST LETTERS”:

The August 11, 1998 letter from ASI to Aon and Lee’s August 12, 1998 letter to ASI, including alleged conversations, relating to either, are admissible for the limited purpose of showing Lee represented that its employees would not engage in construction activities that were outside of activities that were within the water park classification codes. They may not be considered to vary or contradict the terms of the insurance policy.

(Doc. 570-2, p. 16). The authority cited for the Proposed Instruction was Bank of America v. Pendergrass, 4 Cal.2d 258, 48 P.2d 659 (1935).

Lee argues that the failure to give Proposed Instruction No. 11 prejudiced it “because the jury was lead to believe that the August 1998 letters could be used for all purposes, including as a limitation on ‘construction’ that was within a water park classification” and that “[h]ad the jury been instructed on the limited purposes of the letters, the jury would not have considering the letters for contradicting the agreed, coverage, which use likely led to jury’s finding for rescission.”

USF & G opposes this ground for new trial, contending that the proposed instruction was irrelevant to the issues in the case on three grounds.

First, USF & G argues that Lee’s contention that the August 1998 letters varied the terms of the policy of insurance issued by USF & G was not urged by any party in the case. It was undisputed that the USF & G policy was complete, fully integrated and unrestricted:

The issue in the case was solely whether Lee made misrepresentations or material omissions in the policy application process. No party argued that the classification codes listed in the policy limited the coverage of employees. Rather, all witnesses testified that the classification codes were utilized to determine the amount of premium based on the amount of payroll.

Second, USF & G argues that the ruling that the August letters were not barred by the parol evidence rule was correct, because parol evidence is admissible to prove fraud in the inducement of a contract, Ron Greenspan Volkswagen, Inc. v. Ford Motor Land Development Corp., 32 Cal.App.4th 985, 995, 38 Cal.Rptr.2d 783 (1995), where the letters did not contradict the policy terms. Airs Intern., Inc. v. Perfect Scents Distributions, 902 F.Supp. 1141, 1145-1147 (N.D.Cal.1995). USF & G contends:

Lee’s argument that the August 11 and 12, 1998 letters should be excluded [sic] is based on an extreme mischaracterization of USF & G’s position. Lee contended that USF & G wished to introduce the August letters as evidence that the policy excluded construction laborers. In fact, USF & G never argued that the policy did not cover construction laborers. USF & G agreed that the policy it issued was unrestricted and covered all of Lee’s employees. Moreover, the August letters do not state anything about changing the terms of the policies [sic]. Rather, such letters were intended to address American Specialty’s concer