Perry et al v. Peak Property and Casualty Insurance Corporation et al

Filing 14

ORDER: IT IS ORDERED that Defendant's 4 Motion for Judgment on the Pleadings is GRANTED and Plaintiffs' 6 Joint Motion for Judgment on the Pleadings is DENIED. All parties are to bear their own attorney fees and costs. The Clerk's Office should enter the Final Judgment in accordance with this Order. This action is terminated. Signed by Senior Judge David C Bury on 12/5/16.(BAC)

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1 WO 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF ARIZONA 6 7 8 Kevin Perry, et al., 9 10 11 Plaintiffs, v. Peak Property and Cas. Ins., 12 Defendant. 13 14 15 16 17 22 23 24 25 26 ORDER and Plaintiffs’ Cross Motion for Judgment on the Pleadings. rules. SUMMARY In August 2016, a declaratory relief, breach of contract and bad faith action was originally filed in state court, then removed to federal court based on diversity. Defendant immediately filed a Motion for Judgment on the Pleadings (DMJOP) and Plaintiffs filed a Joint Cross Motion for Judgment on the Pleadings (XPMJOP). Ins. Co. (Farmers), Renee Holguin Perry Plaintiffs are: and Kevin Perry Farmers (Holguin Perry)(divorced in May 2014), and Nancy Smith (Smith). Defendant is Peak Property and Cas. Ins. Corp. (Peak), Holguin Perry’s automobile insurance 27 28 Oral argument was heard by the Court on November 28, 2016. The Court now 19 21 CV-16-555-TUC-DCB Before the Court is Defendant’s Motion for Judgment on the Pleadings 18 20 ) ) ) ) ) ) ) ) ) ) ) 1 1 carrier, doing business in Wisconsin. This action is in federal court 2 based on diversity because the car accident occurred in Arizona involving 3 all Arizona citizens with the Defendant being located and incorporated 4 in the state of Wisconsin. Arizona law applies. 5 6 BACKGROUND This case arises out of a traffic accident that occurred on January 7 22, 2013. 8 Perry Holguin, who ran a red light and hit Smith, who was driving a Ford. 9 The accident collaterally involved three other vehicles. The Lexus driven It involved two primary vehicles: the Lexus was driven by 10 by Perry Holguin was insured by Peak. 11 vehicles was insured by Farmers. Farmers, Holguin Perry and Smith have 12 jointly filed this action against Peak for failing to compensate the 13 injured resulting in the breach of contract (Count Two) and bad faith 14 allegations (Count Three). 15 At the time of the accident, One of the collaterally involved Holguin Perry had a policy of 16 automobile insurance with Peak that insured them for liability up to 17 $100,000/$300,000 for bodily injury and $10,000 for property damage 18 stemming from an accident. The Policy as initially written was effective 19 November 10, 2012 through May 10, 2013. The Policy was on a monthly 20 payment plan. 21 On December 20, 2012, Peak mailed a document entitled “Installment 22 Notice” showing a minimum payment of $286.37 due on January 9, 2013. 23 Installment Notice states: “Payments received after the cancel date or 24 in an amount less than the minimum amount due may incur an additional 25 fee.” (DMJOP, Ex. 2.) 26 27 28 2 The 1 On or about January 18, 2013, Peak mailed a document entitled 2 “Nonpayment Cancellation Notice” with a print date of January 18, 2013 3 (the Notice). (DMJOP, Ex. 4.) The Notice states: “If a minimum payment 4 of $286.37 is not received by 01/19/2013 your coverage will end on 5 01/19/2013 12:01 a.m. Standard Time.” (Id.). The Notice goes on to state 6 that the insured may reinstate the Policy by paying $286.37 by January 7 19, 2013 at 12:01 a.m. (midnight). 8 be paid by January 9, 2013 and Holguin Perry did not tender a payment to 9 the insurance company until January 23, 2013. The installment payment was due to 10 The Holguin Perrys allege they did not receive notice of the notice 11 of cancellation until January 23rd. Holguin Perry paid $294.37 over the 12 phone to Peak on January 23, 2013. The Holguin Perrys paid the required 13 $286.37 in the Notice plus a $5.00 late fee. 14 On December 3, 2013, Smith filed her Complaint against the Holguin 15 Perrys in state court. Peak refused to settle the matter or defend the 16 Holguin Perrys because it took the position that there was a lapse in the 17 insurance contract and they were not covered by insurance on the date of 18 the accident, January 22, 2013. As a result, the Perrys entered into a 19 Settlement Agreement and Assignment (Damron Agreement) with Smith and 20 Farmers. Smith, the Holguin Perrys and Farmers filed the action against 21 Peak alleging causes of action for declaratory relief, breach of contract 22 and insurance bad faith. 23 LEGAL STANDARD OF REVIEW 24 Federal Rule of Civil Procedure 12(c) permits a party to move for 25 judgment on the pleadings after the pleadings are closed. Judgment on the 26 pleadings “is properly granted when there is no issue of material fact 27 in dispute, and the moving party is entitled to judgment as a matter of 28 3 1 law.” Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir.2009). For a Rule 2 12(c) motion, all material allegations contained in the nonmoving party's 3 pleadings are accepted as true. Hal Roach Studios v. Richard Feiner & 4 Co., Inc., 896 F.2d 1542, 1550 (9th Cir.1989); Chavez v. United States, 5 683 F.3d 1102, 1108 (9th Cir.2012). 6 The district court's review is generally limited to the contents 7 of the complaint. The court may consider documents attached to the 8 complaint, documents incorporated by reference in the complaint, or 9 matters of judicial notice without converting the Rule 12(c) motion into 10 a motion for summary judgment. Lee v. City of Los Angeles, 250 F.3d 668, 11 688 (9th Cir.2001). 12 When a Rule 12(c) motion raises the defense of failure to state a 13 claim, the standard governing the motion is the same as that governing 14 a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). 15 McGlinchy v. Shell Chemical Co., 845 F.2d 802, 810 (9th Cir.1988). Rule 16 12(b)(6) allows dismissal where a complaint fails “to state a claim upon 17 which relief can be granted.” Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th 18 Cir.1998). Conclusory allegations of law and unwarranted inferences are 19 insufficient to defeat such a motion. Id. The Court need not accept as 20 true allegations that contradict matters properly subject to judicial 21 notice 22 complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th 23 Cir.2001). 24 or allegations contradicting the exhibits attached to the DISCUSSION 25 Peak argues that there are no material questions of fact precluding 26 entry of judgment in its favor on Count One, declaratory relief. Peak 27 28 4 1 goes on to argue that because no insurance policy was in effect at the 2 time of the traffic accident, Plaintiffs' claims for breach of contract 3 (Count Two) and bad faith (Count Three)fail as a matter of law. 4 A.R.S. § 20-1632.01 outlines the basic requirements an insurer must 5 follow when it cancels an automobile insurance policy due to nonpayment 6 of a premium. The statute provides in pertinent part that (a) the 7 policyholder is entitled to a minimum seven day grace period, (b) the 8 insurer must mail a notice of cancellation, and (c) the cancellation is 9 effective on the date the notice is mailed. A.R.S. § 20-1632.01. The 10 Holguin Perry’s policy provisions mirror the Arizona statute. In line 11 with A.R.S. § 20-1632.01(A), the contract on which Plaintiffs base their 12 entire complaint provides that the insured was entitled to a minimum 13 grace period of seven days for the payment of any premium due. 14 The policy further states that in the event of nonpayment, the 15 insurer may cancel by mailing a notice of cancellation at least eight 16 days after the due date, and that the cancellation will be effective the 17 date the notice is mailed. Again, this is right in line with A.R.S. § 20- 18 1632.01(B) (stating that after the seven day grace period, "the insurer 19 must mail a notice of cancellation to the policyholder by first class 20 mail," and that "cancellation... is effective on the date the notice is 21 mailed to the policyholder."). In short, both the Holguin Perry’s policy 22 and Arizona law required Peak to give the insured seven days' graçe 23 period to pay their premium, to mail a notice of cancellation eight or 24 more days after the premium due date, and that cancellation was effective 25 on the date of mailing. 26 The Complaint's factual allegations demonstrate that Peak complied 27 with each of these requirements. Plaintiffs allege that Peak mailed an 28 5 1 Installment Notice to the Holguin Perrys on December 20,2012, twenty days 2 prior to the premium due date, which notified the Perrys that the policy 3 premium of $286.37 had to be paid by January 9,2013. With the premium due 4 on January 9th and the seven-day grace period allowed by A.R.S. § 20- 5 1632.01, the policy ended on January 16,2013. Peak was authorized to mail 6 a notice of cancellation on day one. But it was not until day nine after 7 the 8 Cancellation Notice. This fully complied with A.R.S. § 20-1632.01. By 9 Arizona statute and the policy's provisions, cancellation was effective 10 on January 18th, the date of mailing the Nonpayment Cancellation Notice. 11 The Nonpayment Cancellation Notice clearly stated, "You are now driving 12 without insurance protection." missed payment that Peak printed and mailed the Nonpayment 13 There are no material questions of fact: the Holguin Perry’s policy 14 was on a monthly payment plan; Peak mailed an Installment Notice to the 15 Holguin Perrys advising their payment was due on January 9, 2013; the 16 Holguin Perrys did not pay their policy premium bill by January 9, 2013; 17 A.R.S. § 20-1632.01 required Peak to allow the Holguin Perrys at least 18 seven days after the premium due date to pay before cancelling and this 19 grace period expired on January 16th, before the accident and before the 20 Holguin Perrys paid anything; on January 18, 2013, nine days after the 21 premium due date, Peak mailed the Nonpayment Cancellation Notice to the 22 Holguin Perrys; the Nonpayment Cancellation Notice stated that if payment 23 was not received by January 19, 2013, the Holguin Perry’s policy would 24 be cancelled and coverage would end on January 19th; the Nonpayment 25 Cancellation Notice specifically advised the Holguin Perrys that: “You 26 are hereby notified in accordance with the terms and conditions of the 27 above mentioned policy, and in accordance with state law, that your 28 6 1 insurance will cease at and from the hour and date mentioned above. You 2 are now driving without insurance protection.”; the Holguin Perrys did 3 not pay their premium by January 19 but did tender payment on January 23 4 of the full amount plus a late payment fee; and, the traffic accident 5 occurred on January 22, 2013. 6 on the motions for judgment on the pleadings as a matter of law, because 7 the properly pleaded facts are uncontradicted. It is appropriate for this Court to rule 8 Plaintiffs’ arguments in their favor boil down to two: 1) either the 9 Nonpayment Cancellation Notice was a “clear and unequivocal” open-ended 10 offer 11 cancellation date, without any lapse in coverage, for an indefinite 12 period of time; or 2) the Nonpayment Cancellation Notice was ambiguous 13 and therefore ineffective to cancel the coverage. for the Holguin Perrys to reinstate the policy after the 14 The Notice of Nonpayment Cancellation Notice was not an open-ended 15 offer that the Holguin Perrys could accept. It notifies the insureds that 16 (a) the cancellation is effective 12:01 a.m. on January 19th; (b) they 17 are now driving without insurance; (c) they have the right to complain 18 to the Director of Insurance about their cancellation; and (d) they might 19 be able to obtain insurance through another carrier. 20 contract argument is foreclosed by Arizona law, specifically Norman v. 21 State Farm Mut. Auto. Ins. Co., 201 Ariz. 196, 201 (Ct. App. 2001) 22 (cancellation notice is effective even if it allows for cancellation on 23 a date later than the date on which the notice was mailed). Peak’s 24 Nonpayment Cancellation Notice is an even clearer cancellation than 25 Norman’s, because nowhere does Peak’s Notice contain any option for the 26 Holguin Perrys to pay after the cancellation date and have the policy 27 reinstated. Nor does it contain an “amount due.” The Peak Notice says, 28 7 Further, the 1 “If a minimum payment of $286.37 is not received by 01/19/2013 your 2 coverage will end on 01/19/2013 at 12:01 a.m. Standard Time. You are 3 hereby notified in accordance with the terms and conditions of the above 4 mentioned policy, and in accordance with state law, that your insurance 5 will cease at and from the hour and date mentioned above. You are now 6 driving 7 NONPAYMENT OF PREMIUM.” (DMJOP, Ex. 4.) This language could not be more 8 clear. As the Norman court concluded, this Notice does not even remotely 9 suggest that the Holguin Perrys could pay to reinstate the policy after 10 the 19th of January, the effective cancellation date – and certainly not 11 without any lapse in coverage. without insurance protection. Reason(s) for Cancellation: 12 Plaintiffs other argument is that the Nonpayment Cancellation Notice 13 was ineffective to cancel because it did not strictly comply with A.R.S. 14 § 20-1632.01(B). Norman rejected this very argument. Norman, 201 Ariz. 15 at 200-201; see also Moore v. American Family Mut. Ins. Co., 2007 WL 16 2725262, *3 (D. Ariz. 2007). As Norman1 recognized, A.R.S. § 20-1632.01(B) 17 permits an insurance company to cancel a policy for nonpayment of premium 18 effective either: (1) upon mailing of a notice of cancellation, or (2) 19 upon a later date provided in the notice. The fact that the notice 20 provides a later date does not render the notice ineffective or invalid. 21 It simply makes the cancellation effective on that later date stated in 22 the Notice rather than the date on which the Notice was placed in the 23 mail. In either case, the insured’s receipt or knowledge of the notice 24 is irrelevant. Cancellation is never hinged on the insured’s receipt of 25 1 27 Norman rejected Elkins v. State Farm Mutual Automobile Insurance Co.,197 W. Va. 412,475 S.E.2d 504 (W. Va. 1996) (language of the Notice indicating that an offer is being made). 28 8 26 1 the notice, or knowledge of the cancellation date, or knowledge of the 2 mailing date. Norman, 201 Ariz. at 200-01. The policy cancels either on 3 the date of mailing, or on the date set forth in the Notice. Here it was 4 on January 19th, the date set forth in the Notice. Nothing in the Notice 5 rendered it ineffective. ”Knowledge" about the extra 24-hour period is 6 wholly 7 cancellation on a date certain (the date the Notice is mailed), not on 8 the insured's "prior knowledge" of the extra grace period. Norman,20l 9 Ariz. at 200-201; see also Moore v. American Family Mut. Ins. Co.,2007 10 WL 2725262, *3 (D. Ariz. 2007) ("the statute is only concerned with 11 whether the notice of cancellation was properly mailed to the insured. 12 The statute is not concerned with whether the insured received actual 13 notice of the cancellation”). irrelevant, because both Arizona law and the policy hinge 14 Plaintiffs similarly err in making the legal assertion that the 15 Nonpayment Cancellation Notice was an "offer of coverage." To be clear, 16 the 17 Installment Notice (that their premium was due January 9th), which 18 actually states "This is the only Installment Offer you will receive. We 19 do Not send reminder Installment offers." (DMJOP, Ex. 2.) The Nonpayment 20 Cancellation Notice simply alerted the Holguin Perrys that their failure 21 to pay the premium was resulting in the cancellation of their policy. As 22 Norman held, graciously giving the insured one more 24-hour period to 23 tender the past-due payment did not supercede the fact that the Holguin 24 Perrys missed the "premium due date" by 10 days. 25 offer to continue coverage was made via the December 20,2012 Plaintiffs argue that the policy is ambiguous because Form PAP1 26 (3/08) (which would have required the company to mail notice of 27 cancellation at least ten days prior to the cancellation effective date) 28 9 1 “conflicts” with the Arizona Endorsement (Form PPA-AZ 11/11). 2 Arizona Endorsement clearly states that it “replace[s Form PAP1] in its 3 entirety.” 4 requirements for Peak to cancel the Policy,” as Plaintiffs argue. A.R.S. 5 § 20-1119, which sets forth rules for construing insurance policies, 6 states that every insurance policy: shall be construed according to the 7 entirety of is terms and conditions as set forth in the policy and as 8 amplified, extended or modified by any rider, endorsement or application 9 attached to and made part of the policy. 2 Title Ins. Law §18:19 (2016 10 The The Arizona Endorsement does not “create two different ed.). 11 Plaintiffs next err in suggesting that the Lienholder/Additional 12 Insured Termination Notice sent to the lienholder (but not to the Holguin 13 Perrys) makes the Cancellation Notice ambiguous. Obviously, when an 14 insured fails to pay his policy premiums, the policy is cancelled. But 15 it is only fair to grant the lienholder some additional time to obtain 16 separate 17 lienholder has no control over the insured’s payment of premiums. For 18 this reason, a policy’s loss payee endorsement essentially creates two 19 separate 20 lienholder and the other with the insured. insurance contracts to of protect insurance its financial within the interest, policy – one since with the the 21 Plaintiffs argue that they should have coverage because: (1) the 22 Holguin Perrys expected Peak to comply with the terms of the policy; (2) 23 the Holguin Perrys did not expect Peak to make an offer that was 24 impossible to accept; and (3) the Holguin Perrys expected their policy 25 to be reinstated after the cancellation date with no repercussion or 26 lapse in coverage. These are not “reasonable expectations” arguments; 27 instead, they are nothing more than “fervent hopes that coverage exists.” 28 10 1 Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 2 383, 390 (1984). 3 and it does not operate to create coverage here. 4 The reasonable expectations doctrine does not apply, In a diversity action, a federal district court must apply the 5 substantive law of the forum state. 6 America, 627 F.2d 207, 209 (9th Cir. 1980). Plaintiffs urge this Court to 7 treat this as an offer/acceptance contract scenario. On the contrary, 8 basic contract principles do not apply in light of well-established 9 Arizona cases interpreting and applying the applicable state statutes 10 that govern the resolution in this action. The Restatement (Second) of 11 Contracts and Perry v. Ronan, 225 Ariz. 49, 53 (Ariz. Ct. App. 2010) are 12 likewise inapplicable. Kabatoff v. Safeco Inc. Co. of 13 Because the Court is granting the Defendants’ Motion for Judgment 14 on the Pleadings as to Count One, declaratory relief, there was no 15 contract of insurance in place at the time of the accident and therefore 16 the remaining Counts Two and Three of Plaintiffs’ complaint fail as a 17 matter of law. There can be no breach of a contract where no contract 18 exists. Norman, 201 Ariz. at 203 (upholding summary judgment on the 19 breach of contract claim where no contract exists). Likewise, where no 20 contract exists, there can be no claim for bad faith. Id. at 198 (“we 21 reiterate the well-settled principle that a contract must exist before 22 there can be a breach of the covenants of good faith and fair dealing 23 implied in every contract”); see also Manterola v. Farmers Ins. Exchange, 24 200 Ariz. 572, 579 (Ct. App. 2001) (“a bad faith claim based solely on 25 a carrier’s denial of coverage will fail on the merits if a final 26 determination of noncoverage ultimately is made). 27 28 11 1 2 CONCLUSION In short, the uncontradicted allegations of Plaintiffs' Complaint 3 establish 4 Nonpayment Cancellation Notice met the requirements of both Arizona law 5 and the policy terms. There was nothing ambiguous or illusory about it. 6 See Hadley v. Southwest Properties, Inc., 116 Ariz.503, 506 (1977) (the 7 interpretation of an insurance policy, like any written instrument, is 8 a question of law to be determined by the Court). that the policy was cancelled on January 19th. Peak's 9 Defendant’s MJOP on Count I will be granted as a matter of law. As 10 to Counts Two and Three, to prevail on a breach of contract claim, a 11 plaintiff has the burden "of proving the existence of the contract, its 12 breach and the resulting damages." Graham v. Asbury, l12 Ariz. 184, 185 13 (1975). Because the Holguin Perry’s insurance policy with Peak was 14 properly and legally lapsed on January 19th, there was no contract 15 between the parties on January 22nd, the date of the accident/loss. 16 Because no contract existed, Plaintiffs' claims for breach of contract 17 and bad faith fail as a matter of law. See Norman, 201 Ariz. at 198. 18 Accordingly, 19 IT IS ORDERED that Defendant’s Motion for Judgment on the Pleadings 20 (Doc. 4) is GRANTED and Plaintiffs’ Joint Motion for Judgment on the 21 Pleadings (Doc. 6) is DENIED. All parties are to bear their own attorney 22 fees and costs. The Clerk’s Office should enter the Final Judgment in 23 accordance with this Order. This action is terminated. 24 DATED this 5th day of December, 2016. 25 26 27 28 12

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