Lancer Insurance Company v. Alpha Dyno Nobel et al

Filing 50

ORDER signed by District Judge Troy L. Nunley on 2/29/2016 DENYING 24 , 37 Motions to Dismiss; GRANTING 26 Motion to Dismiss as to the declaratory relief claims; DENYING 26 Motion to Dismiss as to the remaining claims. (Michel, G.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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Lancer Insurance Company,

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Plaintiff,

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v.

No. 1:14-cv-02018-TLN-BAM

ORDER

Alpha Dyno Nobel, Pacific Gas & Electric,
Cleveland Wrecking, URS Corporation,
and Demtech,

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Defendants.

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This matter is before the Court on Plaintiff Lancer Insurance Company’s (“Plaintiff”)

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Motions to Dismiss the Counterclaims of Defendants Pacific Gas & Electric (“PG&E”) (ECF No.

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24), URS Corporation (“URS”) and Cleveland Wrecking Company (“CWC”) (ECF No. 37), and

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Alpha Dyno Nobel (“Alpha”) (ECF No. 26) pursuant to Federal Rule of Civil Procedure 12(b)(6)

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(“Rule 12(b)(6)”). Defendants oppose Plaintiff’s Motions. (ECF Nos. 34, 35, 41.) The Court is

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duly advised of the parties’ arguments. As the facts at issue and questions of law in each motion

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to dismiss are substantially the same, the Court finds it to be in the interest of judicial efficiency

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to address the requests in a single order. After careful consideration, and for the reasons set forth

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below, the Court hereby GRANTS IN PART AND DENIES IN PART Plaintiff’s Motions to

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Dismiss.

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I.

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This case arises from an accident that occurred during the demolition of boilers at Kern

FACTUAL BACKGROUND

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Power Plant in Bakersfield, California, in which several people were injured. (Compl., ECF No.

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1 at 3–4.) Plaintiff, an insurance company, is the insurer for Alpha, the supplier of explosives and

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permits for the demolition. (ECF No. 18 at 2–4.) The insurance policy at issue (“the Policy”)

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covered the period during which the accident occurred.1 (ECF No. 1 at 4.) Plaintiff’s relationship

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with PG&E, URS, and CWC is based upon their claims as alleged additional insureds, thus their

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coverage under the Policy is derivative of Alpha’s coverage. (ECF No. 1 at 1.)

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On December 18, 2014, Plaintiff filed a Complaint against Defendants seeking

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reformation of the Policy it issued to Alpha and declaratory relief. (ECF No. 1.) Plaintiff alleges

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that Alpha made material misrepresentations and/or concealed material facts in its Explosives

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Insurance Application, and Plaintiff relied on these misrepresentations in issuing the Policy.

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(ECF No. 1 at ¶¶ 25, 32.) Plaintiff contends that it was the mutual intention of Plaintiff and

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Alpha at the time the Policy was issued that the Policy would not cover liability arising from the

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sale and use of explosives used in demolition work or liability arising from demolition work.

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(ECF No. 1 at ¶ 24.) Plaintiff asserts that it would have declined the risk or would have attached

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the “Exclusion – Designated Ongoing Operations” form to the Policy had Alpha answered the

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Explosives Insurance Application truthfully. (ECF No. 1 at ¶ 28.) Finally, Plaintiff states that it

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has no duty to defend or indemnify Defendants in connection with any claims arising from the

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underlying accident. (ECF No. 1 at ¶ 36.)

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Defendants filed Counterclaims against Plaintiff for breach of contract and breach of the

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implied covenant of good faith and fair dealing. (ECF Nos. 16, 18, 33.) Defendants seek all

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legally recoverable damages including exemplary and punitive damages; Alpha further requests

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declaratory relief. (ECF No. 16 at 14; ECF No. 18 at 21; ECF No. 33 at 15–16.) Defendants

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allege that Plaintiff breached the duty it owes pursuant to the terms of the Policy to defend and

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pay defense expenses associated with claims related to the accident. (ECF No. 18 at 13; ECF No.

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The Commercial General Liability Policy of Insurance, Policy No. GL802664#11, and the Excess Insurance Policy,
Policy No. XS802665#11, covered the policy period from July 1, 2013 to July 1, 2014. (ECF No. 1 at 4). The
accident occurred on August 3, 2013. (ECF No. 1 at 4).

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33 at 10–11; see ECF No. 16 at 9–10.) Further, Defendants contend that Plaintiff breached the

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implied covenant of good faith by unreasonably refusing to indemnify Defendants, and by

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unreasonably refusing to defend and pay defense expenses associated with claims related to the

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accident. (ECF No. 16 at 10; ECF No. 18 at 13–16; ECF No. 33 at 12–14.)

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Plaintiff filed its Motions to Dismiss the Counterclaims under Rule 12(b)(6). (ECF No.

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24; ECF No. 26; ECF No. 37.) Plaintiff asserts that because no lawsuit was filed by those injured

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in the accident, Defendants fail to and cannot state facts sufficient to support that a duty to defend

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or a duty to indemnify existed. (ECF No. 24-1 at 1–3; ECF No. 26-1 at 1–3; ECF No. 37-1 at 1–

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3.) Plaintiff contends that Defendants’ Counterclaims fail to properly allege bad faith as a matter

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of law because such a claim requires that a breach of contract be adequately alleged, which it has

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not. (ECF No. 24-1 at 12; ECF No. 26-1 at 12; ECF No. 37-1 at 13–14.) Specifically as to

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Alpha, Plaintiff argues that Alpha’s declaratory relief causes of action should be dismissed

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because Alpha alleged substantive causes of action based on the same issues. (ECF No. 26-1 at

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12.)

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II.

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A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal

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sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Federal Rule of

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Civil Procedure 8(a) requires that a pleading contain “a short and plain statement of the claim

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showing that the pleader is entitled to relief.” See Ashcroft v. Iqbal, 556 U.S. 662, 678–79

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(2009). Under notice pleading in federal court, the complaint must “give the defendant fair notice

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of what the claim . . . is and the grounds upon which it rests.” Bell Atlantic v. Twombly, 550 U.S.

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544, 555 (2007) (internal quotations omitted). “This simplified notice pleading standard relies on

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liberal discovery rules and summary judgment motions to define disputed facts and issues and to

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dispose of unmeritorious claims.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).

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STANDARDS OF LAW

On a motion to dismiss, the factual allegations of the complaint must be accepted as true.

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Cruz v. Beto, 405 U.S. 319, 322 (1972). A court is bound to give plaintiff the benefit of every

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reasonable inference to be drawn from the “well-pleaded” allegations of the complaint. Retail

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Clerks Int’l Ass’n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not allege
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“‘specific facts’ beyond those necessary to state his claim and the grounds showing entitlement to

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relief.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff pleads

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factual content that allows the court to draw the reasonable inference that the defendant is liable

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for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. 544, 556 (2007)).

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Nevertheless, a court “need not assume the truth of legal conclusions cast in the form of

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factual allegations.” United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir.

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1986). While Rule 8(a) does not require detailed factual allegations, “it demands more than an

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unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A

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pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic recitation of the

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elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678

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(“Threadbare recitals of the elements of a cause of action, supported by mere conclusory

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statements, do not suffice.”). Moreover, it is inappropriate to assume that the plaintiff “can prove

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facts that it has not alleged or that the defendants have violated the . . . laws in ways that have not

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been alleged[.]” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters,

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459 U.S. 519, 526 (1983).

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Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged “enough

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facts to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 697 (quoting

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Twombly, 550 U.S. at 570). Only where a plaintiff has failed to “nudge[] [his or her] claims . . .

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across the line from conceivable to plausible[,]” is the complaint properly dismissed. Id. at 680.

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While the plausibility requirement is not akin to a probability requirement, it demands more than

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“a sheer possibility that a defendant has acted unlawfully.” Id. at 678. This plausibility inquiry is

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“a context-specific task that requires the reviewing court to draw on its judicial experience and

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common sense.” Id. at 679.

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If a complaint fails to state a plausible claim, “‘[a] district court should grant leave to

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amend even if no request to amend the pleading was made, unless it determines that the pleading

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could not possibly be cured by the allegation of other facts.’” Lopez v. Smith, 203 F.3d 1122,

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1130 (9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 484, 497 (9th Cir. 1995));

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see also Gardner v. Marino, 563 F.3d 981, 990 (9th Cir. 2009) (finding no abuse of discretion in
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denying leave to amend when amendment would be futile). Although a district court should

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freely give leave to amend when justice so requires under Rule 15(a)(2), “the court’s discretion to

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deny such leave is ‘particularly broad’ where the plaintiff has previously amended its

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complaint[.]” Ecological Rights Found. v. Pac. Gas & Elec. Co., 713 F.3d 502, 520 (9th Cir.

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2013) (quoting Miller v. Yokohama Tire Corp., 358 F.3d 616, 622 (9th Cir. 2004)).

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III.

ANALYSIS

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Plaintiff moves this Court to dismiss Defendants’ Counterclaims under Rule 12(b)(6).

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(ECF Nos. 24, 26, 37.) Defendants respond that the Counterclaims allege sufficient facts to

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adequately state claims for relief. (ECF Nos. 34, 35, 41.) Alpha further responds that its claims

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for declaratory relief are appropriate. (ECF No. 34 at 8–9.)
“Under Rule 12(b)(6), a court may dismiss a complaint for failure to state a claim upon

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which relief may be granted ‘based on the lack of cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory.’” Granger v. Lowe’s Home Ctrs., LLC,

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No. 1:14–cv–01212–KJM–SKO, 2014 WL 4976134, at *5 (E.D. Cal. Oct. 3, 2014) (citing

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Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990)). Therefore, the Court will

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analyze each cause of action in the Counterclaims to determine whether Defendants have alleged

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sufficient facts. Then, the Court will turn to the issue of whether Alpha’s claims for declaratory

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relief are appropriate.

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A. Defendants Allege Sufficient Facts for a Breach of Contract Claim

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“An insurance policy is a contract and must be construed in the same manner as other

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contracts.” Cove Partners, LLC v. XL Specialty Insurance Co., No. CV 15–07635 SJO (GJSx),

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2016 WL 461918, at *5 (C.D. Cal. 2016). “A cause of action for breach of contract includes four

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elements: that a contract exists between the parties, that the plaintiff performed his contractual

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duties or was excused from nonperformance, that the defendant breached those contractual duties,

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and that plaintiff's damages were a result of the breach.” Lincoln Gen. Ins. Co. v. Access Claims

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Adm’rs, Inc., 596 F. Supp. 2d 1351, 1363 (E.D. Cal. 2009). Thus, with respect to Defendants’

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claims for breach of contract, the question for the Court is whether Defendants sufficiently allege

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these elements.
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First, Plaintiff and Defendants agree that a contract, the Policy, exists that governs the

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Parties. (ECF No. 1 at 1; ECF No. 16 at 8; ECF No. 18 at 10; ECF No. 33 at 4.) Second, to

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establish performance of contractual duties, Defendants assert they have satisfied all the required

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terms and conditions in the Policy. (ECF No. 16 at 9; ECF No. 18 at 11; ECF No. 33 at 11.)

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Specifically, Defendants contend that, in compliance with the Policy, they notified and tendered

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claims arising from the accident to Plaintiff and kept Plaintiff apprised of developments relating

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to mediations and settlement discussions. (ECF No. 16 at 9; ECF No. 18 at 11–12; ECF No. 33 at

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5.) Third, Defendants allege that Plaintiff breached its contractual duties in failing to indemnify

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Defendants and by failing to defend and pay defense expenses associated with claims related to

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the accident. (ECF No. 18 at 13; ECF No. 33 at 10–11; ECF No. 16 at 9–11.) Defendants also

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argue that Plaintiff is not excused from performing its duties because the Parties intended for the

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demolition work to be covered by the Policy and no material misrepresentations were made in the

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formation of the Policy. (ECF No. 18 at 5, 11; ECF No. 16 at 10; see ECF No. 33 at 2.) Finally,

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as to damages, Defendants contend that, as a result of Plaintiff’s breach, Defendants were forced

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to hire and pay legal counsel at their own expense. (ECF No. 16 at 10; ECF No. 18 at 13; ECF

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No. 33 at 11.) Although the terms and intended coverage of the Policy are heavily disputed by

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the Parties, the Court finds that Defendants’ factual allegations, if accepted as true as required

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under a Rule 12(b)(6) analysis, are sufficient to state plausible claims for breach of contract. As

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such, the Court DENIES Plaintiff’s Motions to Dismiss as related to the breach of contract causes

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of action.

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B. Defendants Allege Sufficient Facts for a Breach of the Implied Covenant of Good
Faith Claim

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In every insurance policy there is an implied covenant of good faith and fair dealing.

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Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 574 (1973). “The reasonableness of an insurer’s

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handling of the case can only be measured by the particular facts of each case.” Hergenroeder v.

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Travelers Prop. Cas. Ins. Co., 249 F.R.D. 595, 615-616 (E.D. Cal. 2008) (citing Allen v. Allstate

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Ins. Co., 656 F.2d 487, 489 (9th Cir. 1981). “To establish breach, Plaintiffs must show that (1)

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benefits due under the policy were withheld; and (2) the reason for withholding benefits was
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unreasonable or without proper cause.” Hergenroeder, 249 F.R.D. at 615.

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Here, the Court must decide whether Defendants sufficiently allege facts supporting that

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benefits due under the Policy were withheld and that the reason for withholding the benefits was

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unreasonable. Defendants contend that they were entitled to indemnification and legal

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representation pursuant to the Policy and that Plaintiff failed to provide said benefits. (ECF No.

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16 at 10; ECF No. 18 at 13–16; ECF No. 33 at 13–14.) Specifically, Defendants refer to the

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Policy provisions identifying Plaintiff’s duty to “pay those sums that the Insured becomes legally

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obligated to pay as damages because of ‘bodily injury’” and Plaintiff’s “duty to defend the

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Insured against any ‘suit’ seeking those damages.” (ECF No. 16 at 12; ECF No. 18 at 10; ECF

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No. 33 at 3.) Defendants also allege that Plaintiff’s refusal to indemnify, pay legal expenses, and

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provide legal counsel was unreasonable and without cause given Defendants’ compliance with

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the terms agreed to in the Policy. (ECF No. 16 at 10; ECF No. 18 at 13–16; ECF No. 33 at 13–

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14.) Based on the foregoing allegations, the Court finds that Defendants allege sufficient facts for

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breach of the implied covenant of good faith and fair dealing claims. As such, the Court DENIES

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Plaintiff’s Motions to Dismiss as related to the breach of the implied covenant of good faith and

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fair dealing causes of action.

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C. Alpha’s Requests for Declaratory Relief are Improper

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“A declaratory relief action serves to set controversies at rest before they lead to

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repudiation of obligations, invasion of rights or commission of wrongs; in short, the remedy is to

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be used in the interests of preventive justice, to declare rights rather than execute them.” Jensen

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v. Quality Loan Serv. Corp., 702 F. Supp. 2d 1183, 1188 (E.D. Cal. 2010) (internal quotations

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omitted). Such claims may be brought by any interested party involved in “an actual controversy

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that has not reached a stage at which either party may seek a coercive remedy and in cases where

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a party who could sue for coercive relief has not yet done so.” Seattle Audubon Soc. v. Moseley,

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80 F.3d 1401, 1405 (9th Cir. 1996). “[W]here a plaintiff has alleged a substantive cause of

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action, a declaratory relief claim should not be used as a superfluous ‘second cause of action for

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the determination of identical issues’ subsumed within the first.” Jensen, 702 F. Supp. at 1189

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(quoting Hood v. Superior Court, 33 Cal. App. 4th 319, 324 (1995)). Thus, the Court must
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decide whether the declaratory relief claims are repetitive of the substantive claims.
Alpha’s declaratory relief claims allege that the Policy applies and provides coverage to

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Alpha with regard to claims arising from the demolition accident and that Plaintiff owes a duty to

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indemnify and a duty to defend and pay damages on behalf of Alpha with regard to claims arising

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from the demolition accident. (ECF No. 18 at 17–21.) Accordingly, Alpha's declaratory relief

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claims are based on the same allegations as its previous claims for breach of contract and breach

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of the implied covenant of good faith. (ECF No. 18 at 10–16.) Therefore, the Court finds that the

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declaratory relief causes of action are improper, because the claims in essence duplicate Alpha's

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other causes of action and attempt to address past wrongs. As such, Plaintiff’s Motion to Dismiss

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Alpha’s Counterclaims as it relates to the Third, Fourth, and Fifth Causes of Action is

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GRANTED.

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I.

CONCLUSION

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For the foregoing reasons, Plaintiff’s Motions to Dismiss the Counterclaims of Defendants

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PG&E (ECF No. 24) and URS and CWC (ECF No. 37) are hereby DENIED, and Plaintiff’s

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Motion to Dismiss the Counterclaims of Alpha is hereby GRANTED as to the declaratory relief

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claims and DENIED as to the remaining claims (ECF No. 26.).

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IT IS SO ORDERED.

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Dated: February 29, 2016

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Troy L. Nunley
United States District Judge

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