Estate of Emma Cartledge v. Columbia Casualty Company

Filing 22

ORDER signed by Judge William B. Shubb on 1/30/2012 ORDERING that Columbia's 15 motion to dismiss be, and the same hereby is, DENIED. (Zignago, K.)

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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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----oo0oo---10
ESTATE OF EMMA CARTLEDGE,
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NO. CIV. 2:11-2623 WBS GGH
Plaintiff,

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v.

ORDER RE: MOTION TO DISMISS

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COLUMBIA CASUALTY COMPANY,

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Defendant,
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----oo0oo---18
Plaintiff the Estate of Emma Cartledge, by and through
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her successor in interest, Kenny Cartledge, brought this action
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against defendant Columbia Casualty Company (“Columbia”) alleging
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claims under California Insurance Code section 11580(b)(2) and
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for breach of the implied covenant of good faith and fair
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dealing.

Defendant now moves to dismiss plaintiff’s First

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Amended Complaint (“FAC”) pursuant to Federal Rule of Civil
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Procedure 12(b)(6) for failure to state a claim upon which relief
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may be granted.
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I.

Procedural and Factual Background

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Sierra Manor Associates, Inc. (“Sierra Manor

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Associates”) is a residential elder care facility that does

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business as Sierra Manor.

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default judgment in state court (“the underlying state action”)

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against Sierra Manor Associates, Inc., individually and doing

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business as Sierra Manor, in the amount of $2,000,471.50 for

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claims arising from injuries allegedly sustained by Emma

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Cartledge while she was a resident at Sierra Manor.

(FAC at 2-3.)

Cartledge obtained a

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Req. for Judicial Notice Ex. B.)

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only defendant named in the underlying state action.

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(FAC at 2;

Judicial Notice Ex. B.)

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Sierra Manor Associates was the
(Req. for

Columbia issued a commercial liability policy

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(“Columbia policy”) to Attwal Enterprises, Inc. (“Attwal

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Enterprises”).

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Sierra Manor and Woodson Lodge as dba’s for Attwal Enterprises.

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(Miller Decl. Ex. C at 5.)

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of the State of California” do not list “the dba SIERRA MANOR as

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an ‘associated business’ or ‘fictitious business name’ of Attwal

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Enterprises, Inc.”

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Lane, Bldg 1&2, Chico, CA,” which is the address of the Sierra

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Manor facility run by Sierra Manor Associates, is noted in the

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policy as an insured location.

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location is 3758 Illinois Ave, Corning, California, (Miller Decl.

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Ex. C at 9), which is the location of the Woodson Lodge facility,

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which is run by Balwinder Attwal (“Mr. Attwal”).

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Sierra Manor Associates is not listed as an insured on the

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policy.

(FAC at 3.)

The Columbia policy lists both

However, “on-line corporation reports

(FAC at 5.)

The address “2770 Sierra Ladera

(FAC at 3.)

The other insured

(FAC at 4; Miller Decl. ¶ 2, Ex. C.)
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(FAC at 4.)

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Mr. Attwal is the CEO of both Attwal Enterprises and

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Sierra Manor Associates.

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was the intention of both parties to the Columbia policy that the

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commercial liability policy issued to Attwal Enterprises also

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cover claims made against Sierra Manor, the assisted living

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facility located at 2770 Sierra Ladera Lane.

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Plaintiff claims that both parties intended for Sierra Manor

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Associates to be an insured under the policy and that the name of

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that corporation was not listed as an insured on the insurance

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(FAC at 5.)

Plaintiff alleges that it

contract as the result of a clerical error.

(FAC at 3.)

(FAC at 4.)

In support of this alleged shared intent, the FAC notes

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that Mr. Attwal represented to the California Department of

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Social Services that, as the licensee/owner of Sierra Manor, he

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would add liability insurance to the coverage of Sierra Manor

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once the facility was opened and that “the only liability

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insurance policy found covering SIERRA MANOR is the

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aforementioned policy with defendant.”

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Additionally, plaintiff alleges that Columbia, in its initial

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communications with it regarding the underlying action,

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acknowledged coverage for Sierra Manor, and that according to the

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agent who purchased the policy and dealt directly with Mr.

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Attwal, “the parties intended to cover the dba SIERRA MANOR,

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located at 2770 Sierra Ladera Lane, Chico, California for

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professional and general negligence liability.”

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Finally, the FAC points out that because it was represented to

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the California Department of Social Services that the assisted

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living facility known as Sierra Lodge was run by Sierra Manor

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Associates and that the second facility referred to in the
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(FAC at 5-6.)

(FAC at 4-5.)

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Columbia policy, Woodson Lodge, was run by Mr. Attwal personally,

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Attwal Enterprises did not run any assisted living facility that

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would be covered by the insurance policy as written.

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under the policy as written, no coverage could ever be found

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despite the fact that Columbia was paid a premium of $22,571.

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(Compl. at 3:22-24.)

Therefore,

Plaintiff alleges that Columbia was aware of the

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judgment entered against Sierra Manor Associates in the

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underlying action and that Columbia was obligated by the terms of

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the insurance policy to provide coverage for that judgment.

(FAC

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at 6.)

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plaintiff claims is a breach of the covenant of good faith and

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fair dealing.

Columbia, however, has yet to pay that judgment, in what

(FAC at 6.)

Claiming that Sierra Manor Associates was an insured

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under the Columbia policy, plaintiff brought this action against

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Columbia as a judgment creditor seeking to collect on the default

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judgment against Sierra Manor Associates and bringing a claim for

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breach of the implied covenant of good faith and fair dealing.

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II.

Judicial Notice

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In general, a court may not consider items outside the

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pleadings when deciding a motion to dismiss, but it may consider

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items of which it can take judicial notice.

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F.3d 1370, 1377 (9th Cir. 1994).

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notice of facts “not subject to reasonable dispute” because they

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are either “(1) generally known within the territorial

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jurisdiction of the trial court or (2) capable of accurate and

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ready determination by resort to sources whose accuracy cannot

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reasonably be questioned.”

Barron v. Reich, 13

A court may take judicial

Fed. R. Evid. 201.
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Judicial notice

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may properly be taken of matters of public record outside the

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pleadings.

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(9th Cir. 1986).

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may “consider certain materials--documents attached to the

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complaint, documents incorporated by reference in the complaint,

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or matters of judicial notice--without converting the motion to

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dismiss into a motion for summary judgment.”

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Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

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See MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504
The Ninth Circuit has also held that a court

United States v.

Columbia has requested that the court take judicial

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notice of four items: (1) the Complaint in the underlying state

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action; (2) the amended judgment in the underlying state action;

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(3) a copy of the California Secretary of State Business Entity

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Detail for Attwal Enterprises; and (4) a copy of the California

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Secretary of State Business Entity Detail for Sierra Manor

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Associates.

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(Req. for Judicial Notice.)

As the Columbia policy is extensively referenced in the

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Complaint and neither party disputes its authenticity, the court

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will take judicial notice of it.

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(“The doctrine of incorporation by reference may apply, for

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example, when a plaintiff’s claim about insurance coverage is

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based on the contents of a coverage plan . . . .” (citing Parrino

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v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998))).

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See Ritchie, 342 F.3d at 909

To the extent that Columbia requests that the court

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take judicial notice that the Complaint in the underlying state

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action was filed and that an amended judgment was entered, the

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request is granted.

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v. City of Burbank, 136 F.3d 1360, 1364 (9th Cir. 1998).

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However, the court will not take judicial notice of any disputed

See Burbank-Glendale-Pasadena Airport Auth.

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facts contained in the document.

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Judicial notice of the business entity details is appropriate as

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both are public records.

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See Lee, 250 F.3d at 690.

Plaintiff has attached a sixteen documents to its

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Opposition, but has not requested that the court take judicial

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notice of any of them.

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dismiss, if a district court considers evidence outside the

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pleadings, it must normally convert the 12(b)(6) motion into a

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Rule 56 motion for summary judgment, and it must give the

“When ruling on a Rule 12(b)(6) motion to

Ritchie, 342 F.3d at

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nonmoving party an opportunity to respond.”

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908.

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Columbia has not had time to respond to them, the court will not

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consider plaintiff’s attachments and will not convert defendant’s

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12(b)(6) motion into a motion for summary judgment.

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III. Discussion

As the court does not rely on any of these materials and as

On a motion to dismiss, the court must accept the

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allegations in the complaint as true and draw all reasonable

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inferences in favor of the plaintiff.

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U.S. 232, 236 (1974), overruled on other grounds by Davis v.

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Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322

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(1972).

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contain sufficient factual matter, accepted as true, to ‘state a

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claim to relief that is plausible on its face.’”

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Iqbal, 556 U.S. 662, ---, 129 S. Ct. 1937, 1949 (2009) (quoting

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Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

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this “plausibility standard,” “[w]here a complaint pleads facts

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that are ‘merely consistent with’ a defendant’s liability, it

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‘stops short of the line between possibility and plausibility of

Scheuer v. Rhodes, 416

“To survive a motion to dismiss, a complaint must

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Ashcroft v.

Under

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entitlement to relief.’”

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Id. at 1949 (quoting Twombly, 550 U.S.

at 556-57).

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A.

Insurance Code section 11580(b)(2)

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Under California Insurance Code section 11580,

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“whenever judgment is secured against the insured . . . in an

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action based upon bodily injury, death, or property damage . . .

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an action may be brought against the insurer on the policy and

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subject to its terms and limitations, by such judgment creditor

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to recover on the judgment.”

Cal. Ins. Code § 11580(b)(2).

“The

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judgment creditor’s right to sue is not derivative or dependent

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upon any assignment from the insured.”

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Shafton, Moss, Figler, Simon & Gladstone, 107 Cal. App. 4th 54,

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68 (2d Dist. 2003) (quoting Croskey et al., Cal. Practice Guide:

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Insurance Litigation ¶ 15:1039 (The Rutter Group 2002)).

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order to state a claim under section 11580(b)(2), a complaint

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must include allegations that a plaintiff (1) obtained a judgment

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for injury (2) against a party who is insured by an insurance

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policy that (3) would cover the injury.

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Eagle Ins. Co., 16 Cal. App. 4th 694, 710 (1st Dist. 2004)

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(quoting Wright v. Fireman’s Fund Ins. Cos., 11 Cal. App. 4th

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998, 1015 (4th Dist. 1992)).

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the judgment obtained by plaintiff can be said to be a judgment

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against a party insured by Columbia.

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Shafer v. Berger, Kahn,

In

Garamendi v. Golden

At issue in this case is whether

As the court discussed in its earlier Order, in Goss v.

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Security Insurance Company of California, 113 Cal. App. 577 (1st

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Dist. 1931), three individuals conducted business under the

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fictional business name “Pacific Motor Company,” but did not

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create a separate legal identity for their business.
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Goss, 113

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Cal. App. at 579.

The three men took out an insurance policy

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under the fictional name Pacific Motor Company.

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judgment was entered against the men, doing business as Pacific

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Motor Company, the insurance company denied coverage, claiming

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that while it had insured Pacific Motor Company as a corporation,

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the judgment was against a partnership.

Id.

When a

Id. at 579-80.

The court rejected the insurance company’s argument,

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noting that as Pacific Motor Company never had any “corporate

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life,” under the insurance company’s reasoning it would never be

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required to pay out anything under the policy in question.

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at 580.

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parties in entering the insurance contract.

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that the insurance company accepted premiums from the men and

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that there was never any Pacific Motor Company that could have

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been insured, the court found that the parties’ intentions had

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been to insure the owners of the garage against liability.

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insurance company, therefore, was required to provide coverage

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for the judgment against the individuals.

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Id.

Instead, the court looked to the intention of the
In view of the fact

The

Id. at 580-81.

Goss was cited in Winchester v. General Cab Co., 13

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Cal. App. 2d 551 (2d Dist. 1936).

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Company issued policy of indemnity that listed as the insured

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John Coyle, receiver in equity for General Cab Company dba Red

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Top Cab Company.

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been in an accident with one of the General Cab Company’s

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vehicles and brought suit against General Cab Company and were

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awarded damages, but Coyle was not a party to that action.

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The court relied on the lower court’s finding that the policy in

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question had been made for the benefit of the General Cab Company

Id. at 554.

In that case, Mercer Casualty

The plaintiffs in Winchester had

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Id.

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in rejecting Mercer Casualty’s argument that coverage for the

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claims brought by plaintiff did not exist.

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Specifically, the court disagreed with the contention that a

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judgment had not been “rendered against the assured” as Coyle,

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the named insured, was not a party to the lawsuit.

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the court held that “[t]he facts as found by the [lower] court

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show that the judgment for damages was against one of the

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parties, which was, in fact, the insured,” and so the insurance

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company was required to provide coverage of the judgment entered

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in the plaintiffs’ favor.

Id. at 554-56.

Id.

Instead,

Id. at 556.

In Insurance Co. of North America v. Central National

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Insurance Co. of Omaha, 567 F.2d 894 (9th Cir. 1978), a

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condominium insurance policy issued by the defendant listed a

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condominium association as the insured, even though the

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association did not exist at the time the policy was taken out.

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The policy was purchased by the condominium builder, who had also

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purchased a “special multi-peril insurance policy with a

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‘builder’s risk’ endorsement” from plaintiff.

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the condominiums were destroyed in a fire, the defendant disputed

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coverage on the grounds that the non-existent condominium

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association had no insurable interest.

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Id. at 895.

When

Id.

The court, upholding the district court’s judgment in

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favor of the plaintiff, countered that the association was not

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the relevant party and that, regardless of the named insured

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listed on the policy, the real question at issue was whether the

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builder, who had assigned his claims to the plaintiff, “had a

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claim against [defendant].”

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builder for the policy, been paid the premium on the policy by

Id.

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As defendant had billed the

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the builder, and dealt with the builder in subsequent insurance

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matters, it was “estopped from denying its liability to [the

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builder]” on the policy at issue.

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Id. at 895-96.

In a more recent case from this district, Bishara v.

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Century Surety Company, No. EDCV 09-01745, 2011 WL 1334406 (E.D.

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Cal. Apr. 6, 2011), the relevant insurance policy listed

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“Havana’s Sports Bar & Restaurant” as the insured and described

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the insured as an organization.

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Restaurant was allegedly owned by the plaintiff, Shadi N.

Havana’s Sports Bar and

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Bishara, who was also listed as the secretary of a corporation

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bearing the name Havanas Inc.

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argued that the insured was “Havana’s Inc.” and not plaintiff and

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that plaintiff therefore did not have standing to bring a claims

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under the policy.

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Id. at *3.

The insurance company

Id. at *7.

However, looking at evidence that the insurance

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application and other relevant forms listed “Shadi N [sic]

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Bishara dba Havanas Bar” and “Shadi N Bishara/Havana Bar &

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Restaurant” as the party seeking insurance, the court held that

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on a summary judgment motion, the plaintiff had “demonstrate[d]

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sufficiently the name on the Policy may be the result of a

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scrivener’s error, and therefore dispute[d] sufficiently whether

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he was a party to the policy.”

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noted that even if the defendant had demonstrated that the

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plaintiff was not a named party to the policy, “such a

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demonstration would not necessarily bar Plaintiff from bringing a

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suit under the Policy” in part because “[w]hen an insurance

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company, though its own fault, issues a policy to an assured

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under a wrong name, and accepts and retains premiums in payment

Id. at *7-8.

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The court further

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therefor, it will be estopped from denying that the real [party]

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was insured by the terms of the policy.”

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Capital Glenn Min. Co. v. Indus. Acc. Comm’n, 124 Cal. App. 79,

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86 (3d Dist. 1932)).

Id. at *8 (quoting

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Here, in the underlying state action, the only named

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defendant was “Sierra Manor Associates, Inc., individually and

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doing business as Sierra Manor.”

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found that plaintiff’s original Complaint, in which it did not

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lay out any facts to explain why Sierra Manor Associates should

In its prior Order, the court

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be considered an insured under the Columbia policy, did not

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allege facts that were sufficient to make a plausible claim of

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entitlement to relief.

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insurance contract was intended to cover the assisted living

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facility run by Sierra Manor Associates under the name Sierra

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Manor and that Sierra Manor Associates was intended to be an

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insured under the policy, but its name was inadvertantly left out

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of the policy.

Now, however, plaintiff alleges that the

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If, as plaintiff claims, Columbia intended to insure

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the Sierra Manor facility run by Sierra Manor Associates, then

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Columbia, like the insurance companies in Bishara and Insurance

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Company of North America, cannot claim that requiring them to

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treat Sierra Manor Associates as an insured will cause them

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prejudice or increase the risks they assumed in issuing the

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policy.

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premiums on the policy in question, as did the insurance

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companies in Bishara and Insurance Company of North America who

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were estopped from denying coverage.

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Bishara, and Insurance Company of North America, there was a

Further, plaintiff alleges that Columbia accepted

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Although, unlike in Goss,

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valid, legal entity named as the insured in this case, plaintiff

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still claims that the policy as written, like the policy in Goss,

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is one under which coverage would never exist as there is no

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assisted living facility run by Attwal Enterprises at the

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locations listed in the Columbia policy.

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If true, the facts as alleged in the FAC suggest that

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Sierra Manor Associates was intended to be an insured under the

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policy, but that “a mistake in the name of the assured occur[red]

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though [the insurance company’s] own negligence.”

Capital Glenn

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Mining Co., 124 Cal. App. at 84.

Such facts are sufficient to

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state a plausible claim that plaintiff has obtained a judgment

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against a party insured by Columbia.

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that the judgment in the underlying action was not for an injury

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that would be covered by the Columbia policy, plaintiff has

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sufficiently pled its claim as a judgment creditor under §

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11580(b)(2).1

As no party has suggested

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The FAC additionally states that Sierra Manor
Associates was operated as “a subsidiary or other alter ego of
Attwal Enterprises, Inc.” (FAC at 5.) In the absence of
inequitable conduct on the part of the insurer, however, parties
may not use the alter ego doctrine to re-write an insurance
policy to add insureds. U.S. Fire Ins. Co. v. Nat’l Union Fire
Ins. Co., 107 Cal. App. 3d 456, 472 (1980). Nor can piercing the
corporate veil be used to increase an insurer’s contractual
obligations under an insurance contract with a corporation.
GBTI, Inc. v. Ins. Co. of State of Penn., No. CV 09-1173, 2011 WL
1332165, at *6 (E.D. Cal. Apr. 5, 2011) (citing Am. Home Ins. Co.
v. Travelers Indem., 122 Cal. App. 3d 951, 966–67 (1981)). As
was the case with the Complaint, the FAC contains no allegations
that Columbia played any role in any abuse of corporate
privileges that may have occurred. The FAC, therefore, does not
allege facts that would support holding Columbia liable under an
alter ego theory or through piercing the corporate veil.
Columbia also argues that plaintiff’s claim should fail
because it does not have standing to bring a claim for
reformation of the policy. As plaintiff is not bringing a claim
for reformation, this argument is irrelevant.
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B.

Breach of the Implied Covenant of Good Faith and Fair

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Dealing

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An insurer’s duty of good faith and fair dealing arises

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from the insurance contract and runs to the insured.

Kransco v.

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Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 39, 400–01 (2000);

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Murphy v. Allstate Ins. Co., 17 Cal. 3d 937, 944 (1976).

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judgment creditor may bring claims for breach of the implied

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covenant in two situations.

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assigned to it by the insured.

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First, the creditor may bring claims
Murphy, 17 Cal. at 942.

Second,

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Hand v. Farmers Insurance Exchange, 23 Cal. App. 4th 1847 (2nd

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Dist. 1994), provides that under California Insurance Code

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section 11580, in some circumstances, a judgment creditor is

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properly considered to be a third-party beneficiary of an

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insurance contract who is owed certain duties under the implied

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covenant of good faith and fair dealing and may sue the insurer

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for breach of these duties.

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the court pointed out in its previous Order, such a cause of

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action, however, lies only where the benefits of a duty under the

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implied covenant run in favor of the judgment creditor.

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of Emma Cartledge v. Columbia Cas. Co., No. CIV. 2:11–2623, 2011

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WL 5884255, at *5 (E.D. Cal. Nov. 23, 2011) (citing Diamond

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Woodworks, Inc. v. Argonaut Ins. Co., 109 Cal. App. 4th 1020,

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1044 (4th Dist. 2003), overruled on other grounds by Simon v. San

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Paolo U.S. Holding Co., Inc., 35 Cal. 4th 1159 (2005) (quoting

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Hand, 23 Cal. App. 4th at 1857)).

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Hand, 23 Cal. App. 4th at 1857.

Estate

Plaintiff now alleges that Columbia breached duties

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that ran in its favor when Columbia failed to pay the judgment

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entered against Sierra Manor Associates.

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As

As there are no

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allegations that plaintiff has been assigned any claims for

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breach of the implied covenant of good faith and fair dealing,

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plaintiff must show that it has standing under Hand as a third-

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party beneficiary.

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According to allegations in the FAC, Sierra Manor

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Associates was an insured under the policy issued by Columbia,

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but its name was left out of the policy due to a scrivener’s

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error.

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to dismiss, plaintiff has obtained a final judgment for damages

Assuming this to be true, as the court must on a motion

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against an insured.

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was entered, the insurer’s duty to pay was triggered.

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duty to pay is “in place as much to protect adjudicated injured

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parties from uncompensated loss as to protect the insured from

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personal financial disaster,” Hand, 23 Cal. App. 4th at 1858,

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plaintiffs who obtain a final judgment for damages, as plaintiff

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here has done, are third-party beneficiaries to the insurance

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contract with standing under California law to bring claims for

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an unreasonable, bad faith refusal to pay.

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Scottsdale Ins. Co., 1 Fed. Appx. 691, 692 (9th Cir. 2001); Ham

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v. Continental Ins. Co., No. 08-1551 SC, 2009 WL 513474, at *4-5

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(N.D. Cal. Mar. 2, 2009); Diamond Woodworks, 109 Cal. App. 4th at

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1044; Hand, 23 Cal. App. 4th at 1857-58.

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Once this judgment against an insured party
As the

E.g., Chen v.

The FAC alleges that Columbia knew that Sierra Manor

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Associates was an insured under the Columbia policy, even

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acknowledging this fact in a letter to plaintiff (FAC at 4-5),

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but is now avoiding making payment required of it according to

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the terms of that policy by exploiting its own clerical mistake.

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Such allegations are sufficient for a third-party beneficiary to

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state a claim for unreasonable, bad faith refusal to pay in

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violation of the covenant of good faith and fair dealing that is

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plausible on its face and, contrary to the representations of

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defendant’s counsel during oral arguments, nothing in Hand would

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suggest otherwise.

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IT IS THEREFORE ORDERED that Columbia’s motion to

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dismiss be, and the same hereby is, DENIED.

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DATED:

January 30, 2012

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