ACE Capital Ltd., et al v. ePlanning, Inc. et al

Filing 110

ORDER signed by Judge John A. Mendez on 3/7/2013 GRANTING, with prejudice, Underwriter's 100 Motion to Dismiss Counterclaim. (Marciel, M)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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ACE CAPITAL LTD., ET AL.,

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No.

2:12-cv-01511 JAM-AC

Plaintiffs,

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v.

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ePLANNING, INC. ET AL.,

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ORDER GRANTING
PLAINTIFFS’/COUNTERDEFENDANTS’
MOTION TO DISMISS COUNTERCLAIM

Defendants.

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This matter is before the Court on Plaintiffs/Counter

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Defendants ACE Capital Limited, ACE Capital IV Limited, Ace

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Capital V Limited, and Brit UW Limited’s (collectively

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“Underwriters”) Motion to Dismiss (Doc. #100)

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Defendants/Counterclaimants Wood River, et al.’s (collectively

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“Wood River Defendants”)1 Counterclaim (Doc. #52).

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Defendants oppose the motion (Doc. #106) and Underwriters

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replied (Doc. #107).2

Wood River

For the following reasons, Underwriters’

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All seventy-three Counterclaimants are identified in the
counterclaim (Doc. #52) and in paragraphs 294 to 366 of the
Complaint (Doc. #2).
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This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled
for January 23, 2013.
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motion is granted.

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I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
Underwriters filed a Complaint in Interpleader to determine

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the allocation of the remaining $303,691.93 policy proceeds of

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the $5,000,000 claims-made-and-reported policy (“E&O Policy”)

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issued to ePlanning Securities, Inc., and ePlanning Advisors,

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Inc. (collectively “ePlanning”), which includes Jeffrey A. Guidi

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(“Guidi”) (Doc. #2).

Pursuant to an assignment by Guidi, the

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Wood River Defendants filed a counterclaim, asserting three

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causes of action against Underwriters: (1) declaratory relief;

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(2) breach of contract; and (3) breach of covenant of good faith

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and fair dealing.

Countercl. ¶¶ 121-138.

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A.

The Underlying Actions and Assignment

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Wood River Defendants filed the following four actions

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against ePlanning and Guidi (collectively “the Underlying

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Actions”) for breach of their fiduciary duties and

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misrepresentation and/or omission of material facts to the Wood

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River Defendants in connection with selling tenancy-in-common

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interests in investments:

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1. Wood River Capital Resources, LLC, et al. v.
CapitalSource, Inc., et al., Shasta County Case No.
168055 (“the Wood River Action”);
2. Santa Clara Capital Resources, LLC, et al. v.
CapitalSource, Inc., et al., Shasta County Case No.
168250 (“the Santa Clara Action”);
3. AREI Colonnade 1, LLC, et al. v. Meecorp Capital
Markets, et al., Shasta County Case No. 168466 (“the
Colonnade Action”);
4. Spencer Capital Resources, LLC, et al. v.
CapitalSource, Inc., et al., Shasta County Case No.
168637 (“the Spencer Action”).
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Countercl. ¶¶ 80, 121-138.
The Wood River Defendants settled the Underlying Actions

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with Guidi and ePlanning, and as part of that settlement, Guidi

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assigned to the Wood River Defendants all of his claims and

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causes of actions against Underwriters under the E&O Policy.

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at ¶ 117.

Id.

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B.

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Underwriters issued the E&O Policy No. 146/LDUSA0700785, to

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The E&O Policy

ePlanning.

Id. at ¶ 87.

By contract endorsement, the E&O Policy

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was amended to change the policy number to B0509QA106007,

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effective September 15, 2007.

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Policy was September 1, 2007, to September 1, 2008.

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Exhibit A to Complaint (Doc. #2), at 95.

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the E&O Policy provides that the policy is a claims-made-and-

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reported professional liability insurance policy.

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Id.

The policy period of the E&O
E&O Policy,

The declaration page of

Id.

Pursuant to the E&O Policy’s “Additional Wordings &
Clauses,” “Claim” is defined as follows:

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Claim means:

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(a)

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the following made or brought by the
Broker/Dealer’s or the Registered Investment
Advisor’s customer or client in such capacity:

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(i)

a written demand for monetary relief; or

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(ii)

a civil or arbitration proceeding for
monetary or nonmonetary relief, which is
commenced by:

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1) service of a complaint or similar
pleading; or

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2) receipt or filing of an arbitration
demand or statement of claim; and

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(b)

complaints or inquiries made or brought by, on
behalf of, or in the name or right of any
governmental, quasi-governmental, regulatory or
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self-regulatory entity, whether directly or
indirectly, in any capacity other than in its
capacity as a customer or client of the
Broker/Dealer or the Registered Investment
Advisor.
Id. at 117.
Under the “General Conditions,” in a section entitled
“Notice of Claim,” the E&O Policy provides the following:

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NOTICE OF CLAIM:

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If any Claim is first made against the Assured during
the Policy Period, whether or not the alleged Damages
fall within or in excess of the Deductible, the
Assured shall give written notice to the Underwriters’
representatives named in Item 9 of the Declarations as
soon as possible, but in no event more than 60 days
after the Claim is made.

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Such written notice must contain complete details of
the Claim, the exact date the Claim was first made,
the location, the circumstances giving rise to such
Claim, the identity of all Claimants and a full
description of the nature and scope of the alleged
Damages. The Assured must immediately forward every
demand, notice, summons or other process received by
it or its representative, upon receipt thereof, to
Underwriters’ representatives, as per Item 9 of the
Declarations.
Id. at 106.
Finally, the E&O Policy describes the “Extended Reporting
Period” in pertinent part as follows:
If the Underwriters cancel or refuse to renew this
policy, the first Named Assured designated in Item 1
of the Declarations shall have the right, in
consideration of additional premium equal to the full
annual Premium charged hereunder, to an extension of
this policy, subject to its terms, conditions,
exclusions, definitions and limitations, in respect of
any Claim first made against an Assured and reported
in writing to the Underwriters during the period of
twelve (12) months after the cancellation or expiry
date of this policy, but only if such Claim is for a
Wrongful Act committed by an Assured in rendering or
failing to render Professional Services subsequent to
the Retroactive Date and prior to the cancellation
date of this policy or the end of the Policy Period
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stated in Item 2 of the Declarations, whichever is
earlier.
Id. at 107.

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II. OPINION

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A.

Legal Standard

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A party may move to dismiss an action for failure to state

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a claim upon which relief can be granted pursuant to Federal

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Rule of Civil Procedure 12(b)(6).

In considering a motion to

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dismiss, the court must accept the allegations in the complaint

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as true and draw all reasonable inferences in favor of the

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plaintiff.

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overruled on other grounds by Davis v. Scherer, 468 U.S. 183

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(1984); Cruz v. Beto, 405 U.S. 319, 322 (1972).

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are mere “legal conclusions,” however, are not entitled to the

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assumption of truth.

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(2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555

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(2007)).

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plead “enough facts to state a claim to relief that is plausible

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on its face.”

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appropriate where the plaintiff fails to state a claim

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supportable by a cognizable legal theory.

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Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990).

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Scheuer v. Rhodes, 416 U.S. 232, 236 (1974),

Assertions that

Ashcroft v. Iqbal, 556 U.S. 662, 678

To survive a motion to dismiss, a plaintiff needs to

Twombly, 550 U.S. at 570.

Dismissal is

Balistreri v.

Upon granting a motion to dismiss for failure to state a

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claim, the court has discretion to allow leave to amend the

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complaint pursuant to Federal Rule of Civil Procedure 15(a).

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“Dismissal with prejudice and without leave to amend is not

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appropriate unless it is clear . . . that the complaint could
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not be saved by amendment.”

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Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).

Eminence Capital, L.L.C. v. Aspeon,

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B.

Judicial Notice

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Underwriters request the Court to take judicial notice of

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four complaints filed in Shasta County Superior Court because

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the contents of these documents are alleged in the

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counterclaim in this action.

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(“RJN”), Doc. #100, Exs. A-D.

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oppose the request.

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Request for Judicial Notice
Wood River Defendants do not

Courts may consider extrinsic evidence when “plaintiff’s

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claim depends on the contents of a document, the defendant

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attaches the document to its motion to dismiss, and the

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parties do not dispute the authenticity of the document.”

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Knievel v. ESPN, 393 F.3d 1069, 1076 (9th Cir. 2005).

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Accordingly, the Court GRANTS Underwriters’ request for
judicial notice pursuant to Federal Rule of Evidence 201.

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C.

Discussion

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Underwriters argue that the Wood River Defendants’

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counterclaim should be dismissed because the underlying claims

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were not made during the policy period and because the Wood

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River Defendants fail to allege that the underlying claims were

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reported to Underwriters.

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Fire & Casualty Co., 88 Cal.App.4th 1329 (2001), Wood River

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Defendants’ argue that Underwriters had a duty not to favor the

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interests of one insured over another and had a further duty not

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to exhaust its policy limits in a manner that would leave its

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insured exposed to additional claims falling within the scope of

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coverage.

Relying on Schwartz v. State Farm

Opp. at 4.
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Under a claims-made-and-reported policy, such as the policy

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here, “an insurer provides coverage for any loss resulting from

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claims made during the policy period.”

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Found. v. Carolina Cas. Ins. Co., 612 F. Supp. 2d 1089, 1094 n.1

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(N.D. Cal. 2009) (citing Burns v. Int’l Ins. Co., 929 F.2d 1422,

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1424 (9th Cir. 1991)) (emphasis in original).

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reporting of a claim is the event triggering coverage.

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Inc. v. California Union Ins. Co., 56 Cal.App.4th 963, 972

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(1997).

World Health & Educ.

Therefore, timely
KPFF,

“Though the coverage of a claims-made-and-reported

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policy is limited, the insuring agreement is still subject to

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the same principles of interpretation as other insurance

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policies.”

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Id. at 973.

Here, the parties agree that the Wood River Defendants as

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assignees stand in the insured’s shoes and are subject to any

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defenses the insurer had against the insured.

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Am. Employers Ins. Co., 77 Cal.App.3d 619, 625 (1978).

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they disagree on whether this case is governed by Schwartz.

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Schwartz, the insurer paid out the full benefits of the policy

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in a manner that favored one insured to the detriment of a

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second insured for the same benefits, even though it knew that

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the plaintiffs would have competing claims on the limited funds

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once their primary insurance was exhausted.

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1333-34.

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limits of its policy may be liable for breach of the implied

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covenant, if improper claims handling causes detriment to the

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insured.”

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distinguished cases where no breach of contract and no breach of

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the covenant occurred because there was no coverage or no

See Woolett v.
However,
In

88 Cal.App.4th at

The court held that “an insurer that pays the full

Id. at 1339.

Moreover, the Schwartz court

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insurable interest.

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Cal.App.3d 1136, 1151-52 (1990) (holding that no benefits were

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due because the claim was time barred)).

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Id. (citing Love v. Fire Ins. Exch., 221

Here, unlike in Schwartz, there is no covered or

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potentially covered claim.

The four underlying claims mentioned

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in Wood River Defendants’ counterclaim were filed after the

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expiration of the policy and therefore could not have been

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timely reported.

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September 1, 2008.

The policy period was September 1, 2007, to
E&O Policy at 95.

The earliest underlying

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action was filed on December 23, 2009, more than one year after

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the policy expired. Wood River Action, Ex. A to RJN, at 1.

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if the insured had purchased an Extended Reporting Period for

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the E&O Policy, which would extend the period for covered claims

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for twelve months after the policy expired, i.e. to September 1,

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2009, in this case, the earliest underlying action would still

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fall at least two months outside the policy period.

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because there is no potential coverage, Wood River Defendants’

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reliance on Schwartz is misplaced.

Even

Therefore,

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Further, as Underwriters contend, an insurer cannot be held

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liable on a bad faith claim for doing what is expressly permitted

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in the agreement.

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F.3d 1132, 1137 (9th Cir. 1998).

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Underwriters to pay prior covered claims and defense costs but

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were not required to pay claim expenses in excess of the policy

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limit.

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other covered claims and defense costs cannot support the Wood

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River Defendants’ assigned claims for breach of contract or bad

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faith.

Solomon v. N. Am. Life & Cas. Ins. Co., 151

See E&O Policy at 106.

Here, the policy obligated

Therefore, the payments for

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Accordingly, the Court finds the Wood River Defendants

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cannot allege that there is any covered or potentially covered

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claims and therefore, its claims must be dismissed.

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Court further finds that the counterclaim cannot be saved by

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amendment, granting Wood River Defendants leave to amend would

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be futile.

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that Wood River Defendants fail to allege that the claims were

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reported to Underwriters.

Because the

The Court need not address Underwriters’ argument

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III. ORDER

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For the reasons set forth above, Underwriters’ Motion to

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Dismiss is GRANTED WITH PREJUDICE.
IT IS SO ORDERED.
Dated: March 7, 2013

____________________________
JOHN A. MENDEZ,
UNITED STATES DISTRICT JUDGE

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