The Rancho Tehama Association v. Federal Insurance Company

Filing 14

ORDER signed by Judge John A. Mendez on 5/28/15 ORDERING for the reasons set forth above, the Court DENIES Defendant's 8 Motion to Dismiss. (Becknal, R)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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THE RANCHO TEHAMA
ASSOCIATION, a California
nonprofit mutual benefit
corporation,

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Plaintiff,
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No.

2:15-cv-00291 JAM-CMK

ORDER DENYING DEFENDANT FEDERAL
INSURANCE COMPANY’S MOTION TO
DISMISS

v.
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FEDERAL INSURANCE COMPANY, an
Indiana corporation,

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Defendant.

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Defendant Federal Insurance Company (“Defendant”) moves to

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dismiss (Doc. #8) Plaintiff Rancho Tehama Association’s

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(“Plaintiff”) Complaint (Doc. #1) in its entirety.

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opposes the motion (Doc. #11).

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Defendant’s motion is denied. 1

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///

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///

Plaintiff

For the following reasons,

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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 May 20, 2015.
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I.

FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

Plaintiff operates as an association of homeowners in Rancho

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Tehama, a community near Corning, California.

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Defendant Federal Insurance Company issued an insurance policy

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(“2012-2013 Policy”) to Plaintiff, providing coverage from March

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1, 2012 through March 1, 2013.

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alleges that it “renewed” this policy, but Defendant contends

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that it issued a separate and distinct insurance policy (“2013-

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2014 Policy”), providing coverage from March 1, 2013 through

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March 1, 2014.

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Compl. ¶ 2.

Compl. ¶ 9, Ex. A.

Plaintiff

in greater detail below.

Compl. ¶ 10, Ex. B.

These policies are discussed

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A.

2012 “Request for a Meeting”

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At all times relevant to the Complaint, Wendell Bonner was

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an owner of residential property in Rancho Tehama and a member of

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the Rancho Tehama Association.

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Bonner’s “request for a meeting with the Association, on July 24,

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2012, the Association Board met with Mr. Bonner, the outcome of

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which [was] that Mr. Bonner was satisfied with the Association’s

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response and did not intend to file litigation” against

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Plaintiff.

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details about Bonner’s “request for a meeting,” or the meeting

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itself.

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attached to the Complaint, or referenced therein.

Compl. ¶ 18.

Compl. ¶ 17.

In response to

Plaintiff does not allege any further

None of Bonner’s correspondence with Plaintiff is

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B.

Underlying Action

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On September 27, 2013, Bonner filed a complaint (the

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“Underlying Action”) against Plaintiff in Tehama County Superior

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Court, seeking damages for breach of fiduciary duty and

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negligence.

Compl. ¶ 19.

Bonner alleged that Plaintiff had
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failed to enforce the Tehama Rancho Association Covenants,

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Conditions, and Restrictions (“CC&Rs”), by: (1) “allowing various

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residence dwellings to violate the acceptable parameters”;

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(2) “allowing for the illegal cultivation of marijuana and other

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illegal substances throughout the areas controlled by

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[Plaintiff]”; (3) “allowing temporary outbuildings to be

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erected”; (4) “allowing noxious and offensive activities to be

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carried on throughout the various lots . . . which are

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unreasonable annoyances and or/nuisances to the neighborhood”;

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(5) “allowing trash, garbage and other refuse to be dumped and

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stored on various lots;” and (6) “failing to take appropriate

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remedial action when informed of the various defects[.]”

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¶ 19, Ex. C (Bonner Complaint in the Underlying Action).

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Compl.

On October 3, 2013, Plaintiff tendered the Underlying Action

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to Defendant for defense and indemnity under the 2013-2014

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Policy.

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would defend Plaintiff in the Underlying Action.

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However, in a December 11, 2013 letter, Defendant advised

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Plaintiff of its position that there was no coverage for the

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Underlying Action, because Plaintiff had failed to timely report

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Bonner’s claim to Defendant.

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repeated this position in a June 11, 2014 letter to Plaintiff.

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Compl. ¶ 40, Ex. E.

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Compl. ¶ 25.

Defendant initially indicated that it
Compl. ¶ 26.

Compl. ¶¶ 32, 34, Ex. D.

Defendant

On February 4, 2015, Plaintiff filed the Complaint in this

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Court.

Doc. #1.

Plaintiff alleges the following causes of

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action: (1) Declaratory relief that Defendant owes an obligation

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under “the Federal Policy” to defend and indemnify Plaintiff in

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connection with the Underlying Action; (2) Breach of Insurance
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Contract; and (3) Breach of the Implied Covenant of Good Faith

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and Fair Dealing.

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II.

OPINION

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A.

Judicial Notice

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Defendant requests that the Court take judicial notice of

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five documents which are not attached to the Complaint: (1) a

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June 11, 2012 letter from Wendell Bonner to Plaintiff; (2) a June

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12, 2012 letter from Bonner to Plaintiff; (3) a July 20, 2012

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letter from Bonner to Plaintiff; (4) minutes from the July 24,

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2012 meeting between Bonner and Plaintiff’s Board of Directors;

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and (5) an October 11, 2013 letter from Defendant to Plaintiff.

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Defendant’s Request for Judicial Notice, Doc. #8.

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As a general rule, the Court “may not consider any material

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beyond the pleadings in ruling on a Rule 12(b)(6) motion.”

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v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001).

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However, the Court may take judicial notice of “matters of public

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record,” provided that they are not subject to reasonable

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dispute.

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are public records nor are they otherwise the proper subjects of

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judicial notice.

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notice is denied.

Id. at 689.

Lee

None of the documents offered by Defendant

Accordingly, Defendant’s request for judicial

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B.

Analysis

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Defendant argues that Plaintiff failed to report Bonner’s

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claim in a timely manner, and that Defendant is therefore not

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required to defend and indemnify Plaintiff under the 2012-2013

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Policy.

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contact with Plaintiff was a “Claim” under the 2012-2013 Policy,

Mot. at 1.

Specifically, Defendant argues Bonner’s 2012

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and that the 2013 Underlying Action is a “Related Claim” within

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the terms of that policy.

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argues, under the terms of the 2012-2013 Policy, Plaintiff was

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obligated to notify Defendant of Bonner’s 2012 claim by no later

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than May 1, 2013.

Mot. at 8.

Therefore, Defendant

Mot. at 10.

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Plaintiff responds, in part, by arguing that “it is not

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appropriate, on a motion to dismiss challenging the pleadings, to

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determine whether claims are Related Claims.”

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Plaintiff urges that the issue of whether claims are related is

Opp. at 6.

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best evaluated in light of a fully developed evidentiary record.

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Opp. at 6.

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relies on documents not attached to, or referenced in, the

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Complaint.

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Relatedly, Plaintiff argues that Defendant improperly

Opp. at 5.

The 2012-2013 Policy provides coverage for “‘Claims’ first

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made during the ‘policy period,’ or any extended reporting

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period[.]”

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defines a “Claim” as including any “written demand for monetary

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damages.”

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Section.

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1, 2012 through March 1, 2013.

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2.

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condition precedent to exercising rights under this Coverage

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Section, give to [Defendant] written notice as soon as

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practicable of a Claim, but in no event later than sixty (60)

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days after the end of the Policy Period.”

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Director & Officers Liability Coverage Section, VII (A).

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Accordingly, it is Defendant’s position that Plaintiff is only

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entitled to receive coverage for a Claim first made between March

Compl., Ex. A, Declarations, Item 1.

The Policy

Compl., Ex. A, Director & Officers Liability Coverage
The “Policy Period” is defined as spanning from March
Compl., Ex. A, Declarations, Item

The Policy further provides that the “Insured shall, as a

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Compl., Ex. A,

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1, 2012 and March 1, 2013, if it reported that claim to Defendant

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no later than May 1, 2013.

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Importantly, the 2012-2013 Policy provides that all “Related

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Claims will be treated as a single Claim made when the earliest

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of such Related Claims was first made[.]”

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Director & Officers Liability Coverage Section, VII (D). “Related

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Claims,” in turn, are defined as “all Claims for Wrongful Acts

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based upon, arising from, or in consequence of the same or

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related facts, circumstances, situations, transactions or events

Compl., Ex. A,

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or the same or related series of facts, circumstances,

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situations, transactions or events.”

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Terms and Conditions Section, II(M).

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Compl., Ex. A, General

In light of these terms, Defendant’s argument is quite

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straightforward: Bonner’s 2012 contact with Plaintiff constituted

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a “Claim” because it was a written demand for monetary damages.

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This 2012 Claim and the Underlying Action are “Related Claims,”

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and therefore must be treated as a single Claim, which is deemed

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to have first been made in 2012 when Bonner first contacted

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Plaintiff with a written demand for damages.

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Plaintiff notified Defendant of this Claim in October 2013, it

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was well past the May 1, 2013 reporting deadline.

Therefore, when

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However, as Plaintiff argues, the issue of whether the 2012

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Claim and the Underlying Action are “Related Claims” necessarily

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entails a factual inquiry, which is premature for the Court to

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conduct on a motion to dismiss.

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district court in California has reached the same conclusion.

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Const., Inc. v. Executive Risk Indem., Inc., 2014 WL 654619, at

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*10 (S.D. Cal. Feb. 18, 2014).

At least one other federal

In declining to reach the issue

RQ

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of whether claims were “Related Claims,” the court noted that

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“[t]he parties both lose sight of a critical fact here, however.

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Now before the Court is a motion to dismiss, which presents the

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narrow, threshold question whether [Plaintiff] has stated

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sufficient facts that, if true, entitle it to relief.”

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Const., 2014 WL 654619, at *10 (emphasis in original).

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court went on to note that none of the cases cited by the parties

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resolved the issue of whether claims were related at the motion

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to dismiss phase.

RQ
The

Id. at *10.

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To determine whether the 2012 Claim and the Underlying

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Action are related, the Court would first need to determine the

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scope of each claim.

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Lawyers' Mut. Ins. Co., 5 Cal.4th 854, 872-73 (1993) (embracing a

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case-by-case analysis in determining whether claims are related).

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However, the Court cannot reliably determine the scope of either

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claim based solely on the allegations and documents attached to –

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and referenced in - the Complaint.

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Claim, the Complaint merely alleges that Bonner made a “request

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for a meeting” with Plaintiff, and that Plaintiff’s Board of

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Directors “met with Mr. Bonner.”

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details are evident from the face of the Complaint.

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See Bay Cities Paving & Grading, Inc. v.

With regard to the 2012

Compl. ¶ 18.

No further

Although Defendant urges the Court to consider several

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letters written by Bonner to Plaintiff, as well as the minutes

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from the meeting between Plaintiff’s Board of Directors and

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Bonner, these documents are not properly before the Court.

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true that the Ninth Circuit has held that “documents whose

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contents are alleged in a complaint and whose authenticity no

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party questions, but which are not physically attached to the
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It is

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pleading, may be considered in ruling on a Rule 12(b)(6) motion

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to dismiss.”

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1994) overruled on other grounds by Galbraith v. Cnty. of Santa

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Clara, 307 F.3d 1119 (9th Cir. 2002).

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submitted by Defendant were not referenced in the Complaint, nor

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were their “contents . . . alleged” in the Complaint.

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Defendant’s attempt to extend this exception, on the basis that

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the “Complaint depends on the contents of Mr. Bonner’s June and

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July 2012 letters,” is not well-taken.

Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir.

However, the documents

Id.

Mot. at 6, n.4.

Neither

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the letters nor the minutes are even alluded to in the body of

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Plaintiff’s Complaint, nor are they “central” to Plaintiff’s

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claims.

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Cir. 2003) (noting that the doctrine of incorporation may allow

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the Court to consider the “contents of an insurance plan” when

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presented with a plaintiff’s claim for insurance coverage).

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Adopting Defendant’s approach would allow the “incorporation by

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reference” exception to swallow the general rule that “a district

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court may not consider any material beyond the pleadings in

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ruling on a Rule 12(b)(6) motion.”

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Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir.1990).

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Cf. United States v. Ritchie, 342 F.3d 903, 908 (9th

Hal Roach Studios, Inc. v.

Nor does the fact that Bonner’s June and July 2012 letters,

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and the July 24, 2012 minutes, were referenced in Defendant’s

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June 11, 2014 letter (which was attached to the Complaint) change

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the Court’s analysis.

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proposition that documents referenced in an attachment to a

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complaint are properly considered on a motion to dismiss.

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result would be particularly prejudicial here, as Plaintiff

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merely attached the June 11, 2014 letter to show that Defendant

Defendant cites no authority for the

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Such a

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had, in fact, denied coverage under the 2012-2013 Policy.

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¶ 40.

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Compl.

Even if the Court were to consider these documents, the

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analysis would be complicated by their poor quality and the

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ambiguity of their contents.

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June 12, 2012 Bonner letters (or, at least, the copies submitted

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by Defendant) are faded to such an extent that entire phrases are

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illegible.

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July 20, 2012 Bonner letter is as confusing as it is lengthy.

For example, the June 11, 2012 and

Carson Declaration, Ex. A; Ex. B.

Furthermore, the

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Carson Declaration, Ex. C.

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lists a number of “by-laws,” which ostensibly govern residents

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and members of the Tehama Rancho Association.

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is unclear, from the face of the letter, whether Bonner was

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claiming that each of these provisions had been violated.

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Such a fact is integral to determining the scope of the 2012

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Claim.

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give no further information on the scope of Bonner’s complaints.

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Carson Declaration, Ex. D.

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evidentiary record is necessary to determine the scope of the

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2012 Bonner Claim.

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On pages two through four, Mr. Bonner

Id.

However, it

Id.

The minutes from the July 24, 2012 meeting are brief and

Further development of the

Similarly, the scope of the Underlying Action cannot be

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definitively determined from the face of the Complaint.

The

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complaint filed in the Underlying Action is properly before the

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Court, as an attachment to Plaintiff’s Complaint.

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Ex. C.

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that “Bonner’s counsel contends [that a reference in the

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complaint to ‘other illegal substances’] refers to

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methamphetamine and ‘honey oil’ manufacturing.”

Compl. ¶ 19,

However, in its opposition brief, Plaintiff represents

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Opp. at 2.

As

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Defendant notes, Plaintiff “attributes this information to

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‘Bonner’s counsel,’ whose identity and when/how the information

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was conveyed, is not disclosed.”

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omitted).

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encapsulates why the relatedness of claims is not properly

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addressed on a motion to dismiss.

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record will also aid the Court’s determination of the scope of

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the Underlying Action.

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Reply at 1, n.1 (citations

This dispute is entirely extra-record, and perfectly

Further development of the

The Court does not find persuasive Defendant’s reliance on

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the argument that the timely reporting requirement is not a

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policy exclusion which must be proven as an affirmative defense,

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but rather is a condition precedent which must be proven by

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Plaintiff.

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proof ultimately lies with Plaintiff or Defendant, the issue of

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whether claims are related remains too fact-dependent to resolve

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on a motion to dismiss.

Reply at 1.

Regardless of whether the burden of

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For all of these reasons, the Court cannot – and does not –

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detrmine whether the 2012 Bonner Claim and the Underlying Action

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are “Related Claims” within the meaning of the 2012-2013 Policy.

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The entirety of Defendant’s motion depends on a finding that

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these claims are related.

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Plaintiff’s tender of the Underlying Action to Defendant was

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timely and Defendant’s argument fails.

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argument concerning the third cause of action (breach of the

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implied covenant of good faith and fair dealing) requires the

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Court to evaluate the objective reasonableness of Defendant’s

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determination that coverage for the Underlying Action did not

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exist.

If the claims are not related, then

Also, Defendant’s

An inquiry into the reasonableness of this determination,
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in turn, requires the Court to determine the reasonableness of

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Defendant’s conclusion that the claims were related.

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fully developed evidentiary record, the Court cannot find that

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such a conclusion was objectively reasonable.

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2014 WL 654619, at *11 (S.D. Cal. Feb. 18, 2014) (holding that,

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“[w]hen the question is whether one party's interpretation of an

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insurance policy's language is reasonable, . . . it seems the

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best course is for the evidentiary record to be absolutely

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complete before the Court should consider dismissing a claim for

Without a

See RQ Const.,

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the breach of covenant of good faith and fair dealing on the

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ground that an insurer's denial was reasonable”).

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Defendant’s motion fails with respect to each of Plaintiff’s

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causes of action.

Thus,

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III.

ORDER

For the reasons set forth above, the Court DENIES
Defendant’s Motion to Dismiss:
IT IS SO ORDERED.
Dated: May 28, 2015

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