James River Insurance Company v. Diana's Care Home et al

Filing 89

ORDER by Magistrate Judge Bernard Zimmerman finding as moot -see Docket no. 70 43 Motion to Continue; finding as moot - see Docket no. 70 44 Motion to Continue; denying 64 Second Notice of Motion (bzsec, COURT STAFF) (Filed on 6/24/2010)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 v. DIANA'S CARE HOME, a business entity form unknown, et al., Defendant(s). JAMES RIVER INSURANCE COMPANY, an Ohio Corporation, Plaintiff(s), ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

No. C10-0446 BZ ORDER DENYING DEFENSE MOTIONS

The Castaneda defendants have filed six motions.

The

Court has ruled separately on their motion to disqualify plaintiff's counsel and on their motion to appoint new independent counsel. Remaining are their motions to decline

jurisdiction, to quash service of process under Rule 12(b)(5), to stay this action in light of the pending state court action and to dismiss the complaint for failure to state a claim under Rule 12(b)(6). The motion to decline jurisdiction is DENIED. As the

defendants correctly recognize the Court has no discretion to 1

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refuse to hear a rescission case.

See First State Insurance

Co. v. Callen Associates, Inc., 113 F.3d 161, 163 (9th Cir. 1997). Defendants' reliance on Maui Land and Pineapple Co. v.

Occidental Chemical Corp., 24 F.Supp.2d 1079 (D.Hawaii 1998) is misplaced. In Maui, the action remanded to state court was

not for rescission and the basis for remand was that the coverage issues raised in the federal court action had already been raised in a parallel state court proceeding, which has

not occurred here. The motion for a stay is DENIED. Defendants mistakenly

invoke the rule of Montrose Chemical Corp. of Cal. v. Superior Court, 6 Cal.4th 287, 301 (1993) which held that in California, a party simultaneously defending a declaratory relief coverage action and one or more actions for which insurance coverage is sought may obtain a stay of the declaratory relief action upon a showing of prejudice. The

Ninth Circuit however has subsequently clarified that this doctrine is limited to declaratory relief actions, where jurisdiction may be discretionary, and does not apply where the insurer seeks rescission and has a "statutory right under the diversity statute to pursue its claim in federal court." First State Insurance Co. v. Callan Associates, Inc., 113 F.3d 161, 163 (9th Cir. 1997). Nor have defendants established the sort of prejudice Montrose requires. The only issue in this case is whether the

defendants made a material misrepresentation or concealment in their insurance application. Defendants assert that their

state of mind in completing the application is at issue and 2

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that adjudicating that state of mind in this case might prejudice their position in Reyna, where their state of mind towards the decedent is likely to be at issue. fails for a number of reasons. This argument

First, a misrepresentation or

a concealment may be grounds for rescission whether intentional or unintentional. Cal. Insurance Code § 331.1

See also West Coast Life Ins. Co. v. Ward, 132 Cal.App.4th 181, 186-7 (2005). Second, it does not appear that defendants

are contesting the fact that they did not fully disclose certain facts surrounding Mr. Reyna in their insurance application. Doc. No. 47, p. 3:14-16. Furthermore, to the

extent that their state of mind in completing the application could be at issue, that state of mind would focus on April of 2009, long after the time the Castanedas are alleged to have harmed Mr. Reyna. The motion to quash service is DENIED for two reasons. First, as presently constituted, the motion was not timely raised within the meaning of Rule 12(h)(1). Failure to timely

raise a specific objection to service is a waiver of the objection. A defendant may object to service by filing a

motion to dismiss pursuant to Rule 12(b)(4) (challenging sufficiency of process) or Rule 12(b)(5) (challenging sufficiency of service). An objection to service of process

"must be specific and must point out in what manner the Defendants' reliance on Clarendon v. Nat'l. Insurance Co. of the West, 442 F.Supp.2d 914, 928 (E.D.Cal. 2006) is misplaced. Defendants have not produced any policy provisions that show that, as in Clarendon, the insurance policy limited the insurer's right to rescind to cases of fraud and intentional concealment. 3
1

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plaintiff has failed to satisfy the requirements of the service provision utilized." Photolab Corp. v. Simplex

Specialty Co., 806 F.2d 807, 810 (8th Cir. 1986); Binns v. City of Marietta Hous. Auth., 2007 WL 2746695, at *2 (N.D. Ga. 2007). In their motion, the Castanedas objected to service on

the sole grounds that they were served at their place of business and not at their home, as they contended was required by federal law. When the plaintiff pointed out in its

opposition that it had served the defendants pursuant to state law, which permits service at their place of business, defendants, in their reply, for the first time objected to service on the grounds that it was inadequate under state law because the person served was not in charge of their business.2 Defendants' position is not well taken. Having failed to

raise this objection in their motion, they have waived this specific objection. The law is clear that objections to

service that were not raised at the outset are waived and cannot be raised in later motion practice. See Photolab Corp.

v. Simplex Specialty Co., 806 F.2d 807, 811 (8th. Cir. 1986) approving Zisman v. Sieger, 106 F.R.D. 194, 197-98 (N.D.Ill. 1985). 1999). Second, the burden on the defendants was not only to raise the objection but to provide support for it. Here, See also Grimaldo v. Reno, 189 F.R.D. 617, 619, (D.Co.

This motion may be moot, since it appears that defendants were personally served with the First Amended Complaint. 4

2

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nothing that the defendants filed in connection with the original motion or belatedly and improperly in their reply3 supports the proposition that Menallie Baluyut, the person served by the process server, was not the person apparently in charge of defendants' business. While defendant Rothstein may

have been actually in charge of the business, she left Baluyut in charge during her absence.4 Finally, the motion to dismiss the rescission claim against Estrella Rothstein, the Castaneda's employee, on the grounds that she is an "innocent insured" is DENIED. California Insurance Code § 650, if a policy has been rescinded, the rescission is effective as to all insured unless the policy provides otherwise. Typically, policies TIG Under

which provide otherwise have a severability provision.

Insurance Co. v. Homestore, Inc., 137 Cal.App.4th 749, 759 (2006); American Economy Insurance Co. v. Herrera, 2007 WL 2696716 (S.D. Cal.); see generally, Recurring Issues in Rescission Cases, 42 Tort Trial and Insurance Practice Law Journal 51, 71-73 (2006). Defendants have not pointed to any To the extent they

severability provision in this policy.

rely on the provision titled "Representations," it is not a severability provision.
3

Compare for example, section IV(7) of

In their reply, defendants raised a new argument for the first time, a disfavored tactic. Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007) (A "court need not consider arguments raised for the first time in a reply brief"). The California substitute service statute shall be "liberally construed to effectuate service and uphold jurisdiction if actual service has been received by defendant." Bein v. Bechtel-Jochim Group, Inc., 6 Cal.App.4th 1387, 1392 (1992). (internal citation omitted). 5
4

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this policy with section 17 of the policy in In Re HealthSouth, Corp., 308 F.Supp.2d 1253, 1261 (N.D.Ala. 2004).5 The Court finds no need for argument and VACATES the hearing scheduled for June 30, 2010. IT IS ORDERED that

defendant's remaining motions (Doc. 64) are DENIED. Defendants shall answer by July 15, 2001. Dated: June 24, 2010 Bernard Zimmerman United States Magistrate Judge
G:\BZALL\-BZCASES\JAMES RIVER V. DIANA'S CARE HOME\ORDER RE RULING ON DEFS SIX MOTIONS.wpd

Defendant's reliance on Watts v. Farmers Ins. Exch., 98 Cal.App.4th 1246 (2002) is misplaced since that was not a rescission action but held that a false claim by one insured did not bar the legitimate claim of another insured. 6

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