Essex Marina City Club LP v. Continental Casualty Company

Filing 50

ORDER by Judge Samuel Conti denying 28 Motion to Dismiss (sclc1, COURT STAFF) (Filed on 8/30/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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ESSEX MARINA CITY CLUB, L.P.,

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Plaintiff,

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v.

For the Northern District of California

United States District Court

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CONTINENTAL CASUALTY COMPANY,
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Defendant.

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I.

) Case No. 11-408 SC
)
) ORDER DENYING CONTINENTAL'S
) SECOND MOTION TO DISMISS
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INTRODUCTION

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Before the Court is a fully briefed motion by Defendant

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Continental Casualty Company ("Continental") to dismiss the First

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Amended Complaint filed by Plaintiff Essex Marina City Club, L.P.

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("Essex").

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the following reasons, the Court DENIES Continental's Motion.

ECF Nos. 33 ("Mot."), 46 ("Opp'n"), 47 ("Reply").

For

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II.

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BACKGROUND
As it must on a Rule 12(b)(6) motion, the Court assumes the

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truth of the following well-pleaded facts taken from Essex's First

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Amended Complaint.

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limited partnership, leased real property located in Marina Del

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Rey, California under a long-term master lease between Essex's

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predecessor-in-interest and the County of Los Angeles.

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6.

ECF No. 26 ("FAC").

Essex, a California-based

Essex's lease was subject to a sublease between its

Id. ¶¶ 1,

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predecessor-in-interest and Marina City Condominiums ("MCC").

Id.

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¶ 6.

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subleasehold interest, on a condominium-by-condominium basis, to

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individual condominium owners.

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of trust held by Essex, each condominium owner was required to pay

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Essex a monthly maintenance fee for common-area operating expenses,

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supplemental maintenance fees, a separate "ground rent," and other

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fees and expenses.

Under this sublease, MCC had the right to assign its

Id. ¶ 7.

Under a subleasehold deed

Id. ¶ 8.

The Marina City Club Condominium Owners Association

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United States District Court

For the Northern District of California

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("Association") is apparently an association of individual

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condominium owners.1

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the Association entered into an agreement ("the 1994 Agreement") to

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establish a "Management Council" to collect maintenance fees and

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manage any common areas covered by the monthly maintenance fees.

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Id. ¶ 9.

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consist of two members appointed by Essex's predecessor-in-interest

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(and, subsequently, Essex) and two members of the Board of

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Directors of the Association.

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was responsible for oversight and maintenance of the property,

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processing of evictions, management of the operating budget, and

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collection and enforcement of monthly maintenance fees and ground

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rents.

In 1994, Essex's predecessor-in-interest and

Under this Agreement, the Management Council would

Id. ¶ 10.

The Management Council

Id. ¶ 11.

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Continental, an insurance company, issued a professional

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liability policy to the Association for the period from November,

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16, 2007 to November 16, 2008.

Id. ¶ 18; Brisbin Decl. Ex. 1

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Neither the Complaint nor the papers filed by the parties clearly
identify or describe the Association.
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("Policy").2

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the Association.

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Endorsement") extended the definition of "insured" to include "any

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Property Manager," as defined in the Endorsement.

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Policy is a "claims-made" policy that affords coverage for all

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claims first made against any insured during the policy period.

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Id. ¶ 20.

The sole named insured identified in the Policy is
Id.

An Endorsement to the Policy ("the

Id. ¶ 19.

The

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In its capacity as a member of the Management Council, Essex

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initiated foreclosure proceedings against a condominium owner who

United States District Court

For the Northern District of California

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allegedly failed to pay the required monthly fees and rent; the

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condominium was sold at a foreclosure sale.

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February 2008, IndyMac Bank, F.S.B. ("IndyMac") filed a lawsuit

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against Essex and others to set aside the foreclosure sale and

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quiet title to the condominium ("the IndyMac proceedings").

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14.

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Continental for indemnity and defense of the IndyMac proceedings.

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Id. ¶ 21.

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lease and sublease, the Agreement, and "additional documents

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establishing the potential for coverage under the Policy and

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therefore Continental's immediate duty to defend Essex in the

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IndyMac Litigation."

Id. ¶¶ 12-13.

In

Id. ¶

Around July 2008, Essex submitted a claim under the Policy to

With its claim, Essex sent Continental copies of the

Id. ¶ 23.

Essex alleges that Continental failed to make a timely

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coverage decision on Essex's claim.

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Continental played "hot potato" with the claim, passing it through

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five different adjusters and making "burdensome and duplicative

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Id. ¶ 24.

It alleges that

Michael K. Brisbin ("Brisbin"), counsel for Continental, filed a
declaration in support of its earlier motion. ECF No. 17. Brisbin
attaches to his declaration what he declares to be the Policy.
Because Essex does not dispute its authenticity and Essex's FAC
depends on its contents, the Court takes judicial notice of the
Policy.
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requests for voluminous documents or information that had

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previously been requested and provided multiple times, without

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making a coverage decision."

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its claim, Essex alleges that it incurred "hundreds of thousands of

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dollars in attorneys' fees in the IndyMac Litigation."

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During the two-year pendency of

Id.

Id.

On October 7, 2010, Continental denied Essex's claim on the

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grounds that Essex was not identified by name on the declarations

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page of the Policy and there was no written property management

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agreement between Essex and Continental.

Id. ¶ 27.

United States District Court

For the Northern District of California

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On January 27, 2011, Essex commenced this action, seeking

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declaratory relief that Continental owed a duty to defend it in the

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IndyMac proceedings and alleging that Continental breached its

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contract and the implied covenant of good faith and fair dealing

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when it denied Essex's claim.

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A ("Orig. Compl.").

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dismissed Essex's declaratory relief claim as duplicative of its

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breach of contract claim.

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The Court also dismissed Essex's bad faith claim for failure to

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plead with the required specificity.

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Order") at 9.

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its complaint to include a properly pleaded bad faith claim.

ECF No. 1 ("Notice of Removal") Ex.

On Continental's motion to dismiss, the Court

ECF No. 25 ("May 9, 2011 Order") at 9.

ECF No. 25 ("May 9, 2011

The Court granted Essex fifteen days' leave to amend
Id.

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On May 24, 2011, Essex filed its FAC, which included the

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above-mentioned allegations of Continental's alleged bad faith in

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the claim determination process.

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Continental consciously and unreasonably refused to grant its

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claim, failed to make a timely ruling on its claim, failed to

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properly investigate its claim, and embarked "on an interpretation

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of the facts and policy provisions calculated to deprive Essex of

See FAC.

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Essex alleged that

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coverage" to "sav[e] money at Essex's expense."

Id. ¶ 46.

Essex

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seeks damages "including attorneys' fees and expenses," as well as

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punitive damages "to punish and make an example of Continental in

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order to deter such conduct in the future."

Id. ¶ 51.

On June 7, 2011, Continental filed the instant Motion.

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See

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Mot.

In it, Continental seeks dismissal of Essex's bad faith claim

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as not plausible in light of the facts pleaded.

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Continental argues that Essex's allegation that Continental

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improperly investigated Essex's claim is inconsistent with Essex's

Id. at 1.

United States District Court

For the Northern District of California

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allegation that Continental made "burdensome and duplicative"

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document requests.

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extent Essex premises its bad faith claim on Continental's delay in

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deciding the claim, Continental is protected by California's

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genuine dispute rule.

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prejudice of the bad faith claim.

Id. at 6.

Continental argues that to the

Id. at 8.

Continental seeks dismissal with
Id.

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III. LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure

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12(b)(6) "tests the legal sufficiency of a claim."

Navarro v.

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Block, 250 F.3d 729, 732 (9th Cir. 2001).

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on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory.

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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1990).

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should assume their veracity and then determine whether they

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plausibly give rise to an entitlement to relief."

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Iqbal, 129 S. Ct. 1937, 1950 (2009).

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court must accept as true all of the allegations contained in a

Dismissal can be based

"When there are well-pleaded factual allegations, a court

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Ashcroft v.

However, "the tenet that a

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complaint is inapplicable to legal conclusions.

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recitals of the elements of a cause of action, supported by mere

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conclusory statements, do not suffice."

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(citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

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complaint need not contain "detailed factual allegations," but it

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must provide more than an "unadorned, the-defendant-unlawfully-

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harmed-me accusation."

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should be granted if the plaintiff fails to proffer "enough facts

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to . . . nudge[] [its] claims across the line from conceivable to

United States District Court

For the Northern District of California

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plausible."

Id. at 1949.

Threadbare

Iqbal, 129 S. Ct. at 1950
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Thus, a motion to dismiss

Twombly, 550 U.S. at 570.

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IV.

DISCUSSION
The covenant of good faith and fair dealing "is implied as a

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supplement to the express contractual covenants, to prevent a

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contracting party from engaging in conduct that frustrates the

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other party's rights to the benefits of the agreement."

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Truck Ins. Exch., Inc., 11 Cal. 4th 1, 36 (1995).

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Waller v.

For Essex's bad faith claim to survive a Rule 12(b)(6) motion,

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Essex must plead facts supporting a plausible claim that

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Continental engaged in unreasonable conduct in connection with its

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insurance claim.

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922, 948 (Ct. App. 2006).

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breach of the contract or mistaken judgment."

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insurer's actions may be unreasonable if it delays deciding the

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insured's claim for an unreasonable amount of time, fails to

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conduct an adequate investigation, or resorts to "oppressive

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conduct by claims adjusters seeking to reduce the amounts

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legitimately payable."

Century Sur. Co. v. Polisso, 139 Cal. App. 4th
This requires "something more than a
Id. at 949.

Waller, 11 Cal. 4th. at 36.

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An

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Essex alleges that Continental breached this covenant by,

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inter alia, taking two years to deny Essex's claim, failing to

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properly consider Essex's argument that it was insured as a

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"Property Manager" under the Policy, ignoring "key evidence

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establishing an immediate duty to defend," and by playing "hot

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potato" with its claim by passing it from adjuster to adjuster "in

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the hopes that Essex would eventually give up and not pursue its

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valid claim."

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FAC ¶¶ 21-30.

Continental makes two arguments that these allegations are

United States District Court

For the Northern District of California

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insufficient to plead a plausible bad faith claim.

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Essex's contention that Continental improperly investigated Essex's

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claim is inconsistent with Essex's allegation that Continental made

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"burdensome and duplicative" document requests.

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it argues that to the extent Essex premises its bad faith claim on

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Continental's delay in deciding the claim, Continental is protected

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by California's genuine dispute rule.

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dismissal with prejudice of the bad faith claim.

Id. at 8.

It argues that

Id. at 6.

Second,

Continental seeks
Id.

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California's genuine dispute rule operates as an exception to

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the general rule that an unreasonable delay in payment of benefits

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due under an insurance policy gives rise to tort liability.

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v. 21st Century Ins. Co., 166 Cal. App. 4th 1225, 1237 (Ct. App.

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2008).

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of benefits on the basis of a genuine dispute with the insured is

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not liable in bad faith, although it might be liable for breach of

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contract.

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Brehm

It provides that an insurer that denies or delays payment

Id.

Continental argues that there existed a genuine dispute as to

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the validity of Essex's claim, as Essex was not a named insured

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under the policy and no written property management agreement

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between Essex and the Association had been produced.

Mot. at 8.

The Court finds Continental's arguments to be unavailing.

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If

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Essex's bad faith claim was premised solely on Continental's

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alleged "burdensome and duplicative" document requests,

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Continental's first argument might have some merit.

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alleges that Continental delayed deciding Essex's claim for two

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years, ignored evidence and theories advanced by Essex, and passed

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its claim from adjuster to adjuster in an attempt to induce Essex

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to give up on its claim.

But Essex also

The Court finds that when all of these

United States District Court

For the Northern District of California

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allegations are considered together, Essex's bad faith claim is

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adequately pleaded.

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genuine dispute rule, while there may have been a genuine dispute

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as to the validity of Essex's claim, this is an intensely factual

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issue not suitable for resolution on a Rule 12(b)(6) motion.

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Wilson v. 21st Century Ins. Co., 42 Cal. 4th. 714, 726 (2007)

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(triable issues of fact precluded summary judgment as to whether

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genuine dispute rule applied to plaintiff's bad faith claim).

As for Continental's second argument under the

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V.

CONCLUSION
For the foregoing reasons, the Court DENIES Defendant

Continental Casualty Company's Motion to Dismiss.

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IT IS SO ORDERED.

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Dated: August 30, 2011
UNITED STATES DISTRICT JUDGE

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See