Travelers Property Casualty Company of America et al v. Centex Homes

Filing 56

ORDER by Judge Samuel Conti granting 21 Motion for Partial Summary Judgment; granting 39 Motion for Judgment on the Pleadings (sclc1, COURT STAFF) (Filed on 5/10/2012)

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IN THE UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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Northern District of California

United States District Court

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TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA, a Connecticut
corporation; FIDELITY & GUARANTY
INSURANCE COMPANY, an Iowa
corporation; THE TRAVELERS
INDEMNITY COMPANY OF CONNECTICUT,
a Connecticut corporation, ST.
PAUL MERCURY INSURANCE COMPANY, a
Minnesota corporation,

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Plaintiffs,

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v.

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CENTEX HOMES, a Nevada
partnership; and DOES 1 through
10 inclusive,
Defendant.

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Case No. 11-3638-SC
ORDER GRANTING DEFENDANT'S
MOTIONS FOR PARTIAL
SUMMARY JUDGMENT AND
PARTIAL JUDGMENT ON THE
PLEADINGS

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I.

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INTRODUCTION
This case concerns who has the right to control the legal

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defense of an insured -- the insurer or the insured?

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Centex Homes ("Centex"), a homebuilder, was sued by several

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homeowners for alleged construction defects in two separate

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actions: the Garvey action and the Adkins action.1

Defendant

Centex tendered

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The two underlying construction defect actions are titled Bill
Garvey v. Centex Homes, Inc., Sacramento Superior Court Case No.
34-2010-00073233 (the "Garvey action"); and Suzanne Adkins v.
Centex Homes, Sacramento County Superior Court Case No. 20100068675 (the "Adkins action").

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its defense of these actions to its insurer, Plaintiff Travelers

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Property Casualty Company of America ("Travelers").

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initially denied the tenders.

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law firm of Newmeyer & Dillon, LLP ("Newmeyer") to defend the

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Adkins and Garvey actions.

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indicated that it would provide a defense to Centex and insisted

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that different counsel take over for Newmeyer.

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accept the appointment of new counsel.

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filed the instant action, alleging breach of contract and breach of

Travelers

Left on its own, Centex hired the

Several months later, Travelers

Centex refused to

As a result, Travelers

United States District Court

For the Northern District of California

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the covenant of good faith and fair dealing (aka "bad faith") and

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seeking a declaration that it has the right to control the defense

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of Centex in the Garvey and Adkins actions.

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Centex counterclaimed for breach of contract and bad faith and

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seeks a declaration that it has a right to control its own defense.

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ECF No. 11 ("Countercl.").

ECF No. 5 ("FAC").

Centex now moves for partial summary judgment, arguing that

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Travelers waived its right to exercise control of Centex's defense

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in the Garvey and Adkins actions because it previously denied its

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duty to defend.

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Motion for Partial Judgment on the Pleadings, arguing that

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Travelers' bad faith claim and prayer for attorney's fees fail as a

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matter of law.

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briefed.

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Reply"); 50 ("MSJ Reply").

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finds the motions appropriate for decision without oral argument.

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As detailed below, the Court GRANTS both motions.

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///

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///

ECF No. 21 ("MSJ").

ECF No. 39 ("MJP").

Centex has also filed a

Both motions are fully

ECF Nos. 40 ("MJP Opp'n"), 41 ("MSJ Opp'n), 49 ("MJP
Having reviewed the papers, the Court

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II.

BACKGROUND
Centex participated in the development of several residential

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communities in Sacramento, California, subcontracting the

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construction work to a number of different entities, including

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American Woodmark ("Woodmark") and Foremost Superior Marble

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("Foremost").

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obtained commercial general liability insurance from Travelers

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(hereinafter, the "Woodmark Policy" and the "Foremost Policy") and

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named Centex as an "additional insured" under the policies.

Countercl. ¶¶ 10, 14.

Woodmark and Foremost

FAC ¶¶

United States District Court

For the Northern District of California

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9, 17.

Each policy provides that Travelers "will have the right

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and duty to defend the insured again any suit" seeking damages

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covered under the policies.

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contain a "cooperation clause," which mandates that the insureds

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cooperate with Travelers with regard to all aspects of its

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coverage.

Id. ¶¶ 13, 17.

The policies also

Id. ¶ 9.

In 2010, homeowners at the Skyline, Sun River, and Town Square

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developments brought the Garvey action against Centex, alleging,

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among other things, that they suffered property damage because of

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Woodmark's defective work.

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Centex tendered the defense and indemnification of the Garvey

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action to Travelers under the Woodmark policy on July 2, 2010.

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¶ 31; Answer ¶ 31.

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information concerning the lawsuit.

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February 16, 2011, Travelers concluded that the Garvey action was

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not covered under the Woodmark policy and "declined to participate

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FAC ¶ 30; ECF No. 10 ("Answer") ¶ 30.

FAC

Travelers subsequently requested additional
Barrera Decl.2 Exs. C-E.

On

Gary A. Barrera ("Barrera"), Ivo G. Daniele ("Daniele"), and
Joseph A. Ferrentino ("Ferrentino"), Centex's attorneys, filed
declarations in support of Centex's Motion for Summary Judgment,
attaching exhibits. ECF Nos. 21-4 ("Barrera Decl."), 21-5, 21-6
("Daniele Decl."), 21-3 ("Ferrentino Decl.").

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in the defense and indemnity of Centex."

Barrera Decl. Ex. F at 9.

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Travelers also indicated that it was willing to reconsider the

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denial and that its denial should not be construed as a waiver of

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any rights or defenses available to it under the policy.

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few days later, Centex filed suit against Travelers for its failure

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to defend the Garvey action, as well as the Adkins action which is

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discussed more fully below.

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to Countercl.") ¶ 45.

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course, stating that it would "agree to participate in the defense

Id.

A

Countercl. ¶ 54; ECF No. 17 ("Answer

On April 18, 2011, Travelers reversed

United States District Court

For the Northern District of California

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of Centex," "subject to a reservation of rights."

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Ex. G.

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reimbursement from Centex for those uncovered fees, expenses,

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costs, and indemnity payments made on behalf of Centex which

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Travelers incurs in connection with any settlement, satisfaction of

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judgment, or in providing this defense."

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dismissed its then-pending lawsuit without prejudice.

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Decl. Ex. C.

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Barrera Decl.

Among other things, Travelers reserved the right "to seek

Id.

Centex subsequently
Ferrentino

A similar course of events transpired in the Adkins action.

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In March 2010, homeowners at the Laguna Stonelake development filed

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the action against Centex, alleging that they suffered property

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damage because of Woodmark and Foremost's defective work.

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44; Answer ¶ 44.

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under the Woodmark and Foremost policies on April 1, 2010.

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Decl. Exs. A, G.

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that it had "no defense or indemnity obligation" in the Adkins

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action under the Woodmark Policy and issued a "declination of

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coverage letter."

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that it was willing to reconsider the denial and it did not waive

FAC ¶

Centex tendered the Adkins action to Travelers
Daniele

On September 14, 2010, Travelers informed Centex

Id. Ex. D.

At the time, Travelers indicated

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Id.

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January 7, 2011.

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not waive any of its rights under the policy.

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later, after Centex sued Travelers for coverage, Travelers agreed

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to provide a defense "subject to a full reservation of rights."

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Id. Ex. E, L.

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reserved the right "to seek reimbursement of any defense-related

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payments it may issue on behalf of Centex in connection with the

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United States District Court

any of its rights under the policy while investigating the matter.

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For the Northern District of California

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referenced matter, with respect to claims not potentially covered

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by the policies."

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that it had an obligation to provide coverage under both policies.

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Id.

Travelers also declined coverage under the Foremost policy on
Id. Ex. K.

Again, Travelers stated that it did
Id.

Several months

As in the Garvey action, Travelers specifically

Id. Ex. E.

Travelers also continued to dispute

After Travelers initially denied coverage in the Garvey and

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Adkins actions, Centex continued to use its own chosen counsel,

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Newmeyer, to defend the actions.

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provide Centex with a defense, Travelers insisted that it had the

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right to control the defense and retained another law firm to

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represent Centex.

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that time, Newmeyer had already filed answers and cross complaints,

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and retained experts in both the Garvey and Adkins actions.

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Barrera Decl. ¶ 11; Daniele Decl. ¶ 16.

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incurred over $135,000 in fees and costs in the Adkins action and

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over $100,000 in fees and costs in the Garvey action.3

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these facts, Centex claims "[i]t would have been reckless and

When Travelers later agreed to

Countercl. ¶ 90; Answer to Countercl. ¶ 90.

Additionally, Centex had

Based on

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After agreeing to provide a defense for Centex, Travelers paid
Newmeyer $92,422.29 for its services in the Adkins action and
$11,701.12 for its services in the Garvey action. ECF No. 42
("Carrillo Decl.") ¶¶ 6-7.

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By

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wasteful to change horses mid-stream."

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disagrees, pointing to the fact that there is no trial date pending

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in either case.

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Centex has refused to allow Travelers to appoint new counsel.

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MSJ at 7.

Travelers

MSJ Opp'n at 7 (citing RJN Ex. C).

In any event,

Travelers states that it does not want Newmeyer to conduct the

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defense of Centex because Newmeyer has engaged in dubious billing

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practices the past.

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Newmeyer's conduct in two other actions tendered by Centex to

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Travelers in the last several years.

Id. at 7-13.

Travelers specifically points to

Id.

Travelers asserts that,

United States District Court

For the Northern District of California

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in these actions, Newmeyer: (1) reached side-deals with other

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insurers so that it could bill in excess of 100 percent of fees

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incurred; (2) billed for non-covered claims; and (3) reached a deal

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with Centex whereby Newmeyer would bill at a higher hourly rate

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when Centex's attorney's fees were covered by Travelers.

Id.

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On July 25, 2011, Travelers, along with a number of other

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insurance companies (collectively, "Plaintiffs"), filed the instant

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action against Centex.

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filed a First Amended Complaint ("FAC").

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claims for indemnity in a number of construction defect cases,

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including the Garvey and Adkins actions, under a number of

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insurance policies, including the Foremost and Woodmark policies.

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FAC ¶¶ 9-63.

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Plaintiffs allege that Centex's refusal to accept counsel appointed

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by Travelers constitutes a material breach of the insurance

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polices' cooperation clauses and the implied covenant of good faith

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and fair dealing.

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Travelers prays for attorney's fees and a declaration that it has

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the right to control Centex's defense in these actions.

ECF No. 1.

One month later Plaintiffs
The FAC concerns Centex's

With respect to the Adkins and Garvey actions,

See FAC ¶¶ 34, 50.

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Among other things,

FAC at 27.

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Centex subsequently filed a Counterclaim against Plaintiffs for

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breach of contract, bad faith, and declaratory relief.

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III. LEGAL STANDARD

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A.

Summary Judgment

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Entry of summary judgment is proper "if the movant shows that

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there is no genuine dispute as to any material fact and the movant

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is entitled to judgment as a matter of law."

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56(a).

Fed. R. Civ. P.

Summary judgment should be granted if the evidence would

United States District Court

For the Northern District of California

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require a directed verdict for the moving party.

Anderson v.

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Liberty Lobby, Inc., 477 U.S. 242, 251 (1986).

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mandates the entry of summary judgment . . . against a party who

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fails to make a showing sufficient to establish the existence of an

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element essential to that party's case, and on which that party

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will bear the burden of proof at trial."

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477 U.S. 317, 322 (1986).

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believed, and all justifiable inferences are to be drawn in his

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favor."

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of a scintilla of evidence in support of the plaintiff's position

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will be insufficient; there must be evidence on which the jury

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could reasonably find for the plaintiff."

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opposing parties tell two different stories, one of which is

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blatantly contradicted by the record, so that no reasonable jury

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could believe it, a court should not adopt that version of the

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facts for purposes of ruling on a motion for summary judgment."

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Scott v. Harris, 550 U.S. 372, 380 (2007).

Thus, "Rule 56[]

Celotex Corp. v. Catrett,

"The evidence of the nonmovant is to be

Anderson, 477 U.S. at 255.

However, "[t]he mere existence

Id. at 252.

"When

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B.

Judgment on the Pleadings

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"After the pleadings are closed -- but early enough not to

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delay trial -- a party may move for judgment on the pleadings."

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Fed. R. Civ. P. 12(c).

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the moving party clearly establishes on the face of the pleadings

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that no material issue of fact remains to be resolved and that it

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is entitled to judgment as a matter of law."

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Inc. v. Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989).

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Moreover, a motion for judgment on the pleadings is subject to the

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same standard of review as a motion to dismiss, and thus the

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pleading must contain sufficient factual matter, accepted as true,

"Judgment on the pleadings is proper when

Hal Roach Studios,

United States District Court

For the Northern District of California

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to state a claim to relief that is plausible on its face.

Johnson

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v. Rowley, 569 F.3d 40, 44 (2d Cir. 2009); see also Cafasso, U.S.

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ex rel. v. General Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 n.4

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(9th Cir. 2011) (citing Johnson with approval).

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plausible on its face when the plaintiff pleads "factual content

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that allows the court to draw the reasonable inference that the

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defendant is liable for the misconduct alleged."

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Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atl. Corp. v.

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Twombly, 550 U.S. 544, 556 (2007)).

A claim is

Ashcroft v.

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IV.

DISCUSSION

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A.

Centex's Motion for Summary Judgment

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Centex moves for partial summary judgment against Travelers on

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the grounds that Travelers waived its right to control Centex's

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defense in the Adkins and Garvey actions when it previously denied

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its duty to defend those actions.

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on Travelers' so-called "duty to defend."

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owes a broad duty to defend its insured against claims that create

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a potential for indemnity."

MSJ at 8.

Centex's motion turns

"[A] liability insurer

Horace Mann Ins. Co. v. Barbara B., 4

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Cal. 4th 1076, 1081 (Cal. 1993).

"[T]he [insurer] must defend a

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suit which potentially seeks damages within the coverage of the

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policy[.]"

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1966) (emphasis in the original).

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broader than the duty to indemnify; an insurer may owe a duty to

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defend its insured in an action in which no damages ultimately are

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awarded."

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"immediate," "arising on tender of defense and lasting until the

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underlying lawsuit is concluded or until it has been shown that

Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 275 (Cal.
Thus, "the duty to defend is

Horace Mann, 4 Cal. 4th at 1081.

The duty is

United States District Court

For the Northern District of California

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there is no potential for coverage . . . .

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immediate duty to defend is necessary to afford the insured . . .

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the full protection of a defense on its behalf."

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Corp. v. Sup. Ct., 6 Cal. 4th 287, 295 (Cal. 1993) (internal

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citations omitted) (emphasis in the original).

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whether the insurer owes a duty to defend usually is made in the

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first instance by comparing the allegations of the complaint with

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the terms of the policy."

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Imposition of an

Montrose Chem.

"The determination

Horace Mann, 4 Cal. 4th at 1081.

Once the insurer takes on the duty to defend, it generally has

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the absolute right to manage the defense and the insured is

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required to surrender all control.

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Sup. Ct., 71 Cal. App. 4th 782, 787 (Cal. App. 1999).

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insurer's right to control the insured's defense extends to the

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right to select legal counsel.

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Walter & Gawthrop, No. Civ. S-04-2445 FCD, 2005 U.S. Dist. LEXIS

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20485, at *21 (E.D. Cal. May 31, 2005).

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insurer wrongfully refuses to defend, the insured is relieved of

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his or her obligation to allow the insurer to manage the litigation

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and may proceed in whatever manner is deemed appropriate."

See Safeco Ins. Co. of Am. v.
The

Carolina Cas. Ins. Co. v. Bolling,

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However, "[w]hen an

Eigner

1

v. Worthington, 57 Cal. App. 4th 188, 196 (Cal. Ct. App. 1997).
Here, Travelers lost its right to control the defense of the

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3

Garvey and Adkins actions when it declined to participate in the

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defense of those actions in late 2010 and early 2011.

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action was tendered to Travelers in July 2010.

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31.

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Centex's defense.

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2011 -- after Centex filed suit to enforce the Woodmark policy --

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that Travelers agreed to provide a defense, subject to a

The Garvey

FAC ¶ 31; Answer ¶

In February 2011, Travelers declined to participate in
Barrera Decl. Ex. F.

It was not until April

United States District Court

For the Northern District of California

10

reservation of rights.

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initially refused Centex's tender of the Adkins action, and several

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months elapsed between Centex's initial tender and Traveler's

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agreement to provide a defense.

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L.

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Travelers' delay in providing Centex with a defense divested it of

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the right to control that defense.

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Barrera Decl. Ex. G.

Likewise, Travelers

Daniele Decl. Exs. A, D, E, G, K,

As the duty to defend arises immediately upon tender,

Travelers suggests that the Court should follow Judge Breyer's

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decision in Travelers Property Casualty Co. v. Centex Homes, No. C

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10-02757 CRB ("Centex I"), 2011 U.S. Dist. LEXIS 36128 (N.D. Cal.

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Apr. 1, 2011), an earlier action between the parties which involved

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similar issues.

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distinguishable.

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a duty to cooperate with Travelers' appointed counsel in two

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construction defect actions not at issue in this case.

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2011 U.S. Dist. Lexis 36128, at *17-19.

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an insurer has an immediate duty to defend but reasoned that "[i]f

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there was any unreasonable delay in [Travelers'] response to

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[Centex]'s tenders, it occurred in part because [Centex] failed to

MSJ Opp'n at 1.

The Court finds that Centex I is

In that case, Judge Breyer found that Centex had

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Centex I,

The court recognized that

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promptly provide the reasonable, requested information to

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facilitate [Travelers'] investigation."

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in the instant action, there is no indication that Traveler' delay

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was due to Centex's failure to provide requested information.

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after Centex submitted additional information concerning its

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tender, Travelers refused to provide or fund a defense.

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Barrera Decl. Exs. C-F; Daniele Decl. Exs. B-D.

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only agreed to provide a defense after Centex brought suit for

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Travelers' failure to defend.

Id. at *11.

In contrast,

Even

See

In fact, Travelers

United States District Court

For the Northern District of California

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Travelers also heavily relies on the California Court of

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Appeal's decision in Gray v. Begley, 182 Cal. App. 4th 1509 (Cal.

12

Ct. App. 2010).

13

controlling here.

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somewhat tortured procedural history."

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In that case, Gray was injured by Begley in an automobile accident.

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Id.

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driving under the influence of alcohol and that the employer knew

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of Begley's prior reckless driving.

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insurer reached a $5 million settlement with Gray on behalf of the

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employer and later agreed to defend Begley under a reservation of

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rights.

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verdict against Begley.

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vacate in order to offset the $4.5 million judgment against Gray's

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$5 million settlement with the employer.

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reached a private agreement, whereby Begley would withdraw his

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motion to vacate.

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"may have included a payment from Gray to Begley and agreement to

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jointly proceed against [the insurer]."

Contrary to Travelers' assertion, that case is not
As the Court of Appeal noted, Gray "presents a
192 Cal. App. 4th at 1512.

Gray sued Begley and his employer, alleging that Begley was

Id. at 1514.

Id. at 1513.

The employer's

At trial, Gray obtained a $4.5 million
Id. at 1515.

Id. at 1517.

Begley subsequently moved to

Id.

Gray and Begley then

The Court noted that the agreement

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Id.

The insurer moved to

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intervene so that it could file its own motion to vacate and apply

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the setoff; Gray opposed.

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ultimately found that the insurer's intervention was proper,

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holding that "an insurer that provides a defense under a

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reservation of rights has a sufficient interest in the litigation

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to intervene when the insured reaches a settlement without the

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participation of the defending insurer."

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also noted that "the key factor in determining whether an insurer

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is bound by a settlement reached without the insurer's

Id. at 1518.

The Court of Appeal

Id. at 1523.

The court

United States District Court

For the Northern District of California

10

participation is whether the insurer provided the insured with a

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defense, not whether the insurer denied the coverage."

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Id.

Under Travelers' strained interpretation, Gray stands for the

13

proposition that "an insurer who initially denies its insured's

14

tender and later withdraws its denial and agrees to defend under a

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reservation of rights prior to trial maintains the right to control

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the defense it provides."

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Gray stands for the much more limited proposition that an insurer

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may intervene "to protect its own interests" where the "insurer

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provides an insured a defense under a reservation of rights, and

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the insured subsequently reaches a private settlement with the

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third party claimant without the participation of the insurer."

22

Gray, 182 Cal. App. at 1512.

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to the instant action.

24

MSJ Opp'n at 17.

The Court disagrees.

Thus, Gray has little to no relevance

Travelers also argues that Centex has failed to meet its

25

burden of showing that Travelers waived its right to control the

26

defense of the Adkins and Garvey actions.

27

Travelers contends that Centex must show, by clear and convincing

28

evidence, that Travelers intended to waive its right to control

12

MSJ Opp'n at 18.

1

Centex's defense.

Id.

Travelers reasons that this is a question

2

of fact for the jury, and, thus, not appropriate for summary

3

judgment.

4

is predicated on a line of cases holding that "a denial of coverage

5

on one ground does not, absent clear and convincing evidence to

6

suggest otherwise, impliedly waive grounds not stated in the

7

denial."

8

1995).

9

or not Travelers has waived its right to deny coverage is a

These arguments are also unavailing.

Travelers' theory

Waller v. Truck Ins. Exch., 11 Cal. 4th 1, 32 (Cal.

This authority has no bearing on the dispute here.

Whether

United States District Court

For the Northern District of California

10

separate question from whether it has waived its right to control

11

Centex's defense.

12

is an immediate one.

13

intent to determine whether it has breached that duty.

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evidence enough.

As discussed above, an insurer's duty to defend
Thus, a court need not discern an insurer's
A delay is

Relatedly, Travelers argues that it could not have waived its

15
16

right to control Centex's defense since it repeatedly and expressly

17

reserved that right.

18

is immediate, Travelers' reservations of rights have no bearing

19

here.

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duty to defend in a timely manner.

21

MSJ Opp'n at 19-20.

Since the duty to defend

The pertinent inquiry is whether Travelers satisfied its

Finally, Travelers contends that Centex consented to Travelers

22

providing it with a defense.

MSJ Opp'n at 23.

23

out that Centex filed a declaratory relief action in Sacramento

24

County Superior Court specifically requesting that Travelers

25

provide it with a defense and that Centex voluntarily dismissed the

26

action once Travelers agreed to provide that defense.

27

argument is belied by the record.

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for declaratory relief suggests Centex was willing to consent to

13

Travelers points

Id.

This

Nothing in Centex's complaint

1

the appointment of new counsel in the Adkins or Garvey actions.

2

See Ferrentino Decl. Exs. A, B.

3

Travelers agreed to provide Centex with a defense, Centex stated

4

that "Travelers waived its right . . . to control the defense of

5

this matter."

6

Further, almost immediately after

Barrera Decl. Ex. H.

For these reasons, the Court finds that Travelers waived its

7

right to control Centex's defense of the Adkins and Garvey actions

8

and, accordingly, GRANTS Centex's motion for partial summary

9

judgment.

United States District Court

For the Northern District of California

10

B.

11

Centex also moves for judgment on the pleadings on Travelers'

12

third cause of action for bad faith, as well as Travelers' request

13

for attorney's fees.

14

sounds in tort and an insurer cannot state such a claim against its

15

insured.

16

Co., 23 Cal. 4th 390, 400 (Cal. 2000)).

17

Travelers' bad faith claim also fails if it sounds in contract

18

since the cause of action is duplicative of Travelers' claim for

19

breach of contract.

20

Travelers has no legal basis for seeking attorney's fees since it

21

cannot assert a tort claim and no federal or California statute

22

would support such an award.

23

Centex's Motion for Judgment on the Pleadings

Centex argues Travelers' bad faith claim

MJP at 5 (citing Kransco v. Am. Empire Surplus Lines Ins.

Id. at 6.

Centex further argues that

Finally, Centex argues that

Id.

Travelers responds that its bad faith claim sounds in contract

24

and insists that it is not duplicative of its claim for breach of

25

contract because the gravamen underlying the two causes of action

26

is different.

27

its breach of contract claim is based on Centex's alleged failure

28

to comply with its express contractual obligations while its "bad

MJP Opp'n at 8.

Specifically, Travelers argues that

14

1

faith cause of action naturally encompasses an argument that

2

[Centex]'s breach of the contract was not merely negligent or

3

mistaken but was carried out intentionally for the purpose of

4

frustrating the plaintiff from obtaining the benefit of the

5

contract . . . ."

6

may seek attorney's fees under Section 1021.5 of the California

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Code of Civil Procedure ("Section 1021.5").

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provision states that a court may award attorney's fees "in any

9

action which has resulted in the enforcement of an important right

Id. at 9-10.

Travelers also contends that it

Id. at 7.

This

United States District Court

For the Northern District of California

10

affecting the public interest" if, among other things, "a

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significant benefit . . . has been conferred on the general public

12

or a large class of persons."

13

Cal. Code Civ. Proc. § 1021.5.

The Court finds that Travelers' bad faith claim is

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duplicative.

Under California law, a bad faith claim "involves

15

something beyond breach of the contractual duty itself . . . ."

16

Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371,

17

1394 (Cal. Ct. App. 1990).

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dealing, whether or not it also constitutes breach of a consensual

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contract term, prompted by a conscious and deliberate act that

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'unfairly frustrates the agreed common purposes and disappoints the

21

reasonable expectations of the other party.'"

22

v. Walt Disney Co., 347 F. Supp. 2d 846, 852 (C.D. Cal. 2004)

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(quoting Careau, 222 Cal. App. 3d at 1395).

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not go beyond the statement of a mere contract breach and, relying

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on the same alleged acts, simply seek the same damages or other

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relief already claimed in a companion contract cause of action,

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they may be disregarded as superfluous as no additional claim is

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actually stated."

Specifically, "it involves unfair

Celador Int'l Ltd.

"If the allegations do

Careau, 222 Cal. App. 3d at 1395.

15

Here, Travelers' bad faith claim relies on the same alleged

1
2

acts and seeks the same contractual damages as its claim for breach

3

of contract.

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Centex breached the cooperation clauses in its policies by refusing

5

to allow Travelers to control the defense of the various underlying

6

construction defect actions.

7

both claims sound in contract, they seek the same damages.

8

Accordingly, Travelers' bad faith claim must be dismissed as

9

duplicative.

Both claims are predicated on the allegation that

See FAC ¶¶ 107, 111.

Further, since

United States District Court

For the Northern District of California

10

Travelers argues that its bad faith claim is distinguishable

11

since it is predicated on the allegation that Centex's breach was

12

carried out intentionally.

13

reasoning, a plaintiff could state contract claims for both breach

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of contract and bad faith, so long as the breach was intentional.

15

As evidenced by Travelers' own authority, Celador, that is not the

16

law.

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bad faith and breach were distinguishable, even though they were

18

based on the same facts and sought the same remedy, since the bad

19

faith claim was based on allegations that the defendant acted in

20

bad faith to frustrate the contract's benefits.

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852-53.

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23
24
25

MJP Opp'n at 10.

Under Travelers

In Celador, the court found that the plaintiff's claims for

347 F. Supp. 2d at

The court reasoned:

Even if Plaintiffs are not ultimately successful on their
breach of contract claim, they may still be able to
prevail on their breach of the covenant of good faith and
fair dealing claim. Even if the fact finder concludes
that the consensual terms of the contract did not impose
such obligations on Defendants, the fact finder could
conclude that the actions of Defendants frustrated a
benefit of the contract . . . .

26
27

Id. at 853.

In contrast, Travelers' claims for breach and bad

28

faith rise and fall together.

Travelers has not alleged that

16

1

Centex took actions to cheat Travelers out of contract benefits

2

while not actually breaching the contract.

3

for breach and bad faith are predicated on the assertion that

4

Centex intentionally breached its duty to cooperate by refusing to

5

allow Travelers to select its counsel.

6

this is clearly a case where "the allegations do not go beyond a

7

mere contract breach."

See FAC ¶¶ 107, 111.

Thus,

Celador, 347 F. Supp. 2d at 852.

Travelers' argument in support of its prayer for attorney's

8
9

Rather, both its claims

fees is also unavailing.

Section 1021.5 clearly has no application

United States District Court

For the Northern District of California

10

here because this action does not implicate an "important right

11

affecting the public interest."

12

The Court fails to see how a decision related to an insurer's right

13

to control the defense of its insured could possibly confer a

14

"significant benefit" on either the general public or a large class

15

of persons.

16

because it is a multi-billion dollar corporation and Centex's

17

conduct could force it to raise insurance rates across the board to

18

make up for additional expenses.

19

interpretation of the statute is far too broad.

20

Travelers' logic, any large corporation would be entitled to

21

attorney's fees in almost any action in which even a modest sum was

22

at stake.

See id.

See Cal. Code Civ. Proc. § 1021.5.

Travelers argues the public will be affected

MJP Opp'n at 8.

This

Following

For these reasons, the Court GRANTS Centex's motion for

23
24

judgment on the pleadings and dismisses Travelers' claim for breach

25

of the covenant of good faith and fair dealing, as well as

26

Travelers' prayer for attorney's fees.

27

///

28

///

17

1
2

V.

CONCLUSION
The Court GRANTS Centex's Motion for Partial Summary Judgment

3

and Motion for Partial Judgment on the Pleadings.

The Court finds

4

that Travelers waived its right to control Centex's defense of the

5

Adkins and Garvey actions.

6

claim for breach of the covenant of good faith and fair dealing and

7

its prayer for attorney's fees.

Further, the Court DISMISSES Travelers'

8
9

United States District Court

For the Northern District of California

10

Dated: May 10, 2012
UNITED STATES DISTRICT JUDGE

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