Swinerton Builders et al v. American Home Assurance Company et al

Filing 43

Order by Hon. Samuel Conti granting in part and denying in part 31 Motion to Dismiss, compelling arbitration, and staying case pending arbitration.(sclc2, COURT STAFF) (Filed on 7/23/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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United States District Court

For the Northern District of California

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)
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SWINERTON BUILDERS and SWINERTON )
INCORPORATED,
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Plaintiffs,
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v.
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AMERICAN HOME ASSURANCE CO.;
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NATIONAL UNION FIRE INSURANCE
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CO. OF PITTSBURGH, PA; and DOES )
1-250, inclusive,
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Defendants.
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)

Case No. C 12-4350 SC
ORDER COMPELLING ARBITRATION,
STAYING CASE PENDING
ARBITRATION, AND GRANTING IN
PART DEFENDANTS' MOTION TO
DISMISS

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I.

INTRODUCTION
This is an insurance dispute.

Now before the Court is

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Defendants American Home Assurance Co. ("American Home") and

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National Union Fire Insurance Co.'s ("National") (collectively

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"Defendants") motion to dismiss or, alternatively, to compel

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arbitration of Plaintiffs Swinerton Builders and Swinerton

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Incorporation's (collectively "Plaintiffs") complaint.

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("FAC"), 33 ("Mot.").

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("Opp'n"), 40 ("Reply").

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decision without oral argument.

The motion is fully briefed.

ECF Nos. 9

ECF Nos. 39

The Court finds the motion suitable for
Civ. L.R. 7-1(b).

As explained

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below, the Court GRANTS Defendants' motion to compel arbitration

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and STAYS this case pending the completion of arbitration.

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Court also GRANTS in part Defendants' motion to dismiss Plaintiffs'

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complaint.

The

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6 II.

BACKGROUND

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Plaintiffs were the general contractors for the construction

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and subsequent renovation of a residential development in Marina

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del Rey, California (the "Project").

FAC ¶ 18.

Defendants issued

United States District Court

For the Northern District of California

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two insurance policies (collectively the "Policies") that covered

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the Project during the time relevant to Plaintiffs' complaint.

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¶¶ 13-17.

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General Liability Policy effective March 31, 2002 to March 31,

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2003.

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National, was a Commercial Umbrella Policy effective March 31, 2000

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to March 31, 2005.

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CGL Policy required American Home to defend and indemnify

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Plaintiffs for property damage arising out of operations at the

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Project.

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CGL Policy.

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CGL Policy's $100,000 deductible.

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required National to defend and indemnify Plaintiffs for property

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damage arising out of operations at the Project after exhaustion of

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the underlying CGL Policy.

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Id.

The first, issued by American Home, was a Commercial

Id. ¶ 13; id. Ex. A ("CGL Policy").

Id. ¶ 14.

The second, issued by

Id. ¶ 16; id. Ex. B ("Umbrella Policy").

The

Plaintiffs paid $363,800 in premiums under the

Id. ¶ 15.

Plaintiffs allege that they satisfied the
Id.

The Umbrella Policy

Id. ¶ 17.

In December 2008, the Homeowners Association for the Project

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(the "HOA") sent Plaintiffs a "Notice to Builder" under California

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Civil Code section 1375 (a "Calderon Notice"), identifying various

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defects in the Project's waterproofing membrane, balcony railings,

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and concrete foundations.

Id. ¶ 19.

Plaintiffs gave American Home

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notice of the claim under the Policies.

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2009, in response to the Calderon Notice, American Home appointed

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defense counsel for Plaintiffs, and in reliance on this

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appointment, Plaintiffs did not obtain personal defense counsel,

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undertake any repairs at the Project, or settle with the HOA.

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¶ 21.

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subject to site inspections and forensic testing in order to

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provide American Home with information about the Project's various

Id. ¶ 20.

On February 9,

In the following years, over various times, the Project was

United States District Court

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For the Northern District of California

Id.

defects.

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held, at which American Home refused to settle claims against

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Plaintiffs.

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Id. ¶¶ 22-24.

After these tests, two mediations were

Id. ¶¶ 25-26.

The HOA sued Plaintiffs on May 3, 2011, for construction

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defects (the "underlying case").

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followed Plaintiffs' filing suit, but the parties reached no

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settlement, even though Plaintiffs allege that at the fourth

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mediation, on August 15, 2012, the HOA made reasonable settlement

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demands within the combined policy limits of Defendants' Policies.

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Id. ¶¶ 28-29.

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Defendants are defending Plaintiffs in the HOA's lawsuit.

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27-32.

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underlying case, and that Plaintiffs have overpaid their $100,000

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deductible for the Project.

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FAC Ex. D.

Two more mediations

Though they refused the various settlement offers,
Id. ¶¶

Plaintiffs allege that Defendants had a duty to settle the

See id. ¶¶ 40-48.

Based on these allegations, Plaintiffs assert three causes of

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action against Defendants: (1) breach of contract - failure to

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settle; (2) breach of the implied covenant of good faith and fair

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dealing - failure to settle; and (3) declaratory relief.

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40-65.

Id. ¶¶

Defendants respond that Plaintiffs' claims are not ripe for

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adjudication, because the underlying action is not yet resolved.

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See Mot. at 1-2.

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Plaintiffs' claims based on their alleged overpayment of the

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deductible are ripe, the Court should compel arbitration of those

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claims and stay this case pending the outcome of arbitration.

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at 2.

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still pending before this Court.

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Home Assurance Co., No. 12-cv-6047 EMC (the "Essex Case," named

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after the underlying property in that case).

Defendants add that even if the Court finds that

Id.

The parties have a separate but practically identical case
Swinerton Builders v. American

The Essex Case

United States District Court

For the Northern District of California

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involved a separate construction defect claim.

In that case, this

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Court sent Plaintiffs' deductible-related claims to arbitration,

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dismissed the remaining claims, and stayed the case pending

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arbitration.

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Mar. 15, 2013) (dismissing claims); Swinerton Builders, 2013 WL

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2237885, at *7 (N.D. Cal. May 21, 2013) (compelling arbitration).

Swinerton Builders, 2013 WL 1122022, at *2 (N.D. Cal.

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17 III.

LEGAL STANDARDS

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A.

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A motion to dismiss under Federal Rule of Civil Procedure

Motions to Dismiss

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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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1988).

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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, 556 U.S. 662, 679 (2009).

"Dismissal can be based

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

Ashcroft v.

However, "the tenet that a court

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

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is inapplicable to legal conclusions.

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elements of a cause of action, supported by mere conclusory

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statements, do not suffice."

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Twombly, 550 U.S. 544, 555 (2007)).

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complaint must be both "sufficiently detailed to give fair notice

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to the opposing party of the nature of the claim so that the party

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may effectively defend against it" and "sufficiently plausible"

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such that "it is not unfair to require the opposing party to be

Threadbare recitals of the

Id. at 678 (citing Bell Atl. Corp. v.
The allegations made in a

United States District Court

For the Northern District of California

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subjected to the expense of discovery."

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Starr v. Baca, 652 F.3d

1202, 1216 (9th Cir. 2011).

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B.

Arbitration

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Section 4 of the Federal Arbitration Act ("FAA") permits "a

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party aggrieved by the alleged failure, neglect, or refusal of

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another to arbitrate under a written agreement for arbitration [to]

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petition any United States district court . . . for any order

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directing that . . . arbitration proceed in the manner provided for

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in [the arbitration] agreement."

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policy that generally favors arbitration agreements.

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Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

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Importantly, however, "[A]rbitration is a matter of contract and a

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party cannot be required to submit to arbitration any dispute which

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he has not agreed so to submit."

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Gulf Navigation Co., 363 U.S. 574, 582 (1960).

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arbitration agreement is present, though, federal courts must

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enforce it rigorously.

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Inc., 552 U.S. 576, 581 (2008).

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"ambiguities as to the scope of the arbitration clause itself . . .

9 U.S.C. § 4.

The FAA embodies a
Moses H. Cone

United Steelworkers v. Warrior &
If such an

See Hall Street Assoc., L.L.C. v. Mattel,
Courts must also resolve any

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in favor of arbitration."

Volt Info. Scis., Inc. v. Bd. of Trs. of

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Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989).

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4 IV.

DISCUSSION

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A.

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The core of Plaintiffs' three causes of action is their

Plaintiffs' Unripe Claims

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allegation that Defendants breached both their contract and the

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implied covenant of good faith and fair dealing by refusing to

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settle the claims in the underlying case.

Defendants argue that

United States District Court

For the Northern District of California

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all of Plaintiffs' claims are premature, because Defendants are

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defending Plaintiffs in the ongoing underlying case.

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are right.

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provide funding or authority to settle the underlying case are

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unripe and must be dismissed.

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Defendants

Plaintiffs' claims based on Defendants' failure to

"[A] claimant's action against the insurer [for breach of the

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duty to settle] does not mature until a judgment in excess of the

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policy limits has been entered against the insured."

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Maryland Cas. Co., 27 Cal. 4th 718, 725 (Cal. Ct. App. 2002).

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"When, as here, the insurer is providing a defense but merely

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refuses to settle, the insured has no immediate remedy.

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action for bad faith refusal to settle arises only after a judgment

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has been rendered in excess of the policy limits."

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v. Super. Ct., 71 Cal. App. 4th 782, 788 (Cal. Ct. App. 1999).

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rationale of this rule applies to both American Home, as primary

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insurer, and National, as excess insurer: if there could be a

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breach of the duty to settle prior to an excess judgment, insureds

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could simply sue their insurers for breach of that duty, then

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potentially obtain a settlement or judgment within the primary

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Hamilton v.

A cause of

Safeco Ins. Co.
The

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insurance layer and suffer no cognizable damages.

See

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LensCrafters, Inc. v. Liberty Mut. Fire Ins. Co., No. C 07-2853

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SBA, 2008 WL 410243, at *4 (N.D. Cal. Feb. 12, 2008).
Sometimes, as Plaintiffs note, an insured can bring a claim

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based on an insurer's refusal to settle before an excess judgment

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has been entered, but only when the insured has suffered damages

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beyond exposure to a risk of liability in excess of policy limits

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(e.g., damage to business reputation).

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However, Plaintiffs' pleadings and arguments in favor of the

See Opp'n at 10-14.

United States District Court

For the Northern District of California

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Court's granting them this exception are conclusory and therefore

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insufficient to survive Defendants' motion to dismiss.

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U.S. at 678; see also Swinerton Builders, 2013 WL 1122022, at *2

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(N.D. Cal. Mar. 15, 2013) (finding same).

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entered in the underlying case.

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based on Defendants' alleged breaches of the duty to settle are all

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DISMISSED as unripe.

Iqbal, 556

No judgment has been

Accordingly, Plaintiffs' claims

Defendants also argue that all of Plaintiffs' claims based on

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alleged overpayment of their deductible are unripe, because the CGL

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Policy explicitly states that American Home's obligation to

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indemnify Plaintiffs for damages only applies in excess of the CGL

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Policy Schedule's stated deductible amounts.

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Policy at 36-37.

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cannot be calculated until the duty to indemnify attaches, i.e.,

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after the case resolves and covered damages are determined -- a

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matter distinct from the duty to defend.

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Defendants conclude that Plaintiffs' deductible-based claims are

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unripe, just as their claims for breach of the duty to settle are.

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Id.

Mot. at 10-11; CGL

According to Defendants, deductible amounts

Mot. at 11.

Therefore,

However, as this Court found in the parties' parallel case,

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the parties' dispute over deductibles does not concern Defendants'

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duty to indemnify Plaintiffs for an undetermined amount: Plaintiffs

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have alleged that they have satisfied their $100,000 deductible and

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are due reimbursement of the excess payments.

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Swinerton Builders, 2013 WL 1122022, at *3.

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claims based on the deductible dispute are ripe.

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accordingly whether an arbitration agreement governs the parties'

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dispute over deductibles.
B.

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United States District Court

Therefore Plaintiffs'
The next issue is

Arbitration

The Policies themselves have no arbitration clause.

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For the Northern District of California

See Compl. ¶ 53(f);

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Underlying the parties' dispute over whether arbitration is

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required in this case is a Letter of Understanding that Plaintiffs

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and National entered on August 2009, to outline the process

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Plaintiffs and National would follow to resolve outstanding

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insurance-related disputes "associated with the 3/31/00 - 3/31/05

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Rolling Contractor Controlled Insurance Program (Swinerton Wrap

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Up)."

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parties do not explain what exactly the Swinerton Wrap Up is.

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LOU also contains an agreement between the parties to arbitrate

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"any dispute between the Parties with reference to the

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interpretation, application, formation, enforcement or validity of

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this memorandum, or their right with respect to any transaction

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involved, whether such dispute arose before or after the

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termination of this memorandum."

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ECF No. 32 ("Derewitz Decl. ISO Mot.") Ex. B ("LOU").

The
The

LOU at 1.

Plaintiffs deny that the LOU covers their dispute over the

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deductible.

They ask the Court to admit and consider extrinsic

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evidence of a Payment Agreement and the supplemental and original

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declarations of John Capener, which Plaintiffs contend will clarify

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that the LOU is irrelevant in this case.

See Opp'n at 14-18; ECF

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No. 39-1 ("Fanning Decl.") Exs. 1 ("Suppl. Capener Decl. & Payment

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Agreement), 2 ("Capener Decl.").

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unexecuted contract from March 2000 between the parties that

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contains an arbitration clause governing deductibles, which

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Plaintiffs state would have covered the present dispute if it had

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been signed.

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Capener Declarations state that Mr. Capener, Swinerton

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Incorporated's Senior Vice President and Director of Risk Services,

The Payment Agreement is an

Opp'n at 16-17; Suppl. Capener Decl. at 2.

Both

United States District Court

For the Northern District of California

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refused to sign agreements like the Payment Agreement, which

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governed deductibles to be charged to Plaintiffs.

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Decl. at 2; Capener Decl. at 2-3.

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LOU identifies five specific transactions, which do not include

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deductible disputes.

Suppl. Capener

Plaintiffs also argue that the

Capener Decl. ¶¶ 6-7.

In response to all of these arguments, Defendants offer the

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declaration of Stephen Lidz, who in the summer of 2009 was the

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Senior Vice President of the Construction Risk Management division

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responsible for Plaintiffs' primary insurance programs, including

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the Swinerton Wrap Up program.

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1.

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Plaintiffs' "obligation to reimburse and fund future paid losses

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within the program deductible."

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the FAA's presumption in favor of arbitration, Mr. Lidz's

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interpretation of the LOU, and the disputed admissibility of

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Plaintiffs' evidence count in favor of arbitration here.

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8-12.

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ECF No. 35 Ex. A. ("Lidz Decl.") ¶

Mr. Lidz states that the LOU was meant to apply broadly to

Id. ¶ 8.

Defendants conclude that

Reply at

The Court finds no reason to depart from the rulings on this
issue in the Essex Action.

There, this Court found that the LOU

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explicitly provides for the arbitration of the question of

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arbitrability -- a threshold dispute here.

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2013 WL 2237885, at *4-6.

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Plaintiffs' disputed evidence is not persuasive, and the LOU's

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language sends to the arbitrators the questions of both the LOU's

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coverage and the parties' dispute over arbitration.

Swinerton Builders,

Nothing has changed since then.

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Apart from their above arguments on the LOU's scope and

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interpretation, Plaintiffs retain their arguments that bad faith

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claims are not arbitrable.

Opp'n at 23-24.

Plaintiffs cite

United States District Court

For the Northern District of California

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several cases in support of this argument, but these cases are

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inapposite because they were either limited to their facts or

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simply not supportive of Plaintiffs' arguments.

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No other arguments remain.

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Opp'n at 23-24.

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V.

CONCLUSION

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As explained above, Plaintiffs Swinerton Builders and

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Swinerton Incorporated's claims premised on Defendants American

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Home Assurance Co. and National Union Fire Insurance Co.'s alleged

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breach of the duty to settle are DISMISSED.

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Defendant's motion to stay this action pending the completion of

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arbitration, and COMPELS the parties to proceed with arbitration in

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accordance with the Letter of Understanding.

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pending the outcome of that arbitration.

United States District Court

For the Northern District of California

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The Court GRANTS

This case is STAYED

The Court DENIES Plaintiffs' request to amend their complaint,

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because Plaintiffs do not specify what new facts they could allege

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to cure the defects that warranted dismissal.

See Opp'n at 24-25.

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IT IS SO ORDERED.

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Dated: July ___, 2013

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UNITED STATES DISTRICT JUDGE

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