Calleja v. U.S. Financial Insurance Company

Filing 49

ORDER by Judge Samuel Conti granting in part and denying in part 37 Motion to Dismiss; granting 40 Motion to Dismiss (sclc1, COURT STAFF) (Filed on 3/10/2014)

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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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ANN CALLEJA,

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Plaintiff,

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v.

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U.S. FINANCIAL LIFE INSURANCE
COMPANY, CIGI DIRECT INSURANCE
SERVICES, and DOES 1-10,

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Defendants.
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Case No. 13-00983 SC
ORDER GRANTING IN PART AND
DENYING IN PART USFL'S MOTION
TO DISMISS AND GRANTING CIGI'S
MOTION TO DISMISS

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I.

INTRODUCTION
Plaintiff Ann Calleja ("Plaintiff") brings this action against

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Defendants U.S. Financial Life Insurance Company ("USFL") and CIGI

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Direct Insurance Services ("CIGI") for breach of contract and

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negligence.

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case arises out of USFL's refusal to pay out on a $500,000 life

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insurance policy issued to Plaintiff's husband, Joseph Calleja, who

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died in 2011.

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payment.

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adequate notice to her husband and to his broker, James Jeffries,

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that payments were due.

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CIGI's motions to dismiss.

ECF No. 35 (First Amended Complaint ("FAC")).

The

USFL has claimed that the policy lapsed due to non-

Plaintiff alleges that Defendant neglected to provide

Now pending before the court are USFL and
ECF Nos. 37 ("USFL MTD"), 40 ("CIGI

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MTD").

Both motions are fully briefed, ECF Nos. 42 ("Opp'n"), 43

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("Reply ISO USFL MTD"), 44 ("Reply ISO CIGI MTD"), and appropriate

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for determination without oral argument per Civil Local Rule 7-

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1(b).

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GRANTED in part and DENIED in part and CIGI's is GRANTED.

For the reasons set forth below, USFL's motion to dismiss is

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II.

Plaintiff asserts three counts: (1) "breach of contract of

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BACKGROUND

life insurance," (2) "breach of contract of notification," and (3)

United States District Court

For the Northern District of California

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"negligence."

On December 10, 2013, the Court dismissed these

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counts with leave to amend.

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Plaintiff subsequently filed the FAC, which asserts the same

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counts.

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disorganized, and rife with legal conclusions.

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essential factual allegations, the FAC asserts the following: 1

ECF No. 32 ("Dec. 10 Order").

The FAC is far from a model of clarity.

It is repetitive,
Stripped to its

In 2000, Plaintiff's husband, Joseph Calleja, took out a

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$500,000 life insurance policy issued by USFL.

FAC ¶¶ 7, 13, MTD

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Ex. 1 ("Policy").

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since it forms the basis of the FAC and its contents are not in

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dispute.

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beneficiary on the Policy.

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the Policy from his close friend James Jeffries, who had sold life

The Court takes judicial notice of the Policy

See Fed. R. Evid. 201.

Plaintiff is the sole and primary

Policy at 60.

Mr. Calleja purchased

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Plaintiff has filed a declaration and a number of exhibits in
support of her opposition to Defendant's motion to dismiss. To the
extent that these facts do not appear in Plaintiff's pleading or
are not subject to judicial notice, the Court does not consider
them. The Court reminds Plaintiff, again, that she cannot use
factual declarations to defeat a Rule 12(b)(6) motion to dismiss.
See Dec. 10 Order at 6. In any event, the new facts raised in the
declaration would not change the outcome here.

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insurance policies on behalf of CIGI, USFL's agent and broker, for

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decades.

FAC ¶ 46.

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The Policy provides a number of premium payment options,

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including an annual premium of $4,775 and a semi-annual premium of

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$2,483.

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basis.

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due date, USFL will notify Mr. Calleja of the amount of premium

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payable.

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Calleja does not pay a premium when due, the premium is in default.

Policy at 1.
FAC ¶ 119.

Mr. Calleja elected to pay on a semi-annual

The Policy also states that before each premium

Policy at 2.

Under the terms of the Policy, if Mr.

United States District Court

For the Northern District of California

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Id. at 7.

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period to cure the default.

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the end of the grace period, the Policy is terminated.

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The Policy grants Mr. Calleja a thirty-one-day grace
Id.

If the default is not cured by
Id. at 6.

Plaintiff alleges that USFL also agreed to notify Mr. Jeffries

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in writing of any possible lapse of the Policy, and that Mr.

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Jeffries agreed that he would ensure that no lapse or forfeiture

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actually transpired, either by notifying Mr. Calleja or by paying

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the premium himself.

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concede, the Policy itself does not expressly mention this

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provision.

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to what constitutes notice, and a 1996 USFL brokerage agreement

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gave Mr. Jeffries the authority to clarify the term.

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The Court takes judicial notice of the agreement.

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("Brokerage Agr.").

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Jeffries to solicit applications for USFL, collect first premiums,

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and service business.

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authorized to "[m]odify or waive any provision unless the first

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premium has been paid and the applicant is in good health."

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FAC ¶ 14-16.

As Plaintiff appears to

However, Plaintiff alleges that the Policy is vague as

Id. ¶ 17.

USFL MTD Ex. 3

The Brokerage Agreement authorizes Mr.

Id.

It also states that Mr. Jeffries is not

Id.

Plaintiff further alleges that USFL ratified its agreement to

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provide notice to Mr. Jeffries in a letter sent to Plaintiff's

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counsel on November 26, 2012, shortly before this case was filed.

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FAC ¶ 25.

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states in relevant part:

The Court takes judicial notice of this letter, which

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It is our practice to provide financial professionals
with a copy of the reminder of unpaid premium notice
and lapse notification. As a service to their client,
he or she may then wish to follow-up with the client
to remind them of the importance of paying the premium
prior to the expiration of the grace period. However,
the ultimate responsibility to ensure that premiums
are paid prior to the expiration of the grace period
belongs to the policyowner.

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United States District Court

For the Northern District of California

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USFL MTD Ex. 5 (emphasis in the original).
Mr. Calleja apparently paid the Policy premiums through around

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November 2009.

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2009 due to non-payment, and subsequently lapsed.

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has not alleged whether or not USFL notified Mr. Calleja that

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premium payments were due in 2009.

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deficiency when it dismissed Plaintiff's prior pleading with leave

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to amend, but she has done nothing to cure it.

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at 3.

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Mr. Calleja that the Policy was in danger of lapsing.

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USFL allegedly claims that it mailed Mr. Calleja a notice of lapse

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on January 19, 2010, but Plaintiff claims that "there is no valid

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proof that such a mailing ever took place."

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Plaintiff further alleges that Mr. Jeffries also did not receive

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notice of the default or subsequent lapse.

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FAC ¶ 34.

The Policy went into default in December
Id.

Plaintiff

The Court highlighted the same

See Dec. 10 Order

However, Plaintiff does allege that USFL failed to notify
FAC ¶ 50.

Id. ¶¶ 51-53.

Id. ¶ 40.

Beginning in 2009, around the time that the Policy lapsed, Mr.

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Calleja was allegedly "out of his mind, [and] dying with cancer."

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Id. ¶ 59.

He passed away on January 4, 2011.

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Id. ¶ 144.

The

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following day, Mr. Jeffries called USFL to report the death and

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request the release of the Policy benefits to Plaintiff.

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then informed him, allegedly for the first time, that the Policy

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had lapsed a year earlier.

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benefits allegedly due under the Policy.

Id. ¶ 34.

Id.

USFL

USFL now refuses to pay the

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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.

United States District Court

For the Northern District of California

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

"Dismissal can be based

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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).

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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)).

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

Ashcroft v.

However, "the tenet that a court

Threadbare recitals of the

Id. (citing Bell Atl. Corp. v.

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IV.

DISCUSSION

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A.

USFL's Motion to Dismiss

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USFL moves to dismiss on the ground that the Policy itself did

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not require that it provide a notice of lapse to either Mr.

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Jeffries or Mr. Calleja.

According to USFL, the Policy only

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required USFL to notify Mr. Calleja that premiums were due, and the

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FAC is silent about whether USFL provided such notice.

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responds that, pursuant to the Brokerage Agreement, Mr. Jeffries

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had the authority to modify the notice provisions of the Policy,

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and he did so by adding a term requiring that USFL notify him if

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the Policy was in danger of lapsing.

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USFL is estopped from denying Policy benefits based on its failure

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to follow through on its promise to provide notice to Mr. Jeffries.

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As set forth below, the Court rejects Plaintiff's first argument,

United States District Court

For the Northern District of California

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Plaintiff

Plaintiff further argues that

but finds that the second has merit.
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Mr. Jeffries' Authority to Modify the Policy

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The Brokerage Agreement provides that Mr. Jeffries was not

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authorized to "[m]odify or waive any provision unless the first

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premium has been paid and the applicant is in good health."

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Brokerage Agr. at 1.

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language, Mr. Jeffries amended the terms of the Policy such that

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USFL was required to provide him with notice of any default or

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lapse so that he could ensure that the Policy never lapsed.

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argument lacks merit for a number of reasons.

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matter, at most, the Brokerage Agreement gave Mr. Jeffries the

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authority to modify or waive provisions of the Policy, not to add

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entirely new terms.

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Plaintiff contends that, pursuant to this

As an initial

Further, the Policy contains an integration clause.
Specifically, it states:

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"This policy . . . and the attached application are
the entire contract. . . . No statement will be used
in defense of any claim unless a written application
and a copy is attached to the policy when issued. No
agent or other person, except [USFL's] President,

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This

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elected Vice President or secretary has the authority
to:
(a) make or modify this contract.
(b) extend the time for payment of a premium
interest.
(c) waive any of [USFL's] rights or requirements.

or

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Policy at 6.

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prohibits agents, such as Mr. Jeffries, from modifying the terms

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of the Policy: "No agent or medical examiner can accept risks or

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make or change contracts or waive USFL's rights or requirements."

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Policy at Bates 000066.

The signature page of the contract also expressly

As the Policy was fully integrated, any

United States District Court

For the Northern District of California

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oral representations made by Mr. Jeffries that contradicted the

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Policy's terms were ineffective.

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Ins. Co., 162 Cal. App. 4th 649, 662-63 (Cal. Ct. App. 2008).

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Everett v. State Farm General

Plaintiff attempts to get around the integration clause by

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arguing that Mr. Jeffries merely clarified the Policy's ambiguous

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notice provisions.

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clear on exactly who must receive notice, and what kind of notice

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must be provided.

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due date, WE will notify YOU of the amount of premium payable."

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Policy at 2.

The Policy then defines "WE" as USFL and "YOU" as

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Mr. Calleja.

Id. at 4.

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USFL provided Mr. Calleja with notice that his premium was due in

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2009, despite the fact that the Court previously dismissed

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Plaintiff's complaint and granted Plaintiff leave to amend on this

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very issue.

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would be futile to give Plaintiff yet another chance to plead this

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simple fact.

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complain that USFL failed to fulfill its contractual notice

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obligations.

This argument lacks merit.

The Policy is

Specifically, it states: "Before each premium

Plaintiff fails to allege whether or not

See Dec. 10 Order at 3.

The Court finds that it

Thus, the Court also finds that Plaintiff cannot

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Plaintiff argues that even if the Policy is clear on "premium

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notices" it is silent on "lapse notices" and "fatal foreclosure

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notices."

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of more than one reasonable interpretation.

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67 Cal. App. 4th 779, 798, (Cal. Ct. App. 1998).

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has yet to point to any term in the Policy that could be

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reasonably read to suggest that Mr. Calleja was entitled to a

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lapse notice, let alone that USFL was required to notify Mr.

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Jeffries that the Policy was in danger of lapsing.

However, a contract is only ambiguous if it is capable
Badie v. Bank of Am.,
Here, Plaintiff

Indeed, Mr.

United States District Court

For the Northern District of California

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Jeffries is never even mentioned in the Policy.

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attempting to read an entirely new provision into the Policy based

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on the Policy's complete silence on the issue.

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do.

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Plaintiff is

This she cannot

Even if the Court were to disregard the fundamental

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principles of contract interpretation, the California Insurance

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Code precludes Plaintiff's reading of the Policy.

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California Insurance Code section 10113, every life insurance

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policy "shall contain and be deemed to constitute the entire

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contract between the parties and nothing shall be incorporated

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therein by reference to any constitution, by-laws, rules,

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application or other writings, of either of the parties thereto."

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Thus, the Court cannot consider either the Brokerage Agreement or

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Mr. Jeffries' oral representations when interpreting the Policy. 2

Under

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Plaintiff also contends that dismissal is contrary to public
policy in light of recent amendments to the California Insurance
Code. The Code now provides that no life insurance policy may be
issued in the state unless the insurer gives the insured the right
to designate at least one other person to receive notice of a lapse
or termination, and that no life insurance shall lapse unless the
insurer gives the insured and his or her designee advance notice of
the lapse. Cal. Ins. Code § 10113.72(b), (c). However, as

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Accordingly, Plaintiff's claims are DISMISSED with prejudice

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to the extent that they are predicated on Mr. Jeffries's alleged

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modification of the Policy.

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2.

Estoppel

The Court reaches a different conclusion with respect to

estoppel are: "(1) the party to be estopped must be apprised of

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the facts; (2) he must intend that his conduct shall be acted

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upon, or must so act that the party asserting the estoppel had a

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United States District Court

Plaintiff's equitable estoppel theory.

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For the Northern District of California

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right to believe it was so intended; (3) the other party must be

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ignorant of the true state of facts; and (4) he must rely upon the

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conduct to his injury."

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35 Cal. 4th 24, 37 (Cal. 2005).

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The elements of equitable

Honeywell v. Workers' Comp. Appeals Bd.,

The Court finds these elements present here.

As to the

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first and second elements, Plaintiff alleges that USFL was aware

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that Mr. Jeffries represented that he would receive default or

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lapse notices on Mr. Calleja's behalf, and that Plaintiff and Mr.

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Calleja relied on this representation.

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Policy does not expressly require a lapse notice, it also does not

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expressly state that such notice will not be provided.

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the plausibility of Plaintiff's allegations is buttressed by

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USFL's March 5, 2012 letter to Plaintiff stating: "It is our

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practice to provide financial professionals with a copy of the

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reminder of unpaid premium notice and lapse notification." 3

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id. ¶ 24; USFL Ex. 5 at 2.

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FAC ¶ 36.

While the

Moreover,

See

Plaintiff concedes, the amendments did not take effect until
January 1, 2013, almost two years after Mr. Calleja passed away.
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USFL asserts that its March 5, 2012 letter is subject to the
litigation privilege. USFL MTD at 6 n.3. The Court disagrees.
While the letter may not give rise to liability in a derivative

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USFL argues that the term "financial professional" is not

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defined, and was clearly intended to refer to CIGI, not Mr.

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Jeffries.

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motion to dismiss.

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a distinction without a difference.

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clearer about Mr. Jeffries' relationship with CIGI, it appears

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that Mr. Jeffries was CIGI's agent.

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fact that it provided reminder notices as a matter of practice

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does not create an obligation to do so.

The Court declines to draw such an inference on a
In any event, USFL appears to be highlighting
While the FAC could be far

USFL further argues that the

But the pertinent

United States District Court

For the Northern District of California

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question is not whether USFL had a contractual obligation, but

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whether it took actions to induce Plaintiff and Mr. Calleja to

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rely on Mr. Jeffries for notice.

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The Court also finds that the third and fourth elements of

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equitable estoppel are satisfied.

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neither she nor her husband was aware that USFL was not sending

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lapse notices to Mr. Jeffries, and that she and her husband relied

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on Mr. Jeffries to take action to avoid a lapse in the Policy.

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FAC ¶¶ 34, 120.

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light of Mr. Calleja's declining health at the time of the

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purported lapse in the Policy.

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finds that Plaintiff has pleaded sufficient facts to invoke the

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doctrine of equitable estoppel.

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Plaintiff has alleged that

These allegations are especially plausible in

Id. ¶ 59.

Accordingly, the Court

For these reasons, USFL's motion to dismiss is GRANTED in
part and DENIED in part.
tort action, see Jacob B. v. Cnty. of Shasta, 40 Cal. 4th 948, 955
(Cal. 2007), it is admissible in the instant action. Under USFL's
curious logic, the litigation privilege protects it from admissions
to Plaintiff in this case, and effectively renders its responses to
interrogatories and requests for admission inadmissible. That is
clearly not the law.

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B.

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CIGI moves to dismiss Plaintiff's breach of contract claims on

CIGI's Motion to Dismiss

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the ground that it is not party to any agreement with Plaintiff or

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her husband.

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Policy are USFL and Mr. Calleja, and CIGI is never even mentioned

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in the document.

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Brokerage Agreement, the document only describes the

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responsibilities of Mr. Jeffries and USFL.

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CIGI in the text of the Brokerage Agreement is a provision stating:

The argument has merit.

The only parties to the

While both CIGI and Mr. Jeffries signed the

The only reference to

United States District Court

For the Northern District of California

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"Neither the Company [USFL] nor the General Agent [CIGI] will be

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responsible for any of the Broker's [Mr. Jeffries'] expenses."

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A non-party to a contract cannot be bound to its terms merely

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because his or her signature appears on the document.

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Palmdale Hills Prop., 8:08-BK-17206-ES, 2011 WL 7478771, at *5

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(Bankr. C.D. Cal. Nov. 3, 2011).

Id.

See In re

Even if CIGI was a party to a relevant agreement, Plaintiff

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has yet to identify how CIGI breached that agreement. 4

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theory of the case appears to be that USFL breached the Policy by:

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(1) failing to pay out the $500,000 benefit, and (2) failing to

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notify Mr. Jeffries that Mr. Calleja was late in his premium

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payments so that Mr. Jeffries could cure the lapse.

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indication that CIGI had any duty to Plaintiff or Mr. Calleja.

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was not responsible for paying benefits, nor is it clear why it

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would be aware of a lapse or responsible for providing a lapse

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notice to Mr. Jeffries.

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considered USFL's agent, an agent cannot be held liable based soley

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Plaintiff's

There is no
It

To the extent that CIGI could be

The Complaint is essentially silent on this issue, as it fails to
distinguish between the two defendants. The opposition brief does
nothing to clarify the matter.

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on the bad acts of its disclosed principal.

See Filippo Indus.,

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Inc. v. Sun Ins. Co. of New York, 74 Cal. App. 4th 1429, 1442 (Cal.

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Ct. App. 1999).

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should be held vicariously liable for the acts of Mr. Jeffries --

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and it is not at all clear that she does -- her claim fails because

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she has not alleged that Mr. Jeffries breached any agreement.

To the extent that Plaintiff is alleging that CIGI

Plaintiff's negligence claim against CIGI fails for the same

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reasons: she has failed to establish that CIGI owed her any type of

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duty.

United States District Court

For the Northern District of California

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Accordingly, the Court GRANTS CIGI's motion to dismiss and

DISMISSES all of Plaintiff's claims against CIGI WITH PREJUDICE.

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V.

CONCLUSION
For the foregoing reasons, Defendant U.S. Financial Life

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Insurance Company's motion to dismiss is GRANTED in part and DENIED

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in part.

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with prejudice to the extent that they are predicated on Mr.

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Jeffries' alleged modification of the Policy.

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may proceed to the extent that they are predicated on estoppel.

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Defendant CIGI Direct Insurance Services' motion to dismiss is

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GRANTED.

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PREJUDICE.

Plaintiff Ann Calleja's claims against USFL are DISMISSED

However, her claims

Plaintiff's claims against CIGI are DISMISSED WITH

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IT IS SO ORDERED.

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March 10, 2014
UNITED STATES DISTRICT JUDGE

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