Diamond State Insurance Company v. Marin Mountain Bikes, Inc. et al

Filing 57

ORDER by Judge Claudia Wilken GRANTING DIAMONDS 51 MOTION TO DISMISS MARINS SECOND AMENDED COUNTERCLAIMS AND GRANTING IN PART, AND DENYING IN PART, DIAMONDS 39 MOTION TO STRIKE MARINS AMENDED AFFIRMATIVE DEFENSES. (ndr, COURT STAFF) (Filed on 12/21/2012)

1

IN THE UNITED STATES DISTRICT COURT

2

FOR THE NORTHERN DISTRICT OF CALIFORNIA

3
4

DIAMOND STATE INSURANCE COMPANY,

No. C 11-5193 CW

5

13

ORDER GRANTING
DIAMOND’S MOTION
TO DISMISS MARIN’S
SECOND AMENDED
COUNTERCLAIMS
(Docket No. 51)
AND GRANTING IN
PART, AND DENYING
IN PART, DIAMOND’S
MOTION TO STRIKE
MARIN’S AMENDED
AFFIRMATIVE
DEFENSES (Docket
No. 39)

14

Plaintiff Diamond State Insurance Company moves to dismiss

Plaintiff,
6
v.
7
8

MARIN MOUNTAIN BIKES, INC.; and
ATB SALES LIMITED,

9
Defendants.
United States District Court
For the Northern District of California

10
________________________________/
11
12

AND ALL RELATED COUNTERCLAIMS
________________________________/

15

Defendant Marin Mountain Bikes, Inc.’s second amended

16

counterclaims (2ACC) or alternatively for summary judgment.

17

Court previously deemed Diamond’s reply brief to its first motion

18

to strike and to dismiss to be a motion to strike Marin’s amended

19

affirmative defenses.

20

previously stated that it would resolve both motions on the

21

papers.

22

Court grants Diamond’s motion to dismiss the 2ACC and grants in

23

part Diamond’s motion to strike the amended affirmative defenses

24

and denies it in part.

25
26
27
28

Marin opposes both motions.

The

The Court

Having considered the papers filed by the parties, the

1
2

BACKGROUND
I.

Allegations in Marin’s 2ACC

3

The following facts are taken from Marin’s 2ACC, amended

4

affirmative defenses and certain other documents of which the

5

Court takes judicial notice.

6

From July 16, 2001 until July 16, 2002, Diamond provided

7

liability insurance to Marin, which designs and makes bicycles,

8

under liability policy number MFG0000379.

9

¶¶ 1-2.

2ACC, Docket No. 47,

Marin alleges that it had also been insured by Diamond in

United States District Court
For the Northern District of California

10

prior years and that, each year, it “was told to complete an

11

application for insurance and that such application was required

12

by Diamond.”

13

said this.

14

its membership in the National Bicycle Component Manufacturer’s

15

Association” (NBCMA) and each year “Marin was required to join the

16

NBCMA to be eligible for the insurance” coverage.

17

“The application for insurance bore the name of NBCMA on it and

18

was provided” to Marin by Diversified Risk Insurance Broker

19

(Diversified) “for completion.”

20

Id. at ¶¶ 5, 7.

Marin, however, does not state who

The policy was purportedly available to Marin through

Id. at ¶¶ 3, 5.

Id. at ¶ 5.

Marin alleges that it received a copy of the policy at “some

21

point after July 16, 2001, and after the Policy took effect,” that

22

the policy consisted of “several sets of documents which numbered

23

near 50 pages,” and that “[b]uried in those documents was the

24

Commercial General Liability Coverage Form.”

Id. at ¶ 9.

25

Section I, Coverage A of the policy, as described in this

26

form, provides coverage for “bodily injury and property damage

27

liability.”

28

page, it states in part,

Id. at ¶ 9, Ex. 3, Docket No. 47-3, 2.

2

On the first

1.

1

Insuring Agreement
a.
We will pay those sums that the insured
becomes legally obligated to pay as damages because
of “bodily injury” or “property damage” to which
this insurance applies. We will have the right and
duty to defend the insured against any “suit”
seeking those damages. However, we have no duty to
defend the insured against any “suit” seeking
damages for “bodily injury” or “property damage” to
which this insurance does not apply. . . .

2
3
4
5
6
7

b.
This insurance applies to “bodily injury” or
“property damage” only if:

8

(1) The “bodily injury” or “property damage”
is caused by an “occurrence” that takes place
in the “coverage territory”; and

9

United States District Court
For the Northern District of California

10
11

(2) The “bodily injury” or “property damage”
occurs during the policy period.

12
13

Id.

The first page of the policy advises that certain “words and

14

phrases that appear in quotation marks have special meaning,” and

15

directed readers to refer to “Section V--Definitions.”

16

pages ten through thirteen, in Section V, the policy contains

17

definitions for a number of terms, including the following:

Id.

19

3. “Bodily injury” means bodily injury, sickness or
disease sustained by any person, including death
resulting from any of these at any time.

20

4. “Coverage territory” means:

18

21
22
23
24

a.
The United States of America (including its
territories and possessions), Puerto Rico and
Canada;
b.
International waters or airspace, provided
that the injury or damage does not occur in the
course of travel or transportation to or from any
place not included in a. above; or

25
c.

All parts of the world if:

26
(1)

The injury or damage arises out of:

27
28
3

On

(a) Goods or products made or sold by
you in the territory described in a.
above; or

1
2

(b) The activities of a person whose
home is in the territory described in a.
above, but is away for a short time on
your business; and

3
4
5

(2) The insured’s responsibility to pay
damages is determined in a “suit” on the
merits, in the territory described in a. above
or in a settlement we agree to.

6
7
. . .
8

13. “Occurrence” means an accident . . .
9

United States District Court
For the Northern District of California

10
11

18. “Suit” means a civil proceeding in which damages
because of “bodily injury,” “property damage” or
“personal and advertising injury” to which this
insurance applies are alleged. . . .

12

Id. at 11-14.

The same “language was included in prior Diamond

13

policies issued to Marin before 2001.”

Id. at ¶ 23.

14

The first page of the policy also advises, “The word

15

‘insured’ means any person or organization qualifying as such

16

under Section II--Who Is An Insured.”

17

Section II in turn specifies certain individuals and entities that

18

qualify as an insured, including, for example, “Your ‘employees’

19

. . . but only for acts within the scope of their employment or

20

while performing duties related to the conduct of your business.”

21

Id. at 8.

22

Id. at ¶ 9, Ex. 3, 2.

Marin further alleges that it believed that Diamond provided

23

“foreign liability coverage” to Marin under the policy because

24

“Diamond needed information about Marin’s foreign sales and then

25

based premium calculation on those foreign sales at a different

26

rate than domestic sales.”

27

“Diversified told Marin that Diamond required Marin to provide its

28

domestic sales receipts and ‘foreign sales’ receipts.”

Id. at ¶ 9.

4

Specifically, each year,

Id.

1

“Marin was told that Diamond based its premiums for the Policy in

2

part on these sales receipts and that different premium rates

3

applied to the foreign sales receipts than to the domestic

4

receipts.”

5

as well.

6

instant policy and prior Diamond policies, Diversified provided

7

Marin with an “‘Insurance Schedule’ showing Diamond’s coverage,

8

which always included ‘Foreign Sales.’”

9

declarations pages of the policy show that a portion of the

Id.

Id.

Diamond periodically audited the sales receipts

Marin alleges that, before the issuance of the

Id. at ¶ 6.

The

United States District Court
For the Northern District of California

10

premium was calculated based on Marin’s “Manufacturing NOC/foreign

11

receipts.”

12

declarations page also listed as insured Marin International,

13

Marin Mountain Bikes GMBH (Germany) and Yamoto Bicycle Company,

14

which Marin alleges are “companies related to Marin that did

15

business overseas.”

16

the policy was issued in 2001, the National Insurance

17

Professionals Corp. (NIPC), on behalf of Diamond, also issued to

18

Marin a document entitled “Policy Changes,” which referred to a

19

decrease in “the premium basis” for “Manufacturing NOC/foreign

20

receipts.”

21

Id. at ¶ 7, Ex. 1, Docket No. 47-1, 3.1

Id. at ¶ 7 & Ex. 1, 2.

The

Around the time that

Id. at ¶ 8, Ex. 2, 2.

Marin also alleges that the policy had an “Additional

22

Insured--Vendors” endorsement that listed ATB Sales Limited (ATB)

23

as an additional insured under the policy.

24

In addition, Marin attached to the 2ACC an “Additional Insured--

25

Designated Person or Organization” endorsement that listed ATB as

Id. at ¶ 10, Ex. 1, 4.

26
27
1

28

All citations to the record refer to the ECF page
designation.
5

1

an additional insured.

Id. at ¶ 12, Ex. 1, 6.

ATB purchases

2

Marin’s bicycles and then sells and distributes them in the United

3

Kingdom only, which Marin contends Diamond understood.

4

¶¶ 10-11.

5

address.

6

Section II, regarding who is an insured, was “amended to include

7

as an insured” ATB “but only with respect to ‘bodily injury’ or

8

‘property damage’ arising out of ‘your products’ . . . which are

9

distributed or sold in the regular course of the vendor’s

Id. at

The endorsement schedules listed ATB’s United Kingdom
Id., Ex. 1, 4, 6.

The first endorsement provided that

United States District Court
For the Northern District of California

10

business,” subject to certain exclusions.

11

second endorsement provided that this section of the policy was

12

“amended to include an insured” ATB “but only with respect to

13

liability arising out of your operations or premises owned by or

14

rented to you.”

15

endorsements” had been issued to Marin in previous years.

16

“Prior to July 2001, Marin had at least one umbrella

Id., Ex. 1, 6.

Id., Ex. 1, 4.

The

Identical “ATB additional insured

17

insurance policy that specifically excluded by endorsement suits

18

brought anywhere outside the United States and Canada.”

19

¶ 13.

20

specifically brought the endorsement’s exclusion to Marin’s

21

attention,” but that “Diversified never told Marin that [the

22

Diamond] policies did not provide defense coverage for actions

23

brought outside the United States.”

24

Id. at

Marin alleges that, for that policy, “Diversified

Id.

Marin contends on information and belief that Diamond, NICP,

25

Diversified and NBCMA have agreements “by which Diamond offers

26

insurance policies,” such as the one at issue here, “to bicycle

27

manufacturers such as Marin.”

28

on information and belief that there are “Agency Agreements by and

Id. at ¶ 4.

6

Marin further alleges

1

between Diamond, Diversified, and NICP pursuant to which

2

Diversified and NICP received commission payments for bringing

3

insureds such as Marin to Diamond.”

4

to these and other agreements, at all times relevant, Diamond,

5

NICP, NBCMA and Diversified were agents, representatives and or

6

joint venturers in the placement of the Policy and at all times

7

were acting in the course and scope of such agency, representation

8

and/or joint venture.”

9

Id.

Marin alleges, “Pursuant

Id.

In April 2002, in the United Kingdom, Alan Ide suffered

United States District Court
For the Northern District of California

10

serious injuries in an accident while riding a bicycle that was

11

designed and made by Marin.

12

sold the bicycle in the United States to ATB pursuant to a 1999

13

written agreement between Marin and ATB.

14

at ¶ 32 (alleging that Diamond learned through its investigation

15

that “Marin and ATB had entered into contracts for the sale of

16

Marin bicycles and parts to ATB and that those contracts had been

17

partially negotiated and executed in the United States.”).

18

first learned of the accident when Ide brought suit in the United

19

Kingdom against ATB, Marin and Fairly Bike Manufacturing Company,

20

which assembled the bicycle’s components and is “a related company

21

to Marin.”

22

action.

23

Id. at ¶ 15.

Id. at ¶ 1.

Marin had originally

Id. at ¶ 1; see also id.

Marin

Marin refers to this suit as the Ide

Id.

In his suit, Ide alleged that the handlebar of the bicycle he

24

was riding was defective and therefore broke, causing his

25

injuries.

26

designed in part, selected for use on the bicycle, and assembled

27

under the supervision of, Marin’s Director of Product Development

28

who lived in the United States.

Id. at ¶ 16.

The handlebar on Ide’s bicycle was

Id.
7

Although Marin “designed,

1

created specifications for, tested, and priced bicycles including

2

the model sold to Ide, in the United States,” id. at ¶ 32(b), the

3

Director of Product Development carried out these activities

4

related to the handlebar while he was temporarily away for a short

5

time in China on Marin’s business, id. at ¶ 16.

6

Upon learning of the Ide suit, Marin immediately notified

7

Diamond of it and demanded that Diamond provide a defense to Marin

8

and ATB.

9

claiming it had no such duty under the policy.

Id. at ¶ 15.

Diamond refused to defend either company,
Id.

In the letter

United States District Court
For the Northern District of California

10

to Marin in which it denied a defense, which written after about a

11

year of investigation, Diamond relied solely on the ground that

12

the action was filed in England.

13

Diversified informed Marin that the Policy only covered suits

14

filed in the United States and that if suit were brought in the

15

United States then Diamond would provide a defense.”

16

did not appear or defend the Ide action, and ATB appeared and

17

defended at its own expense.

18

Id. at ¶ 17.

“At that time,

Id.

Marin

Id. at ¶ 15.

Ide was awarded judgment against ATB and Marin in the Ide

19

action.

Id. at ¶ 18.

20

Marin refers to as the ATB action, ATB moved to recover from Marin

21

the amount of the settlement paid to Ide as well as the cost of

22

ATB’s defense.

23

brought in the United Kingdom.

24

Statement, Docket No. 23, 2.

25

judgment against Marin for more than one and a half million

26

dollars, “which included both the settlement amount paid to Ide

27

and the defense costs incurred by ATB.”

Id.

ATB settled with Ide.

Id.

Then, in what

The parties agree that this action was
See, e.g., Joint Case Management

In the ATB action, ATB obtained

28
8

2ACC ¶ 18.

1

On September 23, 2011, ATB filed a separate federal action

2

against Marin in the Northern District of California, seeking to

3

enforce the judgment in the ATB action against Marin.

4

also Compl., Docket No. 1, ATB Sales Ltd. v. Marin Mtn. Bikes,

5

Inc., Case No. 11-4755 (N.D. Cal.).2

6

enforcement action.

7

in the enforcement action.

8

action, Marin again demanded that Diamond defend Marin.

9

¶ 20.

Marin refers to this as the

Diamond was not named as a party

When ATB brought the enforcement

Diamond refused again.

Id. at

Id.

Marin and ATB agreed to a settlement of the enforcement

10
United States District Court
For the Northern District of California

2ACC ¶ 19.

Id.; see

11

action in late 2011, shortly after Diamond brought the instant

12

action.

13

it “incurred actual monetary damage from Diamond’s refusal to

14

defend Marin under the Policy.”

15

II.

16

Id. at ¶ 21.

Marin alleges that, through the settlement,

Id.

Procedural history
On October 24, 2011, Diamond filed the instant suit against

17

ATB and Marin, seeking a declaratory judgment that it did not have

18

a duty to defend or indemnify Marin in connection with the United

19

Kingdom accident.

Compl. ¶¶ 9-13.

20

On May 16, 2012, Marin filed its answer to Diamond’s

21

complaint and alleged two affirmative defenses for estoppel and

22

concealment.

23

counterclaims against Diamond for breach of the insurance contract

Docket No. 30.

At that time, Marin asserted two

24
25
26
27
28

2

The Court takes judicial notice of the complaint filed in
ATB Sales, but not of the truth of the matters asserted therein.
See Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746
(9th Cir. 2006); McMunigal v. Bloch, 2010 U.S. Dist. LEXIS 136086,
at *7 n.1 (N.D. Cal.).
9

1

and breach of the covenant of good faith and fair dealing.

2

No. 30-1.

3
4
5

Docket

On May 18, 2012, Diamond voluntarily dismissed its claims
against ATB in the current case.

Docket No. 31.

On June 11, 2012, Diamond filed its first motion to strike

6

Marin’s affirmative defenses and to dismiss its counterclaims or

7

for a more definite statement.

8
9

Docket No. 32.

On June 25, 2012, Marin filed its opposition to Diamond’s
motion.

Docket No. 33.

With its opposition, Marin submitted

United States District Court
For the Northern District of California

10

proposed amended affirmative defenses.

11

affirmative defenses, Marin omitted its affirmative defense for

12

concealment and added defenses of unclean hands and laches.

13

In the proposed

On July 2, 2012, Diamond filed its reply in support of its

14

motion to strike and to dismiss.

Docket No. 34.

In the reply,

15

Diamond argued that the proposed amended affirmative defenses were

16

defective.

17

Later on July 2, 2012, Marin filed amended counterclaims for

18

breach of the insurance contract, tortious breach of the covenant

19

of good faith and fair dealing, and fraud.

20
21
22

Docket No. 35.

On July 25, 2012, Diamond filed a second motion to dismiss or
strike Marin’s amended counterclaims.

Docket No. 36.

On September 10, 2012, the Court granted in part and denied

23

in part Diamond’s first motion to dismiss and strike, and granted

24

Diamond’s second motion in part.

25

granted Marin leave to file its proposed amended affirmative

26

defenses, deemed Diamond’s reply in support of its first motion to

27

strike and to dismiss to be a motion to strike the amended

28

affirmative defenses and set a briefing schedule for an opposition

Docket No. 43.

10

The Court

1

and reply on the motion to strike.

2

leave to file amended counterclaims and set a briefing schedule

3

for any motion to strike or dismiss the amended counterclaims.

4
5

On September 11, 2012, Marin filed its amended answer, and on
September 17, 2012, it filed its 2ACC.

6

Docket Nos. 45 and 47.

On October 1, 2012, Diamond filed its motion to dismiss

7

Marin’s 2ACC.

8

Docket No. 51.

judgment on the counterclaims.

9
10
United States District Court
For the Northern District of California

The Court also granted Marin

11

Diamond alternatively seeks summary

LEGAL STANDARDS
I.

Motion to Dismiss
A complaint must contain a “short and plain statement of the

12

claim showing that the pleader is entitled to relief.”

13

Civ. P. 8(a).

14

state a claim, dismissal is appropriate only when the complaint

15

does not give the defendant fair notice of a legally cognizable

16

claim and the grounds on which it rests.

17

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

18

complaint is sufficient to state a claim, the court will take all

19

material allegations as true and construe them in the light most

20

favorable to the plaintiff.

21

896, 898 (9th Cir. 1986).

22

to legal conclusions; “threadbare recitals of the elements of a

23

cause of action, supported by mere conclusory statements,” are not

24

taken as true.

25

(citing Twombly, 550 U.S. at 555).

26

Fed. R.

On a motion under Rule 12(b)(6) for failure to

Bell Atl. Corp. v.

In considering whether the

NL Indus., Inc. v. Kaplan, 792 F.2d

However, this principle is inapplicable

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

A heightened pleading standard applies to claims of fraud.

27

In all averments of fraud or mistake, the circumstances

28

constituting fraud or mistake shall be stated with particularity.”
11

1

Fed. R. Civ. P. 9(b).

2

give defendants notice of the particular misconduct which is

3

alleged to constitute the fraud charged so that they can defend

4

against the charge and not just deny that they have done anything

5

wrong.”

6

Statements of the time, place and nature of the alleged fraudulent

7

activities are sufficient, Wool v. Tandem Computers, Inc., 818

8

F.2d 1433, 1439 (9th Cir. 1987), provided the plaintiff sets forth

9

“what is false or misleading about a statement, and why it is

Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985).

10
United States District Court
For the Northern District of California

The allegations must be “specific enough to

false.”

11

Cir. 1994).

12

In re GlenFed, Inc., Sec. Litig., 42 F.3d 1541, 1548 (9th

As a general rule, a court “may not consider any material

13

beyond the pleadings in ruling on a Rule 12(b)(6) motion.”

Branch

14

v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994).

15

Procedure 12(d) provides that, when “matters outside the pleading

16

are presented to and not excluded by the court, the motion must be

17

treated as one for summary judgment under Rule 56.”

18

‘[a] court may take judicial notice of “matters of public record”

19

without converting a motion to dismiss into a motion for summary

20

judgment,’ as long as the facts noticed are not ‘subject to

21

reasonable dispute.’”

22

Inc., 499 F.3d 1048, 1052 (9th Cir. 2007) (quoting Lee v. City of

23

Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001)); see also Tellabs,

24

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)

25

(noting that “courts must consider the complaint in its entirety,

26

as well as other sources courts ordinarily examine when ruling on

27

Rule 12(b)(6) motions to dismiss, in particular, documents

Federal Rule of

“However,

Intri-Plex Techs., Inc. v. Crest Group,

28
12

1

incorporated into the complaint by reference, and matters of which

2

a court may take judicial notice”).

3

When granting a motion to dismiss, the court is generally

4

required to grant the plaintiff leave to amend, even if no request

5

to amend the pleading was made, unless amendment would be futile.

6

Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

7

F.2d 242, 246-47 (9th Cir. 1990).

8

amendment would be futile, the court examines whether the

9

complaint could be amended to cure the defect requiring dismissal

In determining whether

United States District Court
For the Northern District of California

10

“without contradicting any of the allegations of [the] original

11

complaint.”

12

Cir. 1990).

13

II.

14

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th

Motion to Strike
Rule 12(f) provides that, on its own or on a motion from a

15

party, a “court may strike from a pleading an insufficient defense

16

or any redundant, immaterial, impertinent, or scandalous matter.”

17

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

18

avoid spending time and money litigating spurious issues.”

19

v. AT&T Pension Benefit Plan -Nonbargained Program, 718 F. Supp.

20

2d 1167 (N.D. Cal. 2010) (citing Fantasy, Inc. v. Fogerty, 984

21

F.2d 1524, 1527 (9th Cir. 1993), reversed on other grounds, 510

22

U.S. 517 (1994)).

23

“The purposes of a Rule 12(f) motion is to
Barnes

“The Ninth Circuit has long held that ‘[t]he key to

24

determining the sufficiency of pleading an affirmative defense is

25

whether it gives plaintiff fair notice of the defense.’”

26

Gordon & Wong Law Group, P.C., 2012 WL 1029425, at *6 (N.D. Cal.)

27

(quoting Wyshak v. City Nat. Bank, 607 F.2d 824, 827 (9th Cir.

28

1979)).

Perez v.

In Wyshak, the Ninth Circuit applied the fair notice
13

1

pleading standard for complaints governed by Conley v. Gibson, 355

2

U.S. 41 (1957), to the pleading of affirmative defenses.

3

Wyshak, 607 F.2d at 827 (citing Conley, 355 U.S. at 47–48).

4

Conley held that “a complaint should not be dismissed for failure

5

to state a claim unless it appears beyond doubt that the plaintiff

6

can prove no set of facts in support of his claim which would

7

entitle him to relief.”

8

However, the Supreme Court’s decisions in Bell Atlantic Corp. v.

9

Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662

See

355 U.S. at 45–46 (footnote omitted).

United States District Court
For the Northern District of California

10

(2009), “departed from Conley and redefined the pleading

11

requirements under Rule 8.”

12

Twombly and Iqbal, ‘the pleading standard Rule 8 announces . . .

13

demands more than an unadorned, the-defendant-unlawfully-harmed-me

14

accusation.’”

15

order to give the defendant fair notice of what the . . . claim is

16

and the grounds upon which it rests,’ Twombly, 550 U.S. at 554–55,

17

‘a complaint must contain sufficient factual matter, accepted as

18

true, to state a claim to relief that is plausible on its face,

19

Iqbal, 556 U.S. at 678.’”

20

citations omitted).

21

Perez, 2012 WL 1029425 at *6.

Id. (quoting Iqbal, 556 U.S. at 678).

“Under

“Rather, ‘in

Id. (internal quotation marks and

Like other judges in this district who have considered the

22

question of what pleading standard applies to affirmative

23

defenses, this Court has recently held that “the heightened

24

pleading standard set forth in Twombly and Iqbal also applies to

25

affirmative defenses.”

26

2012 WL 1746848 at *5 (N.D. Cal.).

27

heightened pleading to affirmative defenses serves a valid purpose

28

in requiring at least some valid factual basis for pleading an

Powertech Tech., Inc. v. Tessera, Inc.,

14

“‘Applying the standard for

1

affirmative defense and not adding it to the case simply upon some

2

conjecture that it may somehow apply.’”

3

at 1171-72 (quoting Hayne v. Green Ford Sales, Inc., 263 F.R.D.

4

647, 650 (D. Kan. 2009)).

5

Gullace LLP, 2012 WL 160221, at *2 (N.D. Cal.); Perez, 2012 WL

6

1029425, at *6; Bottoni v. Sallie Mae, Inc., 2011 WL 3678878, at

7

*2 (N.D. Cal.); J & J Sports Productions v. Mendoza-Govan, 2011 WL

8

1544886, at *1 (N.D. Cal.).

9

absence of prejudice to the opposing party, leave to amend should

United States District Court
For the Northern District of California

10

be freely given.”

13

See also Dion v. Fulton Friedman &

If a defense is struck, “[i]n the

Wyshak, 607 F.2d at 826.
DISCUSSION

11
12

Barnes, 718 F. Supp. 2d

I.

Motion to dismiss amended counterclaims or, in the
alternative, for summary judgment
Diamond moves to dismiss each of Marin’s amended

14

counterclaims and, in the alternative, seeks summary judgment

15

against Marin on the amended counterclaims.

16

motion in its entirety, objects to treating the motion as a motion

17

for summary judgment and asks that the motion be resolved as a

18

motion to dismiss.

19

for summary judgment under Rule 56 and excludes all evidence

20

submitted by both parties, except items that it specifically notes

21

were incorporated into the pleading by reference or of which it

22

takes judicial notice.

Marin opposes the

The Court declines to treat the motion as one

23

A. Breach of contract

24

In the 2ACC, Marin alleges that Diamond owed a duty to defend

25

both Marin and ATB in the Ide action because “Ide alleged in a

26

‘suit’ that he suffered ‘bodily injury’ arising out of an

27

‘occurrence’ when the Bicycle broke while he was riding it in

28
15

1

April 2002 during the policy period.”

2

avers that the “accident took place in the ‘coverage territory’”

3

because it resulted from a product sold in the United States or

4

from activities of a person whose home was in the United States

5

but was away for a short time on its business.

6

Marin alleges that subpart (c)(2) of the definition of coverage

7

territory cannot be reasonably read to apply to the duty to defend

8

an action otherwise covered because such an application would

9

“render the contractual promise to defend meaningless and

Marin further

Id.

In addition,

United States District Court
For the Northern District of California

10

illusory.”

11

required to “defend or indemnify Marin in the ATB Action and

12

Enforcement Action, which were both actions seeking damages

13

against Marin.”

14

Id. at ¶ 25.

2ACC ¶ 24.

Marin also alleges that Diamond was

Id. at ¶ 26.

As the Court has previously noted, California substantive

15

insurance law governs this diversity case.

Freeman v. Allstate

16

Life Ins. Co., 253 F.3d 533, 536 (9th Cir. 2001).

17

California law, interpretation of an insurance policy and whether

18

it provides coverage is a question of law to be decided by the

19

court.

20

“Words in an insurance policy are to be read in their plain and

21

ordinary sense,” and “[a]mbiguity cannot be based on a strained

22

instead of reasonable interpretation of a policy’s terms.”

23

v. State Farm Fire & Cas. Co., 145 Cal. App. 3d 772, 776 (1983)

24

(internal quotation marks, citations and formatting omitted).

25

“Policies of insurance, like other contracts, must be read as a

26

whole with each part being read in conjunction with other portions

27

thereof.”

Under

Waller v. Truck Ins. Exchange, 11 Cal. 4th 1, 18 (1995).

McKee

Hartford Accident & Indemnity Co. v. Sequoia Ins. Co.,

28
16

1

211 Cal. App. 3d 1285, 1298 (1989) (internal quotation marks and

2

citations omitted).

3

An insurance carrier “owes a broad duty to defend its insured

4

against claims that create a potential for indemnity.”

Horace

5

Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1081 (1993); see

6

also Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 275 (1966) (“We

7

point out that the carrier must defend a suit which potentially

8

seeks damages within the coverage of the policy.”).

9

this rule is the principle that the duty to defend is broader than

“Implicit in

United States District Court
For the Northern District of California

10

the duty to indemnify; an insurer may owe a duty to defend its

11

insured in an action in which no damages ultimately are awarded.”

12

Horace Mann Ins., 4 Cal. 4th at 1081.

13

is not unlimited; it is measured by the nature and kinds of risks

14

covered by the policy.

15

However, the duty to defend

Waller, 11 Cal. 4th at 19.

The burden is on the insured to establish the existence of a

16

potential for coverage.

17

Cal. 4th 287, 300 (1993).

18

establish the existence of the defense duty must be resolved in

19

the insured’s favor.

20

burden, the insurer must establish the absence of any such

21

potential for coverage.

22

that the underlying claim may fall within policy coverage; the

23

insurer must prove that it cannot.”

24

Montrose Chem. Corp. v. Super. Ct., 6
Any doubt as to whether the facts

Id. at 299-200.

Id.

Once the insured meets its

Thus, “the insured need only show

Id.

“The determination whether the insurer owes a duty to defend

25

usually is made in the first instance by comparing the allegations

26

of the complaint with the terms of the policy.

27

the complaint also give rise to a duty to defend when they reveal

28

a possibility that the claim may be covered by the policy.”
17

Facts extrinsic to

1

Horace Mann Ins., 4 Cal. 4th at 1081.

2

continuing one, arising on tender of defense and lasting until the

3

underlying lawsuit is concluded.

4

295.

5

The duty to defend is a

Montrose Chem., 6 Cal. 4th at

The Court previously held that, in its 1ACC, Marin had not

6

sufficiently plead that Diamond breached the duty to defend in

7

denying coverage to Marin.

8

2ACC, Marin repeats many of the same arguments that the Court

9

already rejected in dismissing this counterclaim in the 1ACC.

United States District Court
For the Northern District of California

10

In defending the sufficiency of the

Marin argues that subdivision (c)(2) of the definition of

11

coverage territory is not a venue clause, does not use the word

12

“venue” and cannot be construed to mean that Diamond has a duty to

13

defend only suits with a venue in the United States.3

14

whether or not this provision can be properly titled a “venue

15

clause” is irrelevant.

16

underlying lawsuits created a potential for indemnity under the

17

policy.

18

duty to defend suits seeking bodily injury, if the bodily injury

19

occurred during the coverage period and was the result of an

However,

Instead, the proper inquiry is whether the

The coverage terms of the policy provide that Marin has a

20
21
22
23
24
25
26
27
28

3

Marin also states that, “when Diamond refused to defend
Marin in the Ide Action in 2005, it did so only on the ground that
the occurrence, Ide’s accident, took place in London and London
[w]as outside the coverage territory,” and “Diamond did not deny
the claim in 2005 on the basis of the so called venue clause.”
Opp. at 10. However, in the 2ACC, Marin has plead that “in 2005
Diamond sent a letter denying Marin a defense to the Ide Action on
the sole ground that the action occurred in England,” 2ACC ¶ 17,
which is precisely the ground that Diamond advances here.
Further, even if Diamond had not relied on this ground in denying
coverage, if Marin suggests that Diamond thereby would have
relinquished this defense to coverage, California courts have
rejected any such rule of automatic waiver. See Waller, 11 Cal.
4th at 31-35; Cal. Dairies, Inc. v. RSUI Indem. Co., 2010 U.S.
Dist. LEXIS 37712, at *22-36 (E.D. Cal.).
18

1

occurrence that took place within the coverage territory.

The

2

definition of coverage territory in turn encompasses the United

3

States, Puerto Rico and Canada, or “all other parts of the world”

4

if certain conditions are met, including that liability is

5

determined in a suit on the merits in the United States, Puerto

6

Rico or Canada or in a settlement to which Diamond agreed.

7

possibility that these conditions would be met creates the duty to

8

defend, provided that other relevant conditions are met and no

9

exclusion is applicable.

The

United States District Court
For the Northern District of California

10

As the Court held in its prior order, contrary to Marin’s

11

contentions, this reading does not mean that Marin must first lose

12

a suit in the United States, Puerto Rico or Canada is a

13

precondition to trigger the duty to defend.

14

the Court to reconsider its prior holding, Marin offers no basis

15

for reconsideration.

16

for coverage, not the certainty of coverage.

17

filed in the United States, Puerto Rico or Canada that created the

18

potential for meeting the other requirements set forth in the

19

policy, the duty to defend may have arisen, even if the insured

20

were ultimately not found to be responsible to pay damages.

21

Because the duty to defend is based on the possibility that a suit

22

may result in a covered claim under the policy and is broader than

23

the duty to indemnify for such claims, an insurer may owe a duty

24

to defend its insured in an action in which no duty to indemnify

25

ultimately arises, for example, if the insured prevails on the

26

underlying suit.

27

rule that the insurer must defend in some lawsuits where liability

28

under the policy ultimately fails to materialize”).

Although Marin asks

The duty to defend is based on the potential
If a suit had been

See Montrose, 6 Cal. 4th at 299 (noting “the

19

1

Here, because Ide and ATB initiated the first two suits in

2

the United Kingdom, not in the United States, Puerto Rico or

3

Canada, based on an occurrence that also took place in the United

4

Kingdom, there was no possibility that the litigation could result

5

in a “suit on the merits” in the United States, Puerto Rico or

6

Canada, and thus there was no potential for coverage and no duty

7

for Diamond to defend ATB or Marin in the suits.4

8
9

Marin also argues again that the limitation to occurrences
that took place within the coverage territory was an inconspicuous

United States District Court
For the Northern District of California

10

exclusion and therefore unenforceable.

11

subdivision (c)(2) was inconspicuous because it was placed at the

12

end of the definition of coverage territory and was not clearly

13

labeled as an exclusion.

14

the territorial limitation appears in a grant of coverage and not

15

in an exclusion.

16
17
18

Marin contends that

As the Court noted in its prior order,

As the California Court of Appeal has explained,

An insurance policy is written in two parts: the
insuring agreement defines the type of risks which are
covered, while the exclusions remove coverage for
certain risks which are initially within the insuring
clause. . . . Therefore, before even considering
exclusions, a court must examine the coverage provisions

19
20
4

21
22
23
24

Diamond has moved to dismiss Marin’s breach of contract
counterclaim in its entirety. In its opposition, Marin has
presented no argument that Diamond’s denial of defense in the
enforcement action filed in the United States constituted a breach
of contract, and only refers to that action in addressing its
fraud claim. Accordingly, the Court grants Diamond’s motion to
the extent that it seeks dismissal of the breach of contract claim
premised on the failure to provide a defense in the enforcement
action.

25
26
27
28

Further, the enforcement action did not seek to determine the
insured’s responsibility to pay damages for the occurrence, but
instead merely sought recognition of a foreign judgment against
Marin for those damages. See Compl., ATB Sales, Case No. 11-4755,
¶¶ 16-25. Accordingly, the enforcement action likewise did not
create the potential for coverage under the policy.
20

6

to determine whether a claim falls within the potential
ambit of the insurance. . . . This is significant for
two reasons. First, when an occurrence is clearly not
included within the coverage afforded by the insuring
clause, it need not also be specifically excluded. . . .
Second, although exclusions are construed narrowly and
must be proven by the insurer, the burden is on the
insured to bring the claim within the basic scope of
coverage, and (unlike exclusions) courts will not
indulge in a forced construction of the policy’s
insuring clause to bring a claim within the policy’s
coverage.

7

Collin v. American Empire Ins. Co., 21 Cal. App. 4th 787, 802-803

8

(1994) (internal quotation marks and formatting omitted).

9

these terms, Diamond did not withdraw coverage that had already

1
2
3
4
5

In

United States District Court
For the Northern District of California

10

been granted; instead, Diamond granted coverage that encompassed a

11

specified set of risks, which did not include occurrences that

12

took place in the United Kingdom unless Marin’s responsibility to

13

pay damages was determined in a suit on the merits in the United

14

States, Puerto Rico or Canada and certain other conditions were

15

met.

16

not encompassed within the coverage afforded by the insuring

17

clause, it need not also be included in a clear and conspicuous

18

exclusion.

19

advised that words in quotation marks had special meanings

20

contained in the definitions section of the policy.

21

territory” appeared in quotation marks in the coverage provision

22

and thus a reasonable insured would have known that this phrase

23

had a particular definition that should be consulted.

24

definition was not printed in smaller text than the other

25

provisions in the policy.

Thus, because this definition means that the occurrence was

Further, the first page of the policy specifically

“Coverage

The

26

Marin argues that the policy “gives the impression” that

27

“foreign claims” were covered for several reasons, including that

28

the policy used the phrase “all parts of the world” in the
21

1

definition of coverage territory.

2

fact that the policy did not provide unlimited worldwide coverage

3

was disclosed on the first page, which specifies that it covered

4

only occurrences that took place in the coverage territory.

5

the coverage territory included the entire world without

6

limitation, there would be no reason for Diamond to specify a

7

coverage territory.

8

is immediately followed by the word “if” and the limitations on

9

that coverage.

However, the

If

Further, the phrase “all parts of the world”

In the 2ACC, Marin also conclusorily states that the

10
United States District Court
For the Northern District of California

Opp. at 15-16.

11

thirteen-page policy form itself was “buried” amid fifty pages of

12

documents.

13

terms by suggesting that it did not read the policy itself or that

14

it should not be expected to have done so.

15

v. Superior Court, 201 Cal. App. 3d 1014, 1019 (1988) (“A

16

reasonable person will read the coverage provisions of an

17

insurance policy to ascertain the scope of what is covered.”);

18

Taff v. Atlas Assurance Co., 58 Cal. App. 2d 696, 703 (1943) (“It

19

is a general rule that the receipt of a policy and its acceptance

20

by the insured without an objection binds the insured as well as

21

the insurer and he cannot thereafter complain that he did not read

22

it or know its terms.

23

policy.”).

2ACC ¶ 9.

However, Marin cannot escape the coverage

See Hallmark Ins. Co.

It is a duty of the insured to read his

24

Marin also contends that Diamond gave “the impression” it

25

“would defend foreign claims like Ide’s” because it calculated the

26

premiums charged to Marin under the policy based on “differing

27

rates” for “Marin’s domestic and international sales.”

28

16.

Opp. at

However, the premium rate charged for international sales is
22

1

significantly smaller than that charged for domestic sales.

2

at ¶ 7, Ex. 1, 3.

3

a covered claim arising out of a product sold abroad is smaller

4

than one sold in the United States, and does not suggest that the

5

coverage for such products is coextensive.

6

Id.

Thus, this reasonably reflects that the risk of

In addition, Marin argues that Diamond should have plainly

7

stated that the “insurance does not apply to any liability arising

8

out of any occurrence taking place outside of the United States of

9

America, its territories or possessions, Puerto Rico or Canada”

United States District Court
For the Northern District of California

10

and that its failure to state this “clearly and prominently”

11

rendered the definition ambiguous.

12

however, is not an accurate statement of the coverage that is

13

clearly and unambiguously provided in the policy.

14

plain that coverage is provided for occurrences that take place

15

outside of these areas, if certain conditions are met.

16

Opp. at 15, 17.

This,

The policy is

Finally, Marin argues that the application of this definition

17

to ATB would render the coverage illusory.

The Court has already

18

considered and rejected this argument and Marin offers no reason

19

to reconsider that conclusion.

20

Marin’s allegations, accepted as true, do not establish that the

21

possibility of utilizing the coverage was a nullity rather than

22

merely remote.

23

insured endorsements for ATB did not themselves mention the

24

geographic limitation is unavailing.

25

the portion of the policy that defined who is an insured, but did

26

not change the terms of the coverage that was provided to those

27

who qualified as an insured.

As the Court previously held,

Further, Marin’s argument that the additional

28
23

The endorsements modified

1

Because Marin has not properly plead that Diamond breached

2

its duty to defend either ATB or Marin, the Court GRANTS Diamond’s

3

motion to dismiss Marin’s amended counterclaim for breach of

4

contract.

5

to remedy these deficiencies in the September 10, 2012 order and

6

Marin has been unable to do so, this dismissal is without leave to

7

amend.

Because the Court has previously granted leave to amend

8

B. Breach of implied covenant of good faith and fair dealing

9

Because the Court finds that Marin has not properly alleged

United States District Court
For the Northern District of California

10

that Diamond breached its contract with Marin by refusing to

11

defend it or ATB in the United Kingdom actions, the Court also

12

grants Diamond’s motion to dismiss Marin’s amended counterclaim

13

for breach of the implied covenant of good faith and fair dealing.

14

“California law is clear, that without a breach of the insurance

15

contract, there can be no breach of the implied covenant of good

16

faith and fair dealing.”

17

Co., 519 F.3d 1025, 1034 (9th Cir. 2008) (citing Waller v. Truck

18

Ins. Exch., Inc., 11 Cal. 4th 1, 35-36 (1995)).

19

has previously granted leave to amend this counterclaim, this

20

dismissal is without leave to amend.

Manzarek v. St. Paul Fire & Marine Ins.

Because the Court

21

C. Fraud

22

In its fraud counterclaim, Marin alleges that Diamond or its

23

purported agents represented to Marin, or led it to believe, that

24

“the Policy would provide a defense to actions brought against

25

Marin in foreign countries where Marin bikes were sold and used.”

26

2ACC ¶ 45.

27

following representations made “[p]rior to the inception of [the]

28

Policy in July 2001” by “Diamond and/or its agents”:

As the basis for its claim, Marin points to the

24

1
2
3
4
5
6
7
8

(1) they “informed Marin that Diamond calculated
premiums for the liability policy, in part, on foreign
sales and applied a different rate for Marin’s foreign
sales”;
(2) they “informed Marin that its related international
companies . . . were all covered under the liability and
product liability coverage portions of the Policy”;
(3) they “informed Marin that its distributor in the
United Kingdom, ATB, was covered under both the
Commercial Liability and Product Liability coverage
portions of the Policy, and more specifically, that
Diamond’s policies prior to 2001 were amended to
include” ATB “as an insured ‘with respect to liability
arising out of your operations or premises owned by or
rented to you’”;

9

United States District Court
For the Northern District of California

10
11

(4) they “distinguished at least one prior umbrella
liability policy from the Diamond policies, including
the Policy, by pointing out that umbrella liability
policy did not provide coverage for suits brought in
foreign countries”; and

12
13
14
15
16
17
18

(5) they “represented in Diamond policies prior to 2001
that Diamond would defend Marin against any ‘suit’
alleging ‘bodily injury’ arising out of an ‘occurrence’
that took place within the ‘coverage territory’ (e.g.
‘coverage territory’ refers to the place the
‘occurrence’ causing the ‘bodily injury’ occurs) and
that ‘coverage territory,’ included ‘all other parts of
the world’ if the alleged injury arose out the sale of
Marin’s products in the United States or out of the
activities of a person whose home is in the United
States but who was away for a short time on Marin's
business.”

19

Id. at 45(1)-(5).

Marin further alleges that “all the

20

communications in the years prior to the issuance of the Policy,

21

as well as in the application process for the Policy prior to

22

July, 2001” together led it to “believe that it was covered for

23

the defense of suits that might be brought against it (and/or its

24

related companies and distributors) in foreign countries where

25

Marin products were distributed,” that it did not know that

26

Diamond would take a contrary position and that it had “purchased

27

the Policy, paid premiums and distributed bikes in the United

28
25

1

Kingdom reasonably believing that it had coverage for actions such

2

as the Ide Action under the Policy.”

Id. at ¶¶ 46-48.

3

Marin pleads that the fraud counterclaim is brought “only as

4

an alternative theory of liability to” the breach of contract and

5

breach of covenant claims and that, if “it is determined that the

6

Policy obligates Diamond to defend Marin in the alleged actions

7

arising out of the Ide matter, then this cause of action would not

8

apply.”

9

2ACC ¶ 44.

Diamond moves to dismiss this counterclaim on a number of

United States District Court
For the Northern District of California

10

bases.

11

not sufficiently plead under Federal Rule of Civil Procedure 9(b)

12

and violate the Court’s prior order granting Marin leave to amend

13

this claim.

14

First, Diamond contends that Marin’s new allegations are

In the order resolving Diamond’s earlier motions, the Court

15

found that “almost all of Marin’s fraud allegations center on

16

purported false representations that Diamond made in the insurance

17

contract itself,” which could not support a fraud counterclaim.

18

Docket No. 43, 20.

19

all of the false representations were in the insurance contract

20

because “‘at the issuance of the Additional Insured Endorsement,

21

Diamond State misrepresented that it would provide a defense to

22

ATB in any action alleging bodily injury against ATB.’”

23

(quoting Opp. at 21).

24

counterclaims themselves.

25

counterclaim and granted Marin “leave to amend to assert

26

actionable fraudulent representations about the coverage that

27

would be provided for ATB made outside of the policy language

28

itself.”

In its opposition, Marin had argued that not

Id. at 22.

Id. at 21

However, no such allegation was made in the
Thus, the Court dismissed the

At the hearing on that motion, the Court
26

1

also warned Marin that, in amending its counterclaims, it would

2

need to satisfy the requirements of Rule 9(b).

3

Docket No. 49, 17.

Diamond is correct that many of the new allegations that

4

Marin has added to this counterclaim are not limited to

5

misrepresentations made outside the terms of the policy about

6

coverage that would be provided for ATB.

7

add allegations of such misrepresentations about the coverage that

8

would be provided for Marin itself, instead of for ATB.

9

addition, Marin has attempted to evade the Court’s earlier ruling

Marin has attempted to

In

United States District Court
For the Northern District of California

10

that it cannot maintain a tort counterclaim premised on

11

misrepresentations made in the subject policy itself, by pleading

12

instead that Diamond made misrepresentations by including in

13

earlier policies the identical provisions that were in the subject

14

policy.

15

provisions and definitions for certain terms, including “suit” and

16

“coverage territory,” and stating that this “language was also

17

included in prior Diamond policies issued to Marin before 2001).

18

However, this continues to fail to allege conduct that goes beyond

19

a breach of the policy.

20

See 2ACC ¶¶ 23, 45(e) (quoting the policy’s coverage

Further, as Diamond argues, many of the new allegations do

21

not meet the requirements of Rule 9(b).

22

contends that, before the issuance of the relevant policy and its

23

predecessors, Diversified gave Marin “an ‘Insurance Schedule’

24

showing Diamond’s coverage, which always included ‘Foreign

25

Sales.’”

26

all communications in the years prior to the issuance of the

27

policy.

28

among other things, attach these schedules or allege what the

2ACC ¶ 6.

For example, Marin

Marin repeatedly claims that it was misled by

See, e.g., id. at ¶¶ 14, 46.

27

However, Marin does not,

1

schedules said about foreign sales or how these statements were

2

misleading.

3

Diamond also argues that the fraud counterclaim is barred by

4

the parol evidence rule.

Diamond avers that the policy agreement

5

appears on its face to be a complete expression of the parties’

6

agreement and that Marin may not allege that Diamond made promises

7

about coverage that vary from the plain language of the policy.

8

Marin does not dispute that the policy is an integrated agreement

9

or that Marin may not introduce parol evidence to contradict its

United States District Court
For the Northern District of California

10

provisions.

11

allegedly made by Diamond or its agents about the duty to defend

12

did not contradict the policy’s provisions.

13

Instead, Marin contends that the representations

The parol evidence rule establishes that “the terms contained

14

in an integrated written agreement may not be contradicted by

15

prior or contemporaneous agreements” and “necessarily bars

16

consideration of extrinsic evidence of prior or contemporaneous

17

negotiations or agreements at variance with the written

18

agreement.”

19

(2004).

20

evidence rule.

21

fraud exception does not apply where the allegedly fraudulent oral

22

promises contradict or vary the written terms of a written

23

agreement.

24

Inc., 971 F.2d 272, 281 (9th Cir. 1992) (citing Price v. Wells

25

Fargo Bank,

26

Am. Assn. v. Pendergrass, 4 Cal. 2d 258, 263 (1935) (to be

27

admissible, parol evidence “must tend to establish some

28

independent fact or representation, some fraud in the procurement

Casa Herrera, Inc. v. Beydoun, 32 Cal. 4th 336, 344

There is a limited exception for fraud to the parol
Cal. Code of Civ. Proc. § 1856(g).

However, the

See Brinderson-Newberg Joint Venture v. Pac. Erectors,

213 Cal. App. 3d 465, 484 (1989)); see also Bank of

28

1

of the instrument or some breach of confidence concerning its use,

2

and not a promise directly at variance with the promise of the

3

writing”).

4

Marin contends that the alleged prior representations that
the policy would require Diamond to defend actions brought against

6

Marin in foreign countries, without regard to the limitations

7

provided in subdivision (c)(2) of the definition of coverage

8

territory, do not conflict with the terms of the policy.

9

Marin does not explain its argument in detail, it appears again to

10
United States District Court
For the Northern District of California

5

rely on its argument that this provision cannot apply to the duty

11

to defend and applies only to the duty to indemnify.

12

addressed above, this subdivision does apply to the duty to

13

defend.

14

Diamond was to defend it in actions brought in foreign courts,

15

without meeting the requirements of subdivision (c)(2), do

16

contradict and vary the terms of the policy, and thus are barred

17

by the parol evidence rule.

18

Although

However, as

Thus, Marin’s allegations, which it offers to show that

Diamond also argues that Marin has not alleged sufficiently

19

under Rule 8(a) or Rule 9(b) that the claimed misconduct of

20

Diversified or any of the other purported agents can be attributed

21

to Diamond as its agent or joint venturer.

22

has alleged properly that Diversified acted as Diamond’s agent.

23

Marin does not address or defend its conclusory allegation that

24

Diversified was its joint venturer and does not dispute that Rule

25

9(b) applies to its allegations about the agency relationship for

26

the purposes of this fraud claim.

27
28

Marin defends that it

“An agent is one who ‘act[s] on the principal’s behalf and
subject to the principal’s control.’”
29

United States v. Bonds, 608

1

F.3d 495, 506 (9th Cir. 2010) (quoting Restatement (Third) of

2

Agency § 1.01).

3

principal and the agent must manifest assent to the principal’s

4

right to control the agent.”

5

“To form an agency relationship, both the

Id.

Marin has not alleged sufficiently that Diversified and Marin

6

had an agency relationship.

It has alleged simply that

7

Diversified was Diamond’s agent and that they had an agency

8

agreement pursuant to which Diversified received commission

9

payments for bringing insureds to Diamond.

2ACC ¶ 4.

Marin has

United States District Court
For the Northern District of California

10

made only conclusory allegations, or allegations founded “upon

11

information and belief,” without providing any factual basis upon

12

which its “information and belief” is based.

13

Milken, 6 F.3d 666, 672 (9th Cir. 1993) (affirming the dismissal

14

of a complaint for lack of particularity under Rule 9(b) because

15

“a plaintiff who makes allegations on information and belief must

16

state the factual basis for the belief”); see also Papasan v.

17

Allain, 478 U.S. 265, 286, (1986) (when resolving a motion to

18

dismiss, courts “are not bound to accept as true a legal

19

conclusion couched as a factual allegation”).

20

allegations are particularly important because “an insurance

21

broker is generally an agent of the insured and not of the

22

insurer” and has no authority to bind the insurance company.

23

Marsh & McLennan of Cal., Inc. v. City of Los Angeles, 62 Cal.

24

App. 3d 108, 117-18 (1976) (citations omitted) (explaining the

25

difference between insurance agents and brokers); see also Osborn

26

v. Ozlin, 310 U.S. 53, 60-61 (1940) (explaining that, unlike an

27

insurance agent, a broker “is an independent middleman, not tied

28
30

See Neubronner v.

Such factual

1

to a particular company,” even though “both are paid by

2

commission”).

3

Marin asserts in its opposition that an agency relationship

4

“can be created by ratification, particularly where the

5

principal--Diamond--accepts the benefits of the acts of the

6

purported agent.”

7

ratification in the 2ACC itself and did not allege facts necessary

8

to support such a theory.

9

Pacific Title Ins. Co., 231 Cal. App. 2d 731, 737 (1965) (to be

Opp. at 22.

However, Marin did not refer to

See, e.g., Reusche v. California

United States District Court
For the Northern District of California

10

held to have ratified the unauthorized acts of an agent, a

11

principal must have been “apprised of all facts surrounding a

12

transaction,” or have been “ignoran[t] of the facts” due to its

13

“own failure to investigate” under circumstances that were “such

14

as to put a reasonable man on inquiry”).
Accordingly, for these reasons, the Court GRANTS Diamond’s

15
16

motion to dismiss Marin’s amended counterclaim for fraud.

17

the Court has previously granted leave to amend to remedy these

18

deficiencies in the September 10, 2012 order and Marin has been

19

unable to do so, this dismissal is without leave to amend.

20

II.

21

Because

Motion to strike amended affirmative defenses
Diamond argues that each of Marin’s asserted amended

22

affirmative defenses--for estoppel, unclean hands and laches--is

23

insufficiently plead and does not meet the plausibility standards

24

set forth in Twombly.

25

unclean hands affirmative defenses are subject to the Rule 9(b)

26

heightened pleading standard.

The parties agree that Marin’s estoppel and

27
28
31

1

A. Estoppel

2

“A valid claim for equitable estoppel requires: (a) a

3

representation or concealment of material facts; (b) made with

4

knowledge, actual or virtual, of the facts; (c) to a party

5

ignorant, actually and permissibly, of the truth; (d) with the

6

intention, actual or virtual, that the ignorant party act on it;

7

and (e) that party was induced to act on it.”

8

44 Cal. 4th 570, 584 (2008) (citing 13 Witkin Summ. Cal. Law

9

Equity § 191).

United States District Court
For the Northern District of California

10

Simmons v. Ghaderi,

In its estoppel defense, Marin alleges that “the conditions

11

for coverage were met” and “Diamond State had a duty to defend

12

Defendant in the Ide Action and the ATB Action as both arose from

13

the same incident in which Ide was allegedly injured,” and a duty

14

to defend ATB in the Ide action.

15

¶¶ 20, 26.

16

representations of fact to Defendant, including within the Policy

17

itself, that Diamond State would defend Defendant in an action

18

such as that brought by Ide” and that, in “reasonable reliance on

19

these representations and to its detriment, Defendant paid

20

premiums on the Policy, sold its bikes through ATB, and incurred

21

attorneys’ fees and other defense costs.”

22

alleges that Diamond wrongfully denied a defense to both Marin and

23

ATB, either knowingly or because it failed to conduct a full

24

investigation into the Ide action and the conditions for coverage

25

under the policy.

26

proximate result of the wrongful denial of the defense of the Ide

27

claim by Diamond State, Defendant was not defended in the Ide case

28

and a judgment was taken against Defendant.”

Amended Answer, Docket No. 45,

It further avers that “Diamond State made

Id. at ¶¶ 23-25.

32

Id. at ¶¶ 21-22.

Marin

Purportedly as “a legal and

Id. at ¶ 26.

1

Diamond argues that Marin’s allegations regarding

2

“representations of fact” do not comply with Rule 9(b) because

3

Marin has alleged only generally that factual representations were

4

made without stating what they were, who made them, when they were

5

made or how they were false.

6

that it made “particular allegations about Diamond’s misleading

7

misrepresentation,” but cites only to the conclusory allegation

8

that Diamond “made representations of fact to Defendant, including

9

within the Policy itself.”

In its opposition, Marin responds

Opp. at 3 (citing Amended Answer

United States District Court
For the Northern District of California

10

¶ 21).

11

in the policy or elsewhere in support of this claim.

12

has not alleged sufficiently that Diamond made “a representation

13

or concealment of material facts.”

14

However, Marin points to no specific representations made
Thus, Marin

Simmons, 44 Cal. 4th at 584.

Marin argues that any lack of particularity in its estoppel

15

defense does not justify striking it because Marin has provided

16

Diamond with sufficient notice of the defense “through its initial

17

pleadings, amended pleadings, limited settlement discussion, and

18

extensive discovery responses.”

19

above, Marin’s amended counterclaims likewise do not provide

20

sufficient notice of any purported fraudulent statements.

21

addition, even if such discovery responses or information provided

22

during settlement discussions could provide notice sufficient to

23

fulfill this requirement, Marin offers no supporting argument or

24

examples as to how these actually did provide further notice

25

beyond what was plead in this amended answer or the pleadings

26

already dismissed above.

27
28

Opp. at 4.

However, as discussed

In

Accordingly, the Court grants Diamond’s motion to strike the
affirmative defense of estoppel.
33

1

B. Unclean hands

2

The affirmative defense of unclean hands is based on the

3

equitable maxim, “One who comes into equity must come with clean

4

hands.”

5

serves to close “the doors of a court of equity to one tainted

6

with inequitableness or bad faith relative to the matter in which

7

he seeks relief, however improper may have been the behavior of

8

the defendant.”

9

Mach. Co., 324 U.S. 806, 814 (1945).

13 Witkin Summ. Cal. Law Equity § 9.

The principle

Precision Instrument Mfg. Co. v. Auto. Maint.
“Thus while equity does not

United States District Court
For the Northern District of California

10

demand that its suitors shall have led blameless lives . . . as to

11

other matters, it does require that they shall have acted fairly

12

and

13

at 814-15 (internal quotation marks and citations omitted).

14

without fraud or deceit as to the controversy in issue.”

Id.

In its unclean hands defense, Marin incorporates by reference

15

the allegations that it made in support of its estoppel defense.

16

Amended Answer ¶ 29.

17

unreasonable and bad faith refusal to defend Defendant” and its

18

“misrepresentations of the coverage provided in its policy and/or

19

its inadequate and incomplete investigation of the Defendant’s

20

claims, and/or its subsequent bad faith denial of a defense to the

21

Ide claim, constitute inequitable conduct.”

22

It further alleges that “Diamond State’s

Id. at ¶¶ 30-31.

Diamond again argues that Marin has not sufficiently alleged

23

what its purported misrepresentations were.

Marin responds that

24

it satisfied Rule 9(b) by incorporating its estoppel allegations

25

by reference.

26

conclusory allegations about misrepresentations that did not

27

satisfy the requirements of Rule 9(b); thus, the allegations made

28

in that defense also cannot support a finding that the

However, the estoppel defense contained only

34

1

misrepresentations were properly plead in this affirmative

2

defense.

3

Diamond also contends that Marin’s other references to an

4

“inadequate and incomplete investigation” of the claim and “bad

5

faith denial” thereof are inadequately plead because they are

6

devoid of any factual content that would, for example, explain how

7

the investigation was inadequate or how the denial was in bad

8

faith.

9

only “sufficient factual content to provide notice of the claim”

Marin responds that the plausibility standard requires

United States District Court
For the Northern District of California

10

and that its allegations do so.

11

points out, Marin provides insufficient factual content in support

12

of these allegations and alleges only that “Diamond State either

13

failed to conduct a full investigation into the Ide Action and the

14

conditions for coverage under the Policy or it conducted an

15

investigation and knew it owed Defendant a defense under the

16

Policy” and denied the claim in bad faith.

17

Marin argues that this is sufficient because it provides Diamond

18

with notice that it “will need to review the adequacy and

19

completeness of its investigation.”

20

allegation does not provide even this notice, as it alternatively

21

argues that a complete investigation was done.

22

explained above, fair notice requires more than simply pointing to

23

the general subject matter of the defense.

24

requires “sufficient factual matter, accepted as true,” beyond

25

simply conclusory statements, to state the elements of a defense.

26

Accordingly, the Court grants Diamond’s motion to strike

27

Opp. at 5.

Marin’s unclean hands defense.

28
35

However, as Diamond

Amended Answer ¶ 24.

Opp. at 5.

Notably, the

Further, as

Instead, fair notice

1

C. Laches

2

“The defense of laches requires unreasonable delay plus

3

either acquiescence in the act about which plaintiff complains or

4

prejudice to the defendant resulting from the delay.”

5

Hills Homeowners Assn. v. Prun, 160 Cal. App. 4th 1557, 1564-1565

6

(2008) (internal quotation marks and citations omitted).

7

parties dispute whether Marin alleges sufficiently unreasonable

8

delay or prejudice.

9

Pacific

The

As to delay, Marin alleges that it tendered the defense of

United States District Court
For the Northern District of California

10

the Ide action to Diamond in 2005 when that suit was brought and

11

gave Diamond prompt notice of the ATB and enforcement actions, and

12

that Diamond unreasonably delayed in making a determination of no

13

coverage and bringing this action for declaratory relief.

14

Answer ¶¶ 15, 36.

15

the sufficiency of Marin’s allegations of unreasonable delay.

16

its reply, Diamond argues for the first time that it brought this

17

action before Marin settled the enforcement action and that Marin

18

knew its position as early as 2005.

19

consider arguments raised for the first time in a reply brief.”

20

Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007); see also

21

United States v. Anderson, 472 F.3d 662, 668 (9th Cir. 2006)

22

(“Issues raised for the first time in an appellant’s reply brief

23

are generally deemed waived.”).

24

brought before a settlement was reached in the enforcement action

25

or that Marin knew of Diamond’s position does not necessarily mean

26

that Diamond did not delay unreasonably in bringing this suit.

27
28

Amended

In the motion to strike, Diamond did not attack
In

“The district court need not

Further, that this case was

Marin further alleges that “Diamond State’s delay in bringing
this action caused unreasonable prejudice and damage to Defendant
36

1

including, but not limited to, attorneys’ fees, settlement

2

amounts, and other related costs associated with the ATB

3

settlement that Defendant would have avoided had Diamond State

4

brought this action in a timely manner.”

5

Diamond argues that this allegation does not meet the plausibility

6

standard because, even if Diamond had disclaimed or brought this

7

suit earlier, Marin would still have had to incur these expenses.

8

Marin responds, “While it is possible that Marin may have incurred

9

some of these expenses if Diamond had brought this action sooner,

Amended Answer ¶ 37.

United States District Court
For the Northern District of California

10

it is not implausible that Marin would have spent less time and

11

money on attorney’s fees and related costs analyzing and

12

addressing coverage issues during those actions if Diamond had

13

acted sooner.”

14

of law that Marin did not incur any such additional costs that it

15

could have avoided had Diamond brought this action sooner.

16
17

Opp. at 6.

The Court cannot conclude as a matter

Accordingly, Diamond’s motion to strike Marin’s laches
affirmative defense is DENIED.

18
19
20
21
22
23
24
25
26
27
28
37

1
2

CONCLUSION
For the reasons set forth above, the Court GRANTS Diamond’s

3

motion to dismiss Marin’s 2ACC (Docket No. 51).

4

GRANTS IN PART and DENIES IN PART Diamond’s motion to strike

5

Marin’s amended affirmative defenses (Docket No. 39).

6

Court has previously granted Marin leave to amend to remedy the

7

deficiencies in its counterclaims and affirmative defenses and it

8

has been unable to do so, the Court dismisses the counterclaims

9

and strikes the estoppel and unclean hands affirmative defenses

United States District Court
For the Northern District of California

10
11

The Court also

Because the

without granting Marin leave to amend.
IT IS SO ORDERED.

12
13

Dated: 12/21/2012

CLAUDIA WILKEN
United States District Judge

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