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

Filing 57


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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 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 38

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