Escalante v. Minnesota Life Insurance Company et al

Filing 30

ORDER Granting in part and Denying in part 11 Motion to Dismiss filed by Defendant Minnesota Life Insurance Company; and Granting With Leave to Amend 15 Motion to Dismiss filed by Defendants Irwin Mortgage Corporation and Irwin Financial Corporat ion: If Plaintiff chooses to file an amended complaint, she must do so no later than August 9, 2010. Defendants shall respond to the amended complaint within the time set forth in Federal Rule of Civil Procedure 15(a)(3). If Plaintiff chooses not to file an amended complaint, Defendants shall respond within the same period of time calculated from August 9, 2010. Signed by Judge M. James Lorenz on 7/22/2010. (All non-registered users served via U.S. Mail Service)(mjj)

Escalante v. Minnesota Life Insurance Company et al

Doc. 30

1 2 3 4 5 6 7 8 9 10 11 12 13 ALICIA ESCALANTE, Plaintiff, v. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA ) ) ) ) ) ) ) ) ) ) ) ) ) Civil No. 09cv1843-L(BLM) ORDER (1) GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS FILED BY DEFENDANT MINNESOTA LIFE INSURANCE COMPANY; AND (2) GRANTING WITH LEAVE TO AMEND MOTION TO DISMISS FILED BY DEFENDANTS IRWIN MORTGAGE CORPORATION AND IRWIN FINANCIAL CORPORATION

MINNESOTA LIFE INSURANCE 14 COMPANY, et al., 15 16 17 18 Defendants.

In this insurance breach of contract and bad faith action Defendants each filed a motion to

19 dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). 20 Plaintiff opposed the motions and Defendants replied. For the reasons which follow, the motion 21 field by Defendant Minnesota Life Insurance Company ("Minnesota") is GRANTED IN PART 22 AND DENIED IN PART. The motion filed by Defendants Irwin Mortgage Corporation and 23 Irwin Financial Corporation (collectively "Irwin")1 is GRANTED. Plaintiff is granted LEAVE 24 TO AMEND. 25 / / / / / 26 The motions filed by Minnesota and Irwin are largely duplicative. This is contrary to the Court's Standing Order for Civil Cases ("Standing Order"). The parties are admonished to 28 minimize duplication in any future briefing in compliance with the Standing Order. Failure to comply with the Standing Order may result in sanctions. See Civil Loc. Rule 83.1. 27
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Plaintiff alleges she is a beneficiary under a mortgage accidental death insurance policy

2 issued by Minnesota, which insured the lives of Plaintiff and her husband Kenneth Escalante. 3 Mr. Escalante agreed to purchase the policy upon Minnesota's telephone solicitation on June 14, 4 2004. Premiums for the policy were added to the Escalantes' mortgage payment with their 5 lender Irwin, which was authorized by Minnesota to bill and collect them. The Escalantes paid 6 the premiums until the spring of 2006, when they refinanced their mortgage. The refinance 7 transaction closed on or about March 31, 2006. As a part of the mortgage payoff amount, Irwin 8 billed them and collected two premium payments for April and May. On April 30, 2006 the 9 Escalates were involved in an automobile accident. Mr. Escalante died the same day and 10 Plaintiff was hospitalized for her injuries. 11 On or about May 8, 2006, Irwin notified Minnesota that the Escalantes' loan had been

12 paid. The next day, Minnesota sent to the Escalantes a letter stating, among other things, that 13 they could continue the coverage by making premium payments directly to Minnesota. On June 14 28, 2006, after it had received no response, Minnesota sent a Premium Reminder Notice, stating 15 that the policy would terminate unless payment due was received by July 2, 2006. On or about 16 August 7, 2006, Minnesota was notified of Mr. Escalante's death. On August 9, 2006 it sent the 17 Escalantes another Reminder Premium Notice which was essentially the same as the June 28 18 reminder. On August 10, 2006 Minnesota sent a Termination Insurance Notice, stating that 19 coverage was cancelled effective May 31, 2010 due to non-payment of premium. On or about 20 August 23, 2006, Minnesota denied Plaintiff's claim on the grounds that the policy terminated 21 on March 31, 2006 when the loan with Irwin was refinanced. 22 Plaintiff filed a complaint in state court against Minnesota and Irwin for breach of

23 contract, breach of the implied covenant of good faith and fair dealing, negligence and 24 declaratory relief. Defendants removed the action to this court based on diversity jurisdiction 25 and moved to dismiss pursuant to Rule 12(b)(6). 26 A Rule 12(b)(6) motion tests the sufficiency of the complaint. Navarro v. Block, 250

27 F.3d 729, 732 (9th Cir. 2001). "While a complaint attacked by a Rule 12(b)(6) motion to 28 dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds
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1 of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation 2 of the elements of a cause of action will not do. Factual allegations must be enough to raise a 3 right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 4 (2007) (internal quotation marks, brackets and citations omitted). In reviewing a motion to 5 dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must 6 construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. 7 Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions need not be taken as true merely 8 because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 9 1177 (9th Cir. 1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, 10 "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion 11 to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998). 12 Minnesota argues that the first cause of action for breach of contract should be dismissed

13 because coverage terminated on March 31, 2006 under the terms of the insurance policy. 14 Plaintiff contends that the coverage was extended because premiums were paid and accepted 15 through the end of May 2006. 16 Upon applying for insurance over the phone, Mr. Escalante received a Certificate of

17 Insurance which summarized the principal terms of the underlying Group Insurance Policy. (See 18 Compl. Ex. A ("Certificate of Insurance") at 2. According to the Certificate of Insurance, in 19 exchange for monthly premium payments, Minnesota promised to pay the accidental death 20 benefit upon receipt of written proof that the insured died as a result of accidental death. (Id. at 21 2, 3.) Plaintiff alleges that Mr. Escalante's death was accidental and that she was the 22 beneficiary under the policy. The mortgage loan eligible for insurance is defined as "A secured 23 or unsecured loan on a dwelling or mobile home which is owed to or serviced by a lender and 24 which is repayable over a period of at least five years but not more than forty years." (Id. at 2.) 25 Based on the allegations in the complaint, the loan taken out by the Escalantes meets these 26 criteria, whether before or after the refinance. The Certificate of Insurance provides that the 27 amount of the death benefit "will be equal to the of the unpaid balance of the eligible loan on the 28 date of your death," which in turn is determined "according to the amortization schedule for your
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1 eligible loan in effect on the effective date of your coverage under this certificate." (Id. at 3.) 2 The termination provision of the certificate provides in pertinent part that "The insurance on 3 your life will terminate on the earliest of: [¶] (1) the date your eligible loan is paid in full; . . .." 4 (Id.) 5 Minnesota argues that the refinance caused the loan to be paid in full and terminated

6 coverage on March 31, 2006. It maintains that coverage could not be extended pursuant to 7 California Insurance Code Section 10383. Plaintiff argues that section 10383 extends coverage 8 beyond the refinance. 9 Section 10383 applies to disability policies. According to Plaintiff, the policy at issue is a

10 disability policy. See Cal. Ins. Code § 106(a); Merlo v. Standard Life and Accident Ins. Co. of 11 Cal., 59 Cal. App. 3d 5 (1976) (insurance policy to secure mortgage payments in the event of 12 disability). Minnesota does not dispute this. Accordingly, without deciding, the court proceeds 13 on the assumption that the policy at issue is a disability policy. Section 10383, located in the 14 article addressing policy interpretation, provides as follows: 15 16 17 18 19 20 If any disability policy contains a provision establishing, as an age limit or otherwise, a date after which the coverage provided by the policy will not be effective, and if such date falls within a period for which premium is accepted by the insurer or if the insurer accepts a premium after such date, the coverage provided by the policy will continue in force subject to any right of cancellation until the end of the period for which premium has been accepted. In the event the age of the insured has been misstated and if, according to the correct age of the insured, the coverage provided by the policy would not have become effective, or would have ceased prior to the acceptance of such premium or premiums, then the liability of the insurer shall be limited to the refund, upon request, of all premiums paid for the period not covered by the policy.

21 As Plaintiff points out, the provision does not apply only to policies where an age limit 22 establishes a date after which coverage is no longer effective, but also where such date is 23 established otherwise. In this case, the date is set by the policy when, among other things, the 24 loan is paid in full. The statute provides for coverage to continue when the insurer has accepted 25 payment of premium for a period after coverage is no longer effective. Under these 26 circumstances, coverage is extended until the end of the period for which premium was 27 accepted. Plaintiff alleges that during the refinance, Irwin charged her and she paid premiums 28 for two extra months after March 2006. (Compl. at 3 & Ex. C, D.) It can reasonably be inferred
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1 from the allegations that the two extra months ended at the end of May 2006 and after the date of 2 Mr. Escalante's death. Minnesota argues that this fact is disputed.2 However, this argument is 3 irrelevant on a motion to dismiss under Rule 12(b)(6), which merely tests the sufficiency of the 4 allegations in the complaint. See Navarro, 250 F.3d at 732. 5 Minnesota also argues that under the second sentence of the statute, consistent with the

6 policy, the remedy is a refund of premiums, not an extension of coverage. The court disagrees. 7 Unlike the first sentence, which refers to the time when the coverage is not effective based on an 8 age limit or otherwise, the second sentence refers to the circumstance when the insured's age is 9 misstated and the coverage would not have commenced had the age been stated accurately. See 10 Cal. Ins. Code § 10383. The second sentence therefore does not apply to the facts of this case. 11 Minnesota next argues that it does not make sense for section 10383 to apply to the policy

12 at issue in this case. It argues that in policies such as this, which are intended to insure ability to 13 pay a particular debt, there is no longer a benefit to be paid in the case of an insured's death after 14 the loan is paid off. However, this is the case only if the termination provision of the policy is 15 interpreted in the refinance context the same as when a loan is simply paid off rather than 16 refinanced. Minnesota urges the policy does not work if the provision is not interpreted in its 17 favor. The court disagrees. Contrary to Minnesota's argument, if the loan is refinanced and the 18 amount of the loan changes, this does not change the death benefit under the policy, because its 19 amount is determined "according to the amortization schedule for your eligible loan in effect on 20 the effective date of your coverage under this certificate." (Compl. Ex. A at 3.) The fact that 21 the balance due under the loan changes has no effect on the amount of Minnesota's obligation 22 under the policy. 23 Minnesota also contends that the refinance was contemplated by the policy because after

24 notice of the refinance, it sent the Escalantes an offer of continuation of coverage under a new 25 certificate and under new terms. This argument is not supported by Minnesota's insurance 26 27 Consistent with Plaintiff's allegations, in its May 9, 2006 notice to the Escalantes Minnesota indicated that premium payments after refinance would resume with the June 28 payment. (Compl. Ex. 3 (payment slip for quarterly premiums).)
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1 documents. First, neither the Certificate of Insurance nor the underlying Group Insurance Policy 2 (Compl. Ex. A & B) indicate that a new certificate with new terms is necessary to continue 3 coverage upon refinancing. Instead, both documents are silent on the subject of refinance. 4 Second, the notice and enclosures sent to the Escalantes on May 9, 2006, which is the first 5 instance where Minnesota's documents address the issue of refinance, give the insureds the 6 option of continuing the same coverage for the same premium by paying Minnesota directly. 7 (See Compl. Ex. E (Important Notice, Frequently Asked Questions & Certificate Amendment).) 8 Based on the foregoing, Minnesota's arguments that section 10383 is incompatible with 9 Plaintiff's policy are rejected. 10 To the extent Minnesota argues Plaintiff cannot state a claim for breach of contract, its

11 motion is DENIED. If the parties again raise the issue of coverage, however, they must address 12 the issue whether the policy at issue is a disability policy under California Insurance Code 13 Sections 10270 et seq., a credit life and disability policy under sections 779.1 et seq. or a policy 14 governed by some other statutory scheme. If necessary, the parties must also address the issue 15 whether the policy's termination provision is ambiguous in the refinance context. See, e.g., 16 Delgado v. Heritage Life Ins. Co., 157 Cal. App. 3d 262 (1984). 17 Minnesota also seeks dismissal of the second cause of action for breach of the implied

18 covenant of good faith and fair dealing. To the extent the motion is based on the argument that 19 no cause of action can be stated because coverage had terminated prior to Mr. Escalante's death 20 or that the complaint does not adequately allege that insurance benefits were unreasonably 21 denied, the arguments are rejected. 22 Minnesota's motion, however, is also based on the statute of limitations. "A motion to

23 dismiss based on the running of the statute of limitations period may be granted only `if the 24 assertions of the complaint, read with the required liberality, would not permit the plaintiff to 25 prove the statute was tolled.'" Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206-07 26 (9th Cir. 1995), quoting Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980). The 27 untimeliness must appear beyond doubt on the face of the complaint before a claim will be 28 dismissed as time-barred. See Supermail Cargo, 68 F.3d at 1206-07.
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Minnesota argues that the claim is barred by a two-year statute of limitations because

2 insurance benefits were denied in August 2006 (see Compl. Ex. H)3 and the complaint was filed 3 in 2009. The parties agree that to the extent the claim is asserted in tort, it is subject to a two4 year statute of limitations pursuant to California Code of Civil Procedure Section 339(1). 5 However, an insurance bad faith claim sounds in tort as well as in contract. Crisci v. Security 6 Ins. Co. of New Heaven, Conn., 66 Cal.2d 425, 432 (1967). Plaintiff contends that she asserted 7 the bad faith claim as a tort and as a contract claim. 8 Plaintiff argues that the claim, even if alleged in tort, should not be dismissed because all

9 of the alleged acts of bad faith are not alleged to have taken place more than two years before the 10 complaint was filed. Plaintiff does not identify any alleged acts of bad faith which occurred less 11 than two years before the complaint was filed and no such acts or any facts justifying tolling the 12 statute can reasonably be inferred from the allegations. Because the untimeliness of the tort 13 claim clearly appears on the face of the complaint, Minnesota's motion to dismiss the bad faith 14 claim, to the extent it is alleged in tort, is GRANTED. 15 Plaintiff has not requested leave to amend this claim if the motion to dismiss is granted.

16 Nevertheless, the court must consider whether a motion to dismiss should be granted with leave 17 to amend. See Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1401 (9th 18 Cir. 2004). Rule 15 advises the court that leave to amend shall be freely given when justice so 19 requires. Fed. R. Civ. P. 15(a). "This policy is to be applied with extreme liberality." Eminence 20 Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (internal quotation marks and 21 citation omitted). Dismissal with prejudice and without leave to amend is not appropriate unless 22 it is clear that the complaint could not be saved by amendment. Id. at 1052. To the extent 23 Plaintiff believes that she can allege acts within the two-year statute of limitations or facts 24 supporting tolling of the statute, she is granted LEAVE TO AMEND this claim. 25 To the extent the bad faith claim is also alleged as a contract claim, Plaintiff argues it is

26 subject to a four-year statute of limitations pursuant to California Code of Civil Procedure 27 28 The 2005 date on the letter appears to be an error, as the enclosure is dated in 2006. (See Compl. Ex. H.)
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1 Section 337. Minnesota does not dispute this, but argues that to the extent Plaintiff asserted the 2 bad faith claim in contract, it should be dismissed because it is superfluous of the breach of 3 contract claim. Federal Rule of Civil Procedure 8(d) permits a plaintiff to allege claims 4 alternatively. Accordingly, the court declines to dismiss the bad faith claim, even if asserted as a 5 contract rather than tort claim. To the extent the claim is asserted as a contract claim, it is not 6 barred by the statute of limitations and Minnesota's motion to dismiss is DENIED in this regard. 7 Irwin filed a separate motion to dismiss. It argues that the third cause of action for

8 negligence should be dismissed as time-barred. It bases this argument on the two-year statute of 9 limitations pursuant to California Code of Civil Procedure Section 339(1). See Hydro-Mill Co., 10 Inc. v. Hayward, Tilton and Rolapp Ins. Assoc., Inc., 115 Cal. App. 4th 1145, 1154 (2004). 11 Plaintiff argues, however, that her negligence claim arises from Irwin's failure to perform its 12 obligations pertaining to the billing and collection of insurance premiums which are based on a 13 written agreement. She therefore argues that the applicable statute is for actions "upon any 14 contract, obligation or liability founded upon an instrument in writing" pursuant to California 15 Code of Civil Procedure Section 337(1), which provides for four years. However, Plaintiff has 16 not alleged the existence of any such agreement. On the face of the complaint, the negligence 17 claim is barred by the two-year statute of limitations. Accordingly, Irwin's motion to dismiss the 18 negligence claim is GRANTED. Plaintiff is granted LEAVE TO AMEND the complaint to 19 allege an agreement to give rise to Irwin's duty of care relative to the billing and collection of 20 premiums. 21 Last, Irwin also moved to dismiss the fourth cause of action for declaratory relief.

22 Plaintiff alleges there is a controversy "concerning, among other things, whether benefits are due 23 and payable under the policy and defendants' liability." (Compl. at 8.) Neither in the complaint 24 nor in the opposition does Plaintiff contend that any insurance benefits are due from Irwin; 25 accordingly, to the extent Plaintiff seeks declaratory judgment regarding her right to receive 26 benefits under the insurance policy, the claim is alleged only against Minnesota, which has not 27 moved to dismiss it. To the extent Plaintiff seeks declaratory judgment regarding Defendants' 28 liability, the claim appears to be entirely duplicative of the remaining claims in the complaint.
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1 Plaintiff does not deny this, but merely argues that it would provide the court and the parties 2 with unspecified "flexibility." Under California law, 3 4 5 6 Generally, an action in declaratory relief will not lie to determine an issue which can be determined in the underlying tort action. The declaratory relief statute should not be used for the purpose of anticipating and determining an issue which can be determined in the main action. The object of the statute is to afford a new form of relief where needed and not to furnish a litigant with a second cause of action for the determination of identical issues.

7 Cal. Ins. Guarantee Assoc. v. Super. Ct. (Jakes at the Shore, Inc.), 231 Cal. App. 3d 1617, 16238 24 (1991). Because Plaintiff has not identified any new form of relief which she has not already 9 requested under the remaining causes of action, Irwin's motion to dismiss the declaratory relief 10 claim is GRANTED. Plaintiff is granted LEAVE TO AMEND to identify, if she chooses, any 11 relief she is seeking under declaratory relief, which she is not requesting for any of her other 12 claims. 13 14 Based in on the foregoing, it is hereby ORDERED as follows: 1. The motion to dismiss filed by Defendant Minnesota Life Insurance Company is

15 GRANTED IN PART AND DENIED IN PART. The motion is DENIED with respect the 16 first cause of action for breach of contract. It is GRANTED with respect to the second cause of 17 action for breach of the implied covenant of good faith and fair dealing, but only to the extent 18 Plaintiff is asserting it as a tort, as opposed to a contract, claim. 19 2. The motion to dismiss filed by Defendants Irwin Mortgage Corporation and Irwin

20 Financial Corporation is GRANTED. The motion is granted with respect to the third cause of 21 action for negligence and fourth cause of action for declaratory relief. As to the latter claim, the 22 motion is granted only to the extent the claim is asserted against Defendants Irwin Mortgage 23 Corporation and Irwin Financial Corporation. The claim remains in the complaint to the extent 24 it is asserted against Defendant Minnesota Life Insurance Company. 25 3. If Plaintiff chooses to file an amended complaint, she must do so no later than August

26 9, 2010. Defendants shall respond to the amended complaint within the time set forth in Federal 27 / / / / / 28 / / / / /
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1 Rule of Civil Procedure 15(a)(3). If Plaintiff chooses not to file an amended complaint, 2 Defendants shall respond within the same period of time calculated from August 9, 2010. 3 4 5 DATED: July 22, 2010 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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IT IS SO ORDERED.

M. James Lorenz United States District Court Judge