United Specialty Insurance Company v. Meridian Management Group, Inc. et al

Northern District of California, cand-4:2015-cv-01039

Order by Hon. Haywood S Gilliam, Jr denying {{15}} Motion to Dismiss. (hsglc3, COURT STAFF)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 UNITED SPECIALTY INSURANCE 7 COMPANY, Case No. 15-cv-01039-HSG 8 Plaintiff, ORDER DENYING MOTION TO DISMISS 9 v. Re: Dkt. No. 15 10 MERIDIAN MANAGEMENT GROUP, INC., et al., 11 Defendants. 12 Northern District of California United States District Court 13 This is an insurance coverage action arising out of an underlying lawsuit (the "Geyer 14 Action") brought by tenants at 305 Hyde Street in San Francisco against Defendants Meridian 15 Management Group, Inc. ("Meridian") and HAL 305 Hyde SF, LLC ("HAL 305"). Plaintiff 16 United Specialty Insurance Co. ("USIC") seeks a declaration from the Court that: (1) it has no 17 obligation to defend or indemnify Meridian and HAL 305 in connection with the Geyer Action; 18 (2) another insurer, Defendant National Union Fire Insurance Company of Pittsburgh, PA 19 ("National Union"), is obligated to defend; and (3) either Meridian or National Union must 20 reimburse USIC for all or part of the defense costs it has paid and continues to pay for the defense 21 of Geyer Action. See Dkt. No. 1 ("Compl."). 22 National Union moves to dismiss the Complaint under Rule 12(b)(6), arguing that USIC 23 has not sufficiently pled the terms of its insurance policies and that California law precludes 24 USIC's claim for equitable subrogation against National Union under the circumstances alleged. 25 See Dkt. No. 15 ("Mot."). Alternatively, National Union moves for a more definitive statement 26 under Rule 12(e). Id. USIC has opposed both motions. Dkt. No. 18 ("Opp."). The Court has 27 carefully considered the arguments offered by the parties and, for the reasons set forth below, 28 DENIES National Union's motion to dismiss and motion for a more definitive statement. 1 I. BACKGROUND 2 On December 27, 2012, Gabriela and Travis Geyer, tenants at 305 Hyde Street in San 3 Francisco, filed a lawsuit against Meridian in San Francisco County Superior Court. The Geyer 4 Action concerned personal injury and property damage from bedbug infestations at the apartment 5 building located at 305 Hyde Street. The Geyers amended their complaint to include a request for 6 class action certification against Meridian for unlawful business practices and added HAL 305 (the 7 owner of their building) as a defendant. The Geyers then settled their individual claims with 8 defendants; Jessica Narog, another tenant at 305 Hyde Street, was substituted as the plaintiff. 9 Narog filed an amended complaint seeking certification of the same class, as well as damages for 10 the bedbug infestations in the apartment she rented at 305 Hyde Street. 11 USIC insured Meridian from October 25, 2009 to October 25, 2011. USIC agreed to 12 defend Meridian in the Geyer Action subject to a reservation of rights, which included a Northern District of California United States District Court 13 reservation of the right to deny coverage based on its policies' schedule of apartment buildings, 14 which limited coverage to claims arising out of buildings identified on that schedule. USIC 15 alleges that 305 Hyde Street was not listed as one of the covered buildings. National Union 16 insured Meridian and HAL 305 as insureds under various policies effective from November 2006 17 through March 2013. Meridian tendered its defense to National Union, but National Union 18 offered to pay only 1/24th of the defense expenses being incurred by USIC. 19 On March 5, 2013, USIC brought this action for declaratory relief against National Union 20 (which USIC alleges also insures Meridian and HAL 305) and the underlying defendants. USIC's 21 Complaint asks the Court to find that it has no obligation to defend Meridian or HAL 305 in the 22 Geyer Action and that National Union or Meridian has an obligation to reimburse USIC for the 23 defense costs it has paid and continues to pay. 24 II. LEGAL STANDARD 25 A court may dismiss a complaint under Federal Rule of Civil Procedure 12(b)(6) when it 26 does not contain sufficient facts to state a plausible claim on its face. See Bell Atlantic Corp. v. 27 Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads 28 factual content that allows the court to draw the reasonable inference that the defendant is liable 2 1 for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "The plausibility 2 standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that 3 a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 557). "While a complaint 4 attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a 5 plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than 6 labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. 7 Factual allegations must be enough to raise a right to relief above the speculative level." 8 Twombly, 550 U.S. at 555 (internal citations and parentheticals omitted). 9 In considering a motion to dismiss, a court must accept the plaintiff's factual allegations as 10 true and construe them in the light most favorable to the plaintiff. See Moore v. Kayport Package 11 Exp., Inc., 885 F.2d 531, 550 (9th Cir. 1989). However, "the tenet that a court must accept a 12 complaint's allegations as true is inapplicable to threadbare recitals of a cause of action's Northern District of California United States District Court 13 elements, supported by mere conclusory statements." Iqbal, 556 U.S. at 678. If the Court 14 dismisses the complaint, it will generally grant leave to amend "unless it determines that the 15 pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 16 122, 1127 (9th Cir. 2000) (citation omitted). When a party repeatedly fails to cure deficiencies, 17 however, the court may order dismissal without leave to amend. See Ferdik v. Bonzelet, 963 F.2d 18 1258, 1261 (9th Cir. 1992). 19 III. DISCUSSION 20 A. Sufficiency of USIC's Allegations 21 National Union moves to dismiss USIC's First, Third, and Fifth Claims for Relief for 22 failure to meet the pleading requirements of Rule 8 of the Federal Rules of Civil Procedure. Both 23 parties appear to agree that the only possible basis for USIC's position that it never had a duty to 24 defend Meridian at any point during the Geyer Action is USIC's contention that its policies are 25 limited to specified buildings contained in a schedule of apartment buildings. Mot. at 7; Compl. 26 ¶10. National Union argues that USIC must therefore attach or quote this essential contractual 27 term in its Complaint in order to move past the pleading stage. Mot. at 7. USIC responds that the 28 precise language of the policies giving rise to alleged contractual obligations need not be 3 1 specifically alleged. Opp. at 9. 2 The Court agrees with USIC. Although relevant terms of a contract must be adequately 3 described in order to meet Rule 8's pleading requirements, there is no requirement that the 4 contract be attached to the complaint or that the complaint quote each relevant provision verbatim. 5 See, e.g., Garibaldi v. Bank of Am. Corp., No. 13-cv-02223-SI, 2014 WL 172284, at *3 (N.D. Cal. 6 Jan. 15, 2014) ("While a plaintiff need not attach a copy of the allegedly breached contract to the 7 complaint, mere legal conclusions that a contract existed and was breached will be insufficient to 8 survive a motion to dismiss."); Park v. Morgan Stanley & Co., No. 11-cv-9466-ODW, 2012 WL 9 589653, at *3 (C.D. Cal. Feb. 22, 2012) ("Although Plaintiff need not set out the terms of the 10 contract in detail, Plaintiff must identify enough contractual terms with sufficient factual 11 specificity to render his claim more than 'a formalistic recitation of the elements' of a breach of 12 contract claim.") (citation omitted). Claims involving contractual language are generally Northern District of California United States District Court 13 dismissed for want of detail only where the complaint fails to identify and describe the provisions 14 on which the right to recovery is based. See Manosca v. Wachovia Mortgage, No. 11-cv-2183-SI, 15 2011 WL 2970824, at *7 (N.D. Cal. July 20, 2011) (dismissing breach of contract claim because 16 "the complaint does not specify what terms of the contract were breached by defendants"). 17 Although USIC has not attached its policies or quoted their "scheduled apartment 18 buildings" provisions verbatim, it has both: (1) identified those provisions as the basis for its claim 19 that it is not obligated to defend Meridian; and (2) described the content of the provisions with 20 sufficient detail to explain why they have that effect. In paragraph 10 of the Complaint, USIC 21 alleges: 22 The coverage afforded under the USIC Policies is limited to scheduled apartment buildings and units managed by Meridian, for 23 which Meridian requested coverage, and paid the required premiums based upon the number of units, square footage of lease space and 24 acreage to be covered. The apartment building and units located at 305 Hyde Street, San Francisco, California ("Hyde Street Building") 25 is not one of the scheduled apartment buildings for which coverage was sought nor any premiums paid under the USIC Policies. There 26 is no coverage for the Hyde Street Building under the USIC Policies as Meridian did not disclose its activities there to USIC, did not seek 27 or request coverage for that location from USIC and/or did not pay the required premiums to extend the coverage afforded under the 28 USIC Policies to that location. 4 1 Compl. ¶ 10. This detailed description of the relevant provision and its import is more than 2 sufficient to provide the facial plausibility required by the Supreme Court's decisions in Iqbal and 3 Twombly. Although the Court does not know why USIC decided against attaching the relevant 4 insurance policies to the Complaint, its choice is not fatal given the description quoted above. 5 National Union's Motion to Dismiss the First, Third, and Fifth Claims for Relief is 6 DENIED. 7 B. Equitable Subrogation 8 National Union moves to dismiss USIC's claim for equitable subrogation on the ground 9 that California does not permit such a claim between two primary insurers. Mot. at 9. Instead, 10 National Union asserts that USIC's recovery from National Union must be limited to equitable 11 contribution or nothing at all. Id. at 10. The Court disagrees. 12 "The doctrine of equitable subrogation includes every instance in which one person, not Northern District of California United States District Court 13 acting as a mere volunteer or intruder, pays a debt for which another is primarily liable, and which 14 in equity and good conscience should have been discharged by the latter." Cont'l Cas. Co. v. St. 15 Paul Surplus Lines Ins. Co., No. 07-cv-01744-TLN-EF, 2014 WL 4661087, at *17 (E.D. Cal. 16 Sept. 17, 2014) (citing Fireman's Fund Ins. Co. v. Maryland Cas. Co., 65 Cal. App. 4th 1279, 17 1292 (1998)). "[W]here different insurance carriers cover differing risks and liabilities, they may 18 proceed against each other for reimbursement by subrogation rather than by contribution." 19 Reliance Nat. Indemnity Co. v. General Star Indemn. Co., 72 Cal. App. 4th 1063, 1078 (1999). 20 No California authority appears to preclude a claim for equitable contribution where two 21 primary insurers cover different risks. That is exactly what USIC asserts in this case. USIC 22 alleges that: (1) its policies exclude coverage for the Geyer Action; (2) National Union's policies 23 provide coverage for the Geyer Action; (3) National Union wrongfully declined to assume the 24 defense of the Geyer Action from USIC; and, accordingly, (4) USIC has paid defense costs that 25 should in equity and good conscience have been paid by National Union. Compl. ¶¶ 26-30. These 26 allegations are sufficient to plead a cause of action for equitable subrogation. The cases cited by 27 National Union for the proposition that a primary insurer cannot seek equitable subrogation 28 against another primary insurer all address instances where two primary insurers cover the same 5 1 loss. See, e.g., Maryland Cas. Co., 65 Cal. App. 4th at 1295-96. None stand for the overbroad 2 proposition for which they are cited by National Union. 3 Contrary to National Union's assertion, equitable contribution would not be an appropriate 4 remedy on the facts alleged by USIC. The doctrine of equitable contribution applies where an 5 "insurer seeks to recover part of these costs from a coinsurer that shares the obligation to defend or 6 indemnify the same loss or claim." Cont'l Cas. Co., 2014 WL 4661087 at *16 (citing Herrick 7 Corp. v. Canadian Ins. Co. 29 Cal. App. 4th 753, 762 (1994)). If, as USIC alleges, only National 8 Union is obligated to defend the Geyer Action, then USIC and National Union would not qualify 9 as "coinsurer[s] that share[ ] the obligation to defend or indemnify the same loss or claim." Id. 10 Equitable contribution would only be an appropriate remedy if both the policies issued by USIC 11 and National Union are determined to cover some or all of the underlying Geyer Action. 12 National Union's Motion to Dismiss the Second Claim for Relief is DENIED. Northern District of California United States District Court 13 C. More Definitive Statement 14 Finally, National Union moves for a more definitive statement pursuant to Federal Rule 15 of Civil Procedure 12(e). Under that rule, "[a] party may move for a more definite statement of a 16 pleading to which a responsive pleading is allowed but which is so vague or ambiguous that the 17 party cannot reasonably prepare a response." Rule 12(e) motions are granted only on "rare 18 occasions." See Bautista v. Los Angeles Cnty., 216 F.3d 837, 843 n.1 (9th Cir. 2000); see also 19 E.E.O.C. v. Alia Corp., 842 F. Supp. 2d 1243, 1250 (E.D. Cal. 2012) (holding motions pursuant to 20 Rule 12(e) are generally "viewed with disfavor and are rarely granted[.]"). 21 The Court finds that USIC's complaint is sufficiently clear to permit National Union to 22 prepare a response. This is not one of the "rare occasions" where, while the complaint barely 23 meets the requirements of Rule 12(b)(6), the defendant cannot make heads or tails of the 24 allegations. Instead, National Union merely observes that USIC's requested relief is not 25 completely consistent. For example, USIC's First Claim for Relief seeks a declaration that it is 26 not obligated to provide a defense for the claims brought by Narog, but does not seek a declaration 27 that it has no duty to defend the claims brought by the Geyers. Compl. ¶¶ 31-41; see also Opp. at 28 4 ("USIC's First Claim. . . seeks a judicial determination that it owes no duty to defend. . . in the 6 1 Narog phase of the Underlying Action") (emphasis in original). This seems somewhat 2 inconsistent with its Second Claim for Relief, which requests a declaration that National Union is 3 obligated to reimburse USIC for all defense expenses connected to the entire Geyer Action, both 4 in the Geyer and Narog phases. Id. ¶¶ 42-46. Of course, that outcome would only be available if 5 USIC had no duty to defend the claims brought by both the Geyers and Narog. 6 While not a perfect model of clarity, USIC's Complaint is clear enough to convey its 7 requested relief and the bases for that relief. USIC will have to live with the claims as it has pled 8 them. National Union's Motion for a more definitive statement is DENIED. 9 IV. CONCLUSION 10 For the foregoing reasons, National Union's Motion to Dismiss and Motion for a More 11 Definitive Statement are DENIED. 12 IT IS SO ORDERED. Northern District of California United States District Court 13 Dated: August 7, 2015 14 ______________________________________ HAYWOOD S. GILLIAM, JR. 15 United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 7