Colony Insurance Company v. Glenn E. Newcomer Construction

• Court: District Court, N.D. California
• Decided: July 20, 2020
• Docket: 4:20-cv-00480
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 COLONY INSURANCE COMPANY, Case No. 20-cv-00480-DMR

8 Plaintiff, ORDER ON MOTION TO DISMISS 9 v. COUNTERCLAIMS

10 GLENN E. NEWCOMER Re: Dkt. No. 14 CONSTRUCTION, 11 Defendant. 12 13 Plaintiff Colony Insurance Company (“Colony”) filed this action for declaratory relief 14 related to an insurance coverage dispute. Colony now moves pursuant to Federal Rule of Civil 15 Procedure 12(b)(6) to dismiss Defendant Glenn E. Newcomer Construction’s counterclaims. 16 [Docket No. 14.] This matter is appropriate for resolution without a hearing. Civ. L.R. 7-1(b). 17 For the following reasons, the motion is granted. 18 I. BACKGROUND 19 Colony filed its complaint for declaratory relief on January 22, 2020. It seeks a 20 determination of the parties’ rights and obligations under an insurance policy Colony issued to 21 Defendant Glenn E. Newcomer Construction (“Newcomer”). Colony alleges the following: in 22 2017, Colony issued general liability insurance policy no. 101 PKG 0006651-02 (“the policy”) for 23 the period April 21, 2017 to April 21, 2018. Compl. ¶ 7, Ex. A. In relevant part, the policy 24 “generally provides coverage . . . for ‘those sums that the insured becomes legally obligated to pay 25 as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies,” and 26 provides that Colony “ha[s] the right and duty to defend the insured against any ‘suit’ seeking 27 those damages,” with certain exceptions and exclusions. Compl. ¶¶ 9-15. 1 defendants in San Francisco County Superior Court, Melidonis v. Lexington Insurance Company, 2 et al., Case No. CGC-19-574967 (the “Underlying Action”). Id. at ¶ 19, Ex. B. Melidonis alleges 3 that Newcomer acted as the general contractor for a construction and remodel project for a 4 condominium unit located in San Francisco, California. She alleges that there were cost overruns 5 and defects in the work performed, and brings claims for breach of contract, negligence, and fraud 6 against Newcomer. Compl. ¶¶ 20-29. Colony alleges it received “notice of the incident giving 7 rise to the Underlying Action” on August 13, 2018, and that it “agreed to provide Newcomer with 8 a defense in the Underlying Action, subject to a full reservation of rights.” Id. at ¶¶ 31, 38. It 9 contends that “it has no defense or indemnity obligation in the Underlying Action” because the 10 policy either does not cover the claimed damages by Melidonis or the damages are barred by 11 policy provisions and exclusions. Id. at ¶¶ 40-43. 12 Colony also alleges that Newcomer seeks coverage under the policy for four additional 13 matters arising out of the construction and remodel project: 1) a complaint by Melidonis to the 14 California State License Board, number 2018-6460 (“CSLB 6460”); 2) a second complaint by 15 Melidonis to the California State License Board, number 2018 001588 (“CSLB 1588”); 3) a 16 complaint by Melidonis against Old Republic Surety Company, which issued a bond to Newcomer 17 (the “bond claim”); and 4) claims for unpaid wages against Newcomer by individuals who worked 18 on the construction and remodel project (the “labor claim”). Id. at ¶ 32. Colony contends that it 19 does not have a duty to defend or indemnify Newcomer in these four related matters. It alleges 20 that Newcomer informed Colony that CSLB 6460 “was closed without any action being taken”; 21 that CSLB 1588 “was reportedly ‘switched over to a different license’ and does not involve a 22 claim against Newcomer”; that the bond claim is against Old Republic Surety Company and that 23 “no claim is asserted against Newcomer”; and that the labor claim “arises out of wages allegedly 24 owed to individuals who claim to have performed work” on the construction and remodel project, 25 which does not fall within the policy’s coverage for “property damage.” Id. at ¶¶ 33-36, 89. 26 Colony brings various claims for declaratory relief and two claims for reimbursement of 27 costs and indemnity payments in the Underlying Action. Compl. 6-13. 1 (Answer).] In relevant part, he admits that he reported to Colony that CSLB 6460 “was closed 2 without any action being taken.” Answer ¶ 33. He admits that “at one time it was reported that 3 CSLB 1588 was ‘switched over to a different license’ and does not involve a claim against 4 Newcomer,’” but alleges that “that claim may have been assigned a new number and current status 5 is not fully known.” Id. at ¶ 34. 6 Newcomer admits the allegation that the bond claim is made against Old Republic Surety 7 Company and not against Newcomer, but contends that the allegations “are incomplete in that any 8 claim against Old Republic which Old Republic might come to pay would result in Old Republic 9 seeking indemnity from Newcomer.” Id. at ¶ 35. He also admits that the Labor Claim arises out 10 of wages allegedly owed to individuals who claim to have worked on the construction and 11 remodel project, but alleges that the allegations “are incomplete in that they fail to point out that 12 the wage claims are inherently intertwined with the [construction and remodel project] and 13 Melidonis’s Underlying Action.” Id. at ¶ 36. 14 Newcomer alleges that he tendered to Colony the defense and indemnification of the 15 Underlying Action and that Colony is currently defending the action under a reservation of rights. 16 Id. at ¶ 106. He also alleges that he “tendered to Colony defense/indemnification of three other 17 Melidonis related claims and a related Labor Commission claim,” and that “Colony refuses to 18 defend and/or provide indemnification for any of the four additional matters.” Id. Newcomer 19 alleges that his personal attorney “has been trying to cooperate” with the attorney Colony assigned 20 to represent him in the Underlying Action but that Colony “has failed to be cooperative 21 whatsoever,” such as refusing to provide Newcomer’s personal attorney with “a copy of Colony’s 22 file,” including any reports from investigators. According to Newcomer, Colony has “deprive[d] 23 Newcomer of a complete picture of the defense of the Underlying Action” and “impede[d] 24 Newcomer’s ability to analyze the defense and/or any settlement positions which Colony and its 25 Assigned Counsel might jointly or otherwise take.” Id. at ¶ 108. 26 Newcomer brings counterclaims for breach of contract and bad faith. Answer ¶¶ 109-114. 27 He seeks damages for Colony’s breach “including attorney’s fees incurred due to the need to 1 and defense of Colony’s instant action,” as well as punitive damages. See Answer Prayer. Colony 2 now moves to dismiss the counterclaims for failure to state a claim. 3 II. LEGAL STANDARD 4 A motion to dismiss a counterclaim under Rule 12(b)(6) is evaluated under the same 5 standard as a motion to dismiss a plaintiff’s complaint. See AirWair Int’l Ltd. v. Schulz, 84 F. 6 Supp. 3d 943, 949 (N.D. Cal. 2015). A motion to dismiss under Rule 12(b)(6) tests the legal 7 sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus., Inc. v. Symington, 51 8 F.3d 1480, 1484 (9th Cir. 1995). When reviewing a motion to dismiss for failure to state a claim, 9 the court must “accept as true all of the factual allegations contained in the complaint,” Erickson v. 10 Pardus, 551 U.S. 89, 94 (2007) (per curiam) (citation omitted), and may dismiss a claim “only 11 where there is no cognizable legal theory” or there is an absence of “sufficient factual matter to 12 state a facially plausible claim to relief.” Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 13 1035, 1041 (9th Cir. 2010) (citing Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009); Navarro v. 14 Block, 250 F.3d 729, 732 (9th Cir. 2001)) (quotation marks omitted). A claim has facial 15 plausibility when a plaintiff “pleads factual content that allows the court to draw the reasonable 16 inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation 17 omitted). In other words, the facts alleged must demonstrate “more than labels and conclusions, 18 and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. 19 Twombly, 550 U.S. 554, 555 (2007) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)); see Lee 20 v. City of L.A., 250 F.3d 668, 679 (9th Cir. 2001), overruled on other grounds by Galbraith v. Cty. 21 of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). 22 As a general rule, a court may not consider “any material beyond the pleadings” when 23 ruling on a Rule 12(b)(6) motion. Lee, 250 F.3d at 688 (citation and quotation marks omitted). 24 However, “a court may take judicial notice of ‘matters of public record,’” id. at 689 (citing Mack 25 v. S. Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986)), and may also consider “documents 26 whose contents are alleged in a complaint and whose authenticity no party questions, but which 27 are not physically attached to the pleading,” without converting a motion to dismiss under Rule 1 1994), overruled on other grounds by Galbraith, 307 F.3d at 1125-26. The court need not accept 2 as true allegations that contradict facts which may be judicially noticed. See Mullis v. U.S. Bankr. 3 Court, 828 F.2d 1385, 1388 (9th Cir. 1987). 4 III. DISCUSSION 5 Newcomer brings counterclaims for breach of contract and bad faith. A claim for breach 6 of contract under California law “requires a plaintiff to establish: (1) a contract; (2) plaintiff’s 7 performance or excuse for nonperformance; (3) defendant’s breach; and (4) damage to plaintiff.” 8 Nationwide Mut. Ins. Co. v. Ryan, 36 F. Supp. 3d 930, 938 (N.D. Cal. 2014). 9 Colony moves to dismiss Newcomer’s breach of contract counterclaim on the grounds that 10 it fails to identify any policy provisions that Colony allegedly breached, and instead makes the 11 conclusory allegation that Colony “has breached and continues to breach its express and implied 12 duties created by the Policy.” See Answer ¶ 111. It also argues that with respect to the four 13 related claims for which Newcomer sought coverage under the policy, Newcomer has not alleged 14 facts establishing a breach of the policy by Colony. First, it notes that it is undisputed that CSLB 15 6460 is closed, and that CSLB 1588 does not involve claims against Newcomer. Colony argues 16 that Newcomer’s speculation about the unknown status of CSLB 1588 is insufficient to establish 17 any contractual duties or obligations by Colony. Similarly, it argues that the bond claim does not 18 involve a claim against Newcomer, and thus does not trigger any duties or obligations by Colony. 19 As to the labor claim, Colony argues that the policy extends coverage to “sums that the insured 20 becomes legally obligated to pay as damages because of ‘property damage,’” and that claims for 21 unpaid wages do not fall within the policy’s coverage. Mot. 7-8. 22 In its opposition, Newcomer provides a detailed history of its dispute with Colony 23 regarding the policy’s coverage and submits copies of correspondence between its counsel and 24 Colony regarding the Underlying Action and the four related matters. Opp’n 3-8; Spencer Decl., 25 Apr. 28, 2020, Exs. A-L. As an initial matter, Newcomer offers no authority to support that the 26 court may consider these facts and materials, which are not alleged in or attached to the pleadings. 27 It is well-established that “[i]n determining the propriety of a Rule 12(b)(6) dismissal, a court may 1 opposition to a . . . motion to dismiss.” Schneider v. Cal. Dep’t of Corr., 151 F.3d 1194, 1197 n.1 2 (9th Cir. 1998). 3 Moreover, Newcomer does not explain how the parties’ communications are relevant to 4 the central issue raised by Colony in its motion, namely, its failure to allege facts supporting a 5 breach of a specific provision of the policy. It appears that Newcomer contends that the policy 6 requires Colony to defend and indemnify Newcomer in the Underlying Action, and that its failure 7 to do so constitutes a breach. See Answer ¶ 111. However, Newcomer admits that Colony agreed 8 to defend Newcomer in the Underlying Claim and alleges that “Colony is currently defending said 9 action under a reservation of rights.” Id. at ¶¶ 38, 106. Newcomer alleges no facts to support a 10 breach of contract claim based on Colony’s alleged failure to defend. Further, although 11 Newcomer alleges that Colony’s “failure to provide Newcomer with crucial background 12 information regarding the Underlying Action (and the related claims) . . . is a breach of the express 13 and implied contractual provisions of the Policy,” id. at ¶ 113, Newcomer does not identify any 14 such express or implied provisions that require Colony to provide its attorney with this 15 information. 16 To the extent that Newcomer’s breach of contract claim is based on an alleged failure to 17 indemnify Newcomer, Newcomer alleges that the policy “generally provides coverage for ‘those 18 sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or 19 ‘property damage.’” Id. at ¶ 111 (emphasis removed). Yet Newcomer does not allege that it has 20 become “legally obligated” to pay any damages, which would trigger Colony’s duty to indemnify. 21 Therefore, in the absence of facts supporting Colony’s failure to indemnify Newcomer, any such 22 failure cannot form the basis of a breach of contract claim. 23 Finally, Newcomer also addresses the four related matters in passing, arguing that “[t]he 24 other claims are suits per the Policy. They should have been defended and if necessary 25 indemnification should be paid.” See Opp’n 6-7. To the extent that Newcomer’s breach of 26 contract counterclaim is based in part on Colony’s refusal to defend and indemnify Newcomer in 27 those matters, Newcomer has not sufficiently alleged such a basis as the counterclaim identifies 1 In sum, the court concludes that Newcomer has failed to sufficiently allege a breach of 2 || contract counterclaim. The counterclaim is therefore dismissed. 3 Newcomer’s second counterclaim is bad faith. “As in every other contract, an implied 4 || covenant of good faith and fair dealing is implicit in an insurance contract.” Major v. W. Home 5 || Ins. Co., 169 Cal. App. 4th 1197, 1208 (2009). “An insurer is said to act in ‘bad faith’ when it 6 || breaches its duty to deal ‘fairly’ and ‘in good faith’ with its insured.” Jd. (citation omitted). In 7 || order to establish a bad faith insurance claim, a plaintiff must show “(1) benefits due under the 8 || policy were withheld; and (2) the reason for withholding benefits was unreasonable or without 9 proper cause.” Guebara y. Allstate Ins. Co., 237 F.3d 987, 992 (9th Cir. 2001). “California law is 10 clear, that without a breach of the insurance contract, there can be no breach of the implied 11 covenant of good faith and fair dealing.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d a 12 1025, 1034 (9th Cir. 2008). As discussed above, Newcomer has failed to allege a breach of

13 contract counterclaim. Accordingly, his bad faith claim is also dismissed.

v 14 Leave to amend may be denied “where the amendment would be futile.” Gardner v.

15 Martino, 563 F.3d 981, 990 (9th Cir. 2009). As the court cannot say that amendment would be Qa 16 futile, Newcomer is granted leave to amend its counterclaims.

17 || Iv. CONCLUSION Z 18 For the foregoing reasons, Colony’s motion to dismiss Newcomer’s counterclaims is 19 || granted. Newcomer’s counterclaims are dismissed with leave to amend. Any amended 20 counterclaims shall be filed by August 3, 2020. ; y Aug AES DISTR IC bs 21 SS CS ‘) © 22 IT IS SO ORDERED. x) & O ORDERED 23 || Dated: July 20, 2020 2[\yr 1S § □ 24 LA VG L, KB», d : Ryu RG 25 ined Teel na dve © ANiihe ss ern ES » 26 > wy LOY AG 27 oO DISTRICS 28