Ethan Volungis v. Liberty Mutual Fire Ins. Co.

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 2, 2020
• Docket: 18-16600
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION APR 2 2020 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

ETHAN VOLUNGIS; FAROOQ No. 18-16600 ABDULLA; NIGHAT ABDULLA, D.C. No. Plaintiffs-Appellants, 2:17-cv-02247-JCM-VCF

v. MEMORANDUM* LIBERTY MUTUAL FIRE INSURANCE COMPANY,

Defendant-Appellee.

Appeal from the United States District Court for the District of Nevada James C. Mahan, District Judge, Presiding

Submitted March 26, 2020** Las Vegas, Nevada

Before: W. FLETCHER, BYBEE, and WATFORD, Circuit Judges.

After Appellant Ethan Volungis was injured in a car accident caused by

Farooq Abdulla, he contacted Abdulla’s insurer, Appellee Liberty Mutual Fire

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). Accordingly, Liberty Mutual’s motion for oral argument (Dkt. No. 23) is denied. Insurance Company, offering not to pursue civil action against Abdulla in

exchange for payment of the full limit of Abdulla’s policy and several other

conditions. Liberty Mutual responded by offering to pay the full policy limit, but

did not meet Volungis’s other conditions. Volungis then sued Abdulla in Nevada

state court, ultimately receiving a jury verdict of over $6 million. Abdulla

eventually assigned to Volungis all of his rights against Liberty Mutual arising out

of its handling of Volungis’s claim. In exchange, Volungis agreed not to execute

on Abdulla’s assets to satisfy the judgment.

Volungis then sued Liberty Mutual, alleging breach of contract, breach of

the implied covenant of good faith and fair dealing, and violations of Nevada’s

Unfair Claims Practices Act. The district court dismissed Volungis’s complaint

with prejudice without considering whether Volungis could have cured the

deficiencies in his complaint by amending it. While dismissal was proper,

Volungis should have been given an opportunity to amend. We therefore affirm

dismissal, but reverse to the extent that dismissal was with prejudice, and remand

to allow Volungis the chance to amend.

1. Volungis’s claim for breach of contract arises out of Liberty Mutual’s failure

to settle his claim against Abdulla. But under Nevada law, the duties that arise

under the implied covenant of good faith and fair dealing—like the duty to

2 settle—are imposed by law and not the terms of the insurance contract. Allstate

Ins. Co. v. Miller, 212 P.3d 318, 330 (Nev. 2009) (en banc). There is no

independent unwritten contractual duty to settle. Therefore, claims for failure to

settle sound in tort, not contract, and this claim fails as a matter of law.

2. Under Nevada law, the implied covenant of good faith and fair dealing arises

out of every contractual relationship and “prohibits arbitrary or unfair acts by one

party that work to the disadvantage of the other.” Nelson v. Heer, 163 P.3d 420,

427 (Nev. 2007). An insurer breaches this duty when it refuses to compensate

covered losses even though it has “an actual or implied awareness of the absence of

a reasonable basis for denying benefits of the policy.” Am. Excess Ins. Co. v.

MGM Grand Hotels, Inc., 729 P.2d 1352, 1354–35 (Nev. 1986) (per curiam).

Volungis alleges that Liberty Mutual breached the implied covenant in two

ways: (1) failing to settle his claim against Abdulla, and (2) failing to communicate

his settlement offer to Abdulla. Volungis’s first theory fails because he has failed

to allege any unreasonable or arbitrary conduct on Liberty Mutual’s part. See

Miller, 212 P.3d at 324, 326. He does not allege that Liberty Mutual countered his

settlement offer in bad faith or without a reasonable basis. Volungis raises several

arguments before this court about whether Liberty Mutual could have easily

obtained the information he requested with his settlement offer and Liberty

3 Mutual’s understanding of Volungis’s need to obtain that information, but none of

those allegations appear in the complaint.

Volungis’s second theory fails because he does not allege that Liberty

Mutual failed to communicate his initial settlement offer to Abdulla. To the extent

that Volungis argues that this theory is premised on Liberty Mutual’s failure to

communicate a second settlement offer to Abdulla, that contention is not clear

from the face of the complaint.

3. Volungis’s claim for violations of Nevada’s Unfair Claims Practices Act

offers no supporting facts outside of reciting the language of several subsections

without citation. That alone is sufficient grounds for dismissal. See Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (holding that mere recitation of the elements of a

cause of action is insufficient to state a claim).

4. Federal Rule of Civil Procedure 15(a)(2) requires district courts to “freely

give leave [to amend] when justice so requires.” This policy is “to be applied with

extreme liberality.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051

(9th Cir. 2003) (per curiam) (quotation omitted). “[A] district court should grant

leave to amend even if no request to amend the pleading was made, unless it

determines that the pleading could not possibly be cured by the allegation of other

facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (internal

4 quotation marks omitted). Amendment is futile only if no set of facts can be

proven under the amendment that would constitute a valid and sufficient claim.

Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988).

The district court dismissed Volungis’s complaint with prejudice without

any discussion about whether amendment should be permitted. While his breach-

of-contract claim fails as a matter of law, his other claims could be cured through

amendment. It was an abuse of discretion to dismiss these claims with prejudice

and no justification for doing so. See Doe v. United States (In re Doe), 58 F.3d

494, 497 (9th Cir. 1995).

We therefore affirm dismissal of the breach-of-contract claim with prejudice,

but reverse the dismissal of Volungis’s other claims to the extent that they were

dismissed with prejudice, and remand to allow Volungis an opportunity to file an

amended complaint.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.