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BENNETT v. ALLSTATE INS. CO.

October 3, 1990

DENNIS A. BENNETT and VICTORIA S. BENNETT, Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY; HOLLIS R. MILLER, and DOES 1 through 5, inclusive, Defendants



The opinion of the court was delivered by: CONTI

 SAMUEL CONTI, UNITED STATES DISTRICT JUDGE

 This action involves a coverage dispute brought originally in state court by the insureds, Victoria and Dennis Bennett (the "Bennetts"), against: (1) their insurer, Allstate Insurance Company ("Allstate"); and (2) Hollis R. Miller ("Miller"), the Allstate sales agent who sold them the policies which are the subject of this suit. Defendants removed this action based on diversity jurisdiction while at the same time admitting that the Bennetts and defendant Miller all reside in California. Acknowledging the lack of complete diversity, defendants have argued in their removal documents and in their opposition to the Bennetts' now pending motion to remand that Miller is a "sham defendant" who appears in the caption solely by virtue of his ability to thwart federal jurisdiction and against whom no valid cause of action exists. After reviewing the submissions of the parties, the court ordered further briefing on the issue of whether there is a valid cause of action for breach of a fiduciary duty against Miller under California law.

 BACKGROUND

 The substance of this action is the Bennetts' claim that subsidence damage to their residence was covered by their Allstate homeowners policy. The Bennetts had been insured by an Allstate homeowners policy since 1972. During the term of their policy, the Bennetts' home manifested signs of structural distress which at first they considered evidence of mere normal wear and tear. In December, 1988 they investigated further and learned that the house was actually suffering subsidence damage. Through their attorney, they submitted a claim for the loss to Allstate on July 28, 1989. A dispute then arose on August 3, 1989 regarding Allstate's request to take a sworn statement from the Bennetts as part of its investigation of the claim. Because Allstate allegedly refused to agree to conduct only one such interrogation, the Bennetts' attorney filed the complaint against Allstate and Miller in state court the next day, despite the fact that Allstate had not yet even denied coverage. *fn1" Although never served upon the defendants, on August 7, 1989 "courtesy copy" of the complaint was enclosed in a letter to Allstate from the Bennetts' attorney. That letter clearly indicated that the purpose of filing the complaint at that juncture was to garner the protection of the courts from "multiple, repetitious interrogations" of the insureds which, according to letter, had "become a pattern and practice of harassment, abuse and intimidation" within the insurance industry.

 On April 23, 1990, Allstate finally determined that the loss was not within the scope of the Bennetts' homeowners policy. According to the Bennetts, Allstate's ground for denying coverage was that the subsidence damage must have been obvious for a period considerably prior to the claim for loss, thereby excusing Allstate's obligation to make payment under the policy endorsement specifically covering such loss. The Bennetts then served Allstate with a copy of the First Amended Complaint ("FAC") on May 17, 1990, prompting Allstate to remove the action to this court on June 15, 1990.

 In the FAC, Miller is sued along with Allstate for the following causes of action:

 
1. breach of contract;
 
2. breach of the covenant of good faith and fair dealing;
 
3. fraud; and,
 
4. negligence.

 The FAC makes no attempt to differentiate between the conduct of Miller and that of Allstate. Miller is simply identified as an agent for Allstate, who along with Allstate was conducting insurance business in California. (FAC, at para. 4). The FAC further avers that "by virtue of their relationship to plaintiffs as insurers or agents thereof, said defendants are fiduciaries with respect to plaintiffs or owe fiduciary duties with respect to plaintiffs." (FAC, at para. 4). Later, the FAC claims that fiduciary duties were assumed by "defendants" when "they entered into the Homeowners Policy and accepted the premiums." (FAC, at para. 18). In the remainder of the complaint Miller is collectively identified along with Allstate as the "defendants."

 Without question, Miller was the Allstate agent who sold the Bennetts their homeowners policies. However, as an Allstate insurance salesman, it is unrebutted that Miller did not participate in the drafting of the insurance contract nor was he involved with the investigation or determination of the Bennetts' loss claim.

 As noted above, the FAC claims that Miller became a fiduciary of the Bennetts simply because he acted as their insurer, or agent of their insurer. The Bennetts now contend, however, that Miller's fiduciary duty is actually the function of a special relationship. Aside from acting as the Bennetts' Allstate insurance agent, Miller allegedly had also developed an enduring friendship with the Bennetts extending back before his tenure at Allstate. Miller allegedly visited socially with the Bennetts at their home on a few occasions during the period when subsidence damage existed. The gravamen of the Bennetts' claim against Miller now is that because he "held himself out as a long-time friend and cultivated the appearance of unyielding fidelity to the Bennetts" he became a fiduciary. This purported fiduciary duty allegedly would have been breached "if Miller was aware of the ...


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