The opinion of the court was delivered by: MARILYN PATEL, Chief Judge, District
MEMORANDUM AND ORDER
Motion to Dismiss; Motion to Strike;
Motion for Judgment on the Pleadings
On July 31, 2003, Jerome Sapiro, Jr. and Cornelia Sapiro ("plaintiffs")
filed a complaint against Encompass Insurance Company ("EIC"), Safeco.
Insurance Company of America ("Safeco"), and various "Doe" defendants in
state court. In pertinent part, plaintiffs' complaint alleges breach of
contract, bad faith, and fraud causes of action against all defendants;
it also seeks declaratory relief. On October 10, 2003, Encompass removed
the action in its entirety to this court. See 28 U.S.C. § 1332,
1441. Safeco. has now filed a motion to dismiss under Federal Rule of
Civil Procedure 12(b)(6); Encompass has filed a motion asking the court
to strike plaintiffs' amended complaint and to enter full or partial
judgment on the pleadings. See Fed.R.Civ.P. 12(c) & 15(a). The court has
considered the parties' arguments fully, and for the reasons set forth
below, the court rules as follows.
In 1980, plaintiffs hired a contractor to build a substantial addition
to their home.*fn2 Construction of the three-story addition required the
building of new "supporting walls," "exterior walls . . . covered with
stucco," and portions of a "new roof." Compl., at ¶ 6; First Am.
Compl., at ¶ 5. The contractor completed the project, but,
"[u]nbeknownst to plaintiffs at the time," the contractor performed much of the work negligently. See Compl., at ¶ 7;
First Am, Compl., at ¶ 6. In fact, the contractor left a "gap" between
the "flashing" i.e., the material used in wall and roof construction to
prevent water penetration and the stucco. coating the exterior walls.
In August 2002, plaintiffs hired another contractor to remodel and to
renovate their home. See Compl., at ¶ 8; First Am. Compl., at ¶ 9.
During renovation, this new contractor discovered the "gap" between the
"flashing" and the stucco. Id. Over time, the new contractor reported,
moisture had infiltrated this "gap," causing extensive damage to
plaintiffs' home. Id. None of this damage was perceptible from inside or
outside the house; it was only detectable when the contractor exposed the
"gap," so plaintiffs knew nothing of the defect until August 2002. See
Compl., at ¶¶ 8-10 (adding that the damage required "over $150,000 to
repair"); First Am. Compl., 9-11 (same).
Beginning on July 1, 1979, plaintiffs insured their home with
Continental Insurance Company, the predecessor-in-interest to CNA, which
itself was a predecessor-in-interest to Encompass. See, e.g., Compl., at
¶¶ 3, 11-12; First Am. Compl., at ¶¶ 3, 11; Exh. A. Plaintiffs' policy with
Continental Insurance expressly applied "only to occurrences or losses
during the policy period," see Exh. A, at p. 2, and it expired on June
1, 1982. Id. at p. 5.
Beginning in 1993, plaintiffs insured their home with Safeco. See
Compl., at ¶ 13; First Am. Compl., at ¶ 12. Safeco's policy covers
"accidental direct physical loss to property," but it contains a number
of coverage limitations and exclusions. See Compl., at ¶¶ 13, 38; First
Am. Compl., 12 & 37; Exh. B. For example, Safeco's policy excludes from
coverage any "loss caused directly or indirectly by"
14. planning, construction or maintenance, meaning
faulty, inadequate or defective:
a. planning, zoning, development, surveying,
b. design, specifications, workmanship, repair,
construction, renovation, remodeling, grading,
c. materials used in repair, construction, renovation
or remodeling; or
See Exh. B, at p. 4. The policy also excludes from coverage "water
damage, meaning . . . water which exerts pressure on, or seeps or leaks
through a building," id., and it excludes loss incident to "mold, wet or
dry rot." Id at p. 3. After learning of the "gap," plaintiffs filed insurance claims with
both Safeco. and Encompass. Both claims were denied, and plaintiffs
commenced the instant litigation.
On July 31, 2003, plaintiffs filed a complaint against Encompass,
Safeco, and various "Doe" defendants in state court. The complaint states
four causes of action and seeks declaratory relief against all
defendants. The first two causes of action allege that Encompass breached
its contract with plaintiffs, acted in bad faith, and engaged in fraud;
the last two causes of action allege that Safeco. did the same. On
October 9, 2003, Encompass filed an answer to plaintiffs' complaint in
state court.*fn3 See Notice of Removal, Exh. 1. The next day, Encompass
removed the action in its entirety to this court. See 28 U.S.C. § 1332,
1441. On February 19, 2004, Safeco. filed an initial motion to dismiss,
asking the court two dismiss plaintiffs' third and fourth causes of
action (that is, the two causes of action focusing on Safeco's conduct)
under Federal Rule of Civil Procedure 12(b)(6). Plaintiffs did not file
an opposition to Safeco's motion, opting instead to submit an amended
complaint on March 19, 2004. See generally First Am. Compl. Ten days
later, Encompass filed a motion asking the court to strike plaintiffs'
amended complaint and to enter complete or partial judgment on the
pleadings. See Fed. R. Civ. P. 12(c) & 15(a). On March 29, 2004, Safeco.
modified its motion to dismiss in light of plaintiffs' amended
complaint, and the court has consolidated the pending motions for
I. Motions to Dismiss and Motions for Judgment on the Pleadings
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)
"tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729,
732 (9th Cir. 2001). Because Rule 12(b)(6) focuses on the "sufficiency"
of a claim and not the claim's substantive merits "a court may
[typically] look only at the face of the complaint to decide a motion to
dismiss." Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th
Cir. 2002).*fn4 Under Rule 12(b)(6), "unless it appears beyond doubt
that plaintiff can prove no set of facts in support of her claim which
would entitle her to relief," a motion to dismiss must be denied. Lewis
v. Telephone Employees Credit Union. 87 F.3d 1537, 1545 (9th Cir. 1996) (citation omitted): see also
Conley v. Gibson, 355 U.S. 41, 45-46 (1957). When assessing a Rule
12(b)(6) motion, the court must accept as true "all material allegations
of the complaint," and all reasonable inferences must be drawn in favor
of the non-moving party. See, e.g., Cahill v. Liberty Mut. Ins. Co.,
80 F.3d 336, 337-38 (9th Cir. 1996) (citation omitted). ...