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SAPIRO v. ENCOMPASS INSURANCE

April 29, 2004.

JEROME SAPIRO, JR. and CORNELIA B. SAPIRO, Plaintiffs,
v.
ENCOMPASS INSURANCE, SAFECO INSURANCE COMPANY OF AMERICA, and DOES 1-10, inclusive, Defendants



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.

BACKGROUND*fn1

 I. Plaintiffs' Home

  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. Id.

  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).

 II. Insurance Coverage

  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, siting;
b. design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
c. materials used in repair, construction, renovation or remodeling; or
d. maintenance.
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.

 III. Litigation History

  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 review.

 LEGAL STANDARDS

 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). ...


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