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Insurance Company of the West v. Risk Placement Services

December 18, 2007


The opinion of the court was delivered by: Hon. Dana M. Sabraw United States District Judge


This matter comes before the Court on motions by three Cross-Defendants -- ZC Sterling Insurance Agency, Inc. ("Sterling"), Ocwen Loan Servicing LLC ("Ocwen"), and Washington Mutual Insurance Services ("WaMu") -- to dismiss the Fourth Amended Cross-Complaint by Defendant Risk Placement Services, Inc. of Lexington ("RPS"). The Court found the motions suitable for decision without oral argument. Local Civil Rule 7.1(d)(1). For the reasons discussed below, the Court grants the motions to dismiss with prejudice.


Because these are motions to dismiss for failure to state a claim for relief, the Court accepts the facts alleged in the pleadings as true. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996). Plaintiff Insurance Company of the West ("ICW"), and its subsidiary, The Explorer Insurance Company, sell home and fire insurance policies to homeowners. First Amended Complaint ("FAC") ¶¶ 3-5. In January 1998, and as modified in November 2002, ICW entered into a General Agency Agreement with Insurance Ventures, Inc. to produce home insurance policies. Id. ¶¶ 5-6. Insurance Ventures' contractual duties included marketing, underwriting, administration, and management of sales to California homeowners (for example, accepting applications for insurance from insurance brokers and insurance agents, collecting premiums and keeping records, remitting premiums to ICW). Id. ¶¶ 8-11.

In turn, Insurance Ventures subcontracted certain services, including customer service and accounting, to Defendant RPS (the successor to Equity Insurance Managers, Inc., and formerly known as Equity Insurance Administrators or "EIA"). Id. ¶¶ 3.2, 12-15. RPS became a third party administrator for the Explorer Program to sell homeowners insurance in California for the benefit of both ICW and Insurance Ventures. Id. ¶¶ 12-13 (Insurance Administration Services Agreement expressly recognized duty to "properly interface with Insurance Ventures and ICW to meet the respective needs of both parties").

Plaintiff's FAC alleges contract and tort claims against RPS (on the theory that ICW was the named third-party beneficiary of the subcontract between Insurance Ventures and RPS) for failing to supply accurate accounts and failing to remit premiums received from the homeowners and held in trust on behalf of ICW. Id. ¶¶ 33-91 (totaling $1.1 million).

At the time Plaintiff ICW filed this lawsuit, it also submitted its claims against Insurance Ventures to arbitration. Id. ¶ 22-30 & Ex. A. The Arbitrator's decision describes two homeowners policies issued to ICW's clients' Victor Baez and Osmar Rodriguez. Id. ¶ 27. The homes of both Baez and Rodriguez were destroyed in the October 2003 wildfires in San Diego. Id. Ex. A at 19. Though ICW paid those two insurance claims (totaling $717,500), the Arbitrator found that Insurance Ventures was responsible for those losses. The November 2002 Transition Agreement required Insurance Ventures not to renew these policies, but Insurance Ventures negligently renewed them, thus they were effective when fires destroyed the homes. Id. Ex. A at 19, 26. ICW's FAC also seeks to recover those damages from RPS.

Id. ¶¶ 57-59, 76-80.

In its Fourth Amended Cross-Complaint ("FACC"), RPS has sued four entities connected to the Baez and Rodriguez homeowner's policies and seeks equitable indemnity and contribution for any damages that RPS may owe Plaintiff ICW. RPS has added a new cause of action for Negligent Misrepresentation. FACC ¶¶ 53-60. RPS's allegations regarding the Baez policy are against Cross Defendant Securian. Securian has answered the FACC and filed a summary judgment motion, which has been submitted on the briefs and will be resolved by separate Order.

As to the Rodriguez homeowner's insurance policy, RPS has named Cross-Defendants Ocwen, Sterling, and WaMu. FACC ¶¶ 22-52, 61-67. RPS alleges that Rodriguez purchased his insurance policy from Cross Defendant WaMu. FACC ¶ 27. WaMu acquired the one-year policy from Plaintiff ICW's Explorer Program and it became effective on October 17, 2002. Id. RPS alleges that Cross Defendant Ocwen was the loan servicer for the mortgage company that funded Rodriguez's home loan. Id. ¶ 4. Ocwen, in turn, hired Cross Defendant Sterling to collect the premium payments from Rodriguez. Id. ¶ 5.

RPS alleges that on October 11, 2002, Sterling issued a $531 check to ICW (through its third party administrator RPS, which was formerly known as EIA) for the full amount of Rodriguez's one year policy, but that check did not identify the correct policy number. Id. ¶ 28 & Ex. A. The $531 were applied to a different account, and as a result, EIA began to bill Rodriguez directly in four quarterly installments. Id. The first installment was due October 17, 2002, but no payment was received and a notice of cancellation for non-payment was sent with an effective cancellation date of October 27, 2002. Id. ¶ 29. On November 1, 2002, Rodriguez paid the first installment, and because it was within five days of the cancellation, the policy was reinstated. Id. Rodriguez timely paid the second installment, but failed to make the July 4, 2003 payment. "A notice of cancellation was sent July 7, 2003, with an effective cancellation date of July 22, 2003. However, Mr. Rodriguez failed to make the last payment. As no further payment was received, the policy was cancelled." Id. ¶ 30.

The mistake -- that Rodriguez's full payment had been applied to the wrong account -- was discovered on October 2, 2003. "[T]he payment was ultimately applied, and the policy reinstated effective July 22, 2003." Id. ¶ 31. RPS alleges that "given the timing of the discovery of the misapplied funds and the reinstatement . . . there was insufficient time to issue a 45-day non-renewal notice," in accordance with ICW's instructions not to renew the Explorer Program's policies, before the home burned on October 27, 2003. RPS alleges that the negligence of Cross Defendants Ocwen, Sterling, and WaMu entitles it to indemnity or contribution for the losses alleged by ICW in this action.

Cross Defendants move to dismiss on the ground that they did not owe a ...

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