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United States Fidelity and Guaranty Co. v. San Diego Unified Port Dist.

September 25, 2009

UNITED STATES FIDELITY AND GUARANTY COMPANY, A MARYLAND CORPORATION, PLAINTIFF,
v.
SAN DIEGO UNIFIED PORT DISTRICT, A CALIFORNIA PUBLIC CORPORATION; TRAYLOR BROTHERS, INC., AN INDIANA CORPORATION DOING BUSINESS AS TRAYLOR PACIFIC; ANCHOR ENVIRONMENTAL, LLC, A WASHINGTON LIMITED LIABILITY COMPANY; AND GREENWICH INSURANCE COMPANY, A DELAWARE CORPORATION, DEFENDANTS.
SAN DIEGO UNIFIED PORT DISTRICT, A CALIFORNIA PUBLIC CORPORATION, COUNTER-CLAIMANT,
v.
UNITED STATES FIDELITY AND GUARANTY COMPANY, A MARYLAND CORPORATION, COUNTER-DEFENDANT.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIM FOR NEGLIGENCE

(Doc. No. 28)

Presently before the Court is plaintiff and counter-defendant United States Fidelity and Guaranty Company's ("USF&G") motion to dismiss the counterclaim for negligence raised by defendant and counter-claimant San Diego Unified Port District ("Port"). The Port has filed an opposition and USF&G has filed a reply. The Court finds the motion appropriate for submission on the papers and without oral argument pursuant to Civil Local Rule 7.1(d)(1). For the reasons explained below, the motion is granted.

BACKGROUND

USF&G, an insurer, issued a insurance policy to defendant Anchor Environmental ("Anchor"), effective from October 2004 to October 2005, which Anchor renewed for two subsequent years ("Policies"). The Complaint alleges Anchor and the Port contracted for Anchor to provide engineering, environmental, and construction support services for the Campbell Shipyard Aquatic Site Sediment Remediation Project ("Campbell Project"). The contract provided that Anchor would maintain commercial general liability coverage of $2,000,000 and would include the Port, its agents, officers, and employees as insureds.

In June 2006, defendant Traylor Brothers, Inc. ("Traylor") sued the Port in the United States District Court for the Southern District of California ("Traylor Action"), alleging the Port let out to bid a construction project related to the Campbell Project, and the Port awarded the project to Traylor, who was to provide construction labor and materials. Traylor further alleged it completed the project in November 2007, but the Port wrongfully withheld improperly assessed liquidated damages and extra costs from the final payment and refused to award Traylor extra time and additional compensation for extra work required to complete the project. On June 12, 2008 the Port tendered the Traylor Action to USF&G for defense and indemnity, contending it was an additional insured under the Policies issued by USF&G to Anchor.

USF&G agreed to defend the Port on September 19, 2008 under a reservation of rights.*fn1 USF&G subsequently brought the instant action against the Port, Traylor, Anchor, and XL Insurance America, Inc. on April 29, 2009. (Doc. No. 1.)*fn2 Specifically, USF&G sued the Port for declaratory relief regarding its duties to defend and indemnify, contending the "professional services exclusion" in the Policies bars coverage for the Traylor Action. USF&G has also sued the Port for reimbursement and indemnity with respect to the defense fees and costs related to the Traylor Action.

The Port filed an answer to the complaint on May 29, 2009 denying that the Policies barred coverage for the Traylor Action and denying USF&G's contention that it is not obligated to defend the Port. The answer also contained thirteen affirmative defenses and counterclaims for declaratory relief, negligence, and breach of the covenant of good faith and fair dealing.

The counterclaims generally allege that after USF&G agreed to defend the Port in September 2008, it informed the Port that USF&G would assign a defense counsel of its choosing and that the Port was not entitled to independent counsel. USF&G assigned the counsel, and the Port discontinued retention of its chosen defense counsel. The Port alleges the USF&G-assigned attorney has reported directly to USF&G's claims adjuster as opposed to reporting to the Port regarding the defense of the Traylor Action. The Port claims that since the assignment of counsel, little, if any defense of the Port has taken place and the Port's defense has consequently been harmed because any opportunity to resolve the Traylor Action "reasonably" has now been lost. Specifically, the Port alleges the parties to the Traylor Action were involved in a mediation process that necessitated some participation by USF&G, but the insurer was unresponsive to numerous requests to participate. Ultimately the Port requested that US F&G assign an adjuster to the file who could handle the mediation and defense issues separately from the adjustor who handled the coverage issues. The Port contends US F&G did not respond to the request, but instead filed the instant coverage action with this Court.

DISCUSSION

USF&G moves to dismiss the Port's counterclaim for negligence under Fed. R. Civ. P. 12(b)(6). The Port's negligence counterclaim states that by agreeing to defend the Port, USF&G had a duty to ensure a reasonable defense undertaken by counsel experienced in the subject matter of the litigation. The Port alleges US F&G breached that duty by assigning counsel that was inexperienced in the Traylor Action's subject matter and by controlling the Port's defense in an unreasonable fashion.

I. Legal Standard

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a) (2009). A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). A complaint survives a motion to dismiss under Fed. R. Civ. P. 12(b)(6) if it contains "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S.544, 570 (2007). The court only reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). Notwithstanding this deference, the court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949 (2009). Moreover, it is improper for a court to assume "the [plaintiff] can prove facts that [he or she] has not alleged." Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). Accordingly, a reviewing court may begin "by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Iqbal, 129 S.Ct. at 1950.

However, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. A claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 1949 (citing Twombly, 550 U.S. at 556). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. "Where a complaint pleads facts that are 'merely consistent ...


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