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Continental Casualty Co. v. Scully

July 12, 2010


The opinion of the court was delivered by: Hon. Thomas J. Whelan United States District Judge


Pending before the Court are Plaintiff The Continental Casualty Company's ("Continental") motions to dismiss and to strike. Defendants Mike Scully and Carla Scully (collectively "Defendants") oppose the motions.

The Court decides the matter on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d)(1). For the following reasons, the Court DENIES both of Continental's motions.


Continental is an Illinois corporation with its principal place of business in Chicago, Illinois. (Doc. No. 1.) Continental issues marine insurance policies in California through its marine manager BoatU.S. (Id.) The Defendants are a married couple who reside in Maricopa County, Arizona. (Doc. No. 10.)

In March 2006, Mike Scully purchased a 33-foot Sea Ray Cruiser (the "Vessel") for approximately $197,000. (Id.) The following year, Defendants obtained an insurance policy for the Vessel (the "Policy") from Continental, through BoatU.S. (Doc. No. 1; Ex. A.) The Policy named Continental as the insurer and Mike Scully and Carla Scully as the insured. (Doc. No. 1; Ex. B.) The Policy covered the Vessel for one year commencing on March 8, 2007, through March 8, 2008. (Doc. No. 1.) On March 8, 2009, the Defendants renewed the Policy for one year. (Id.)

Pursuant to the Policy, the Vessel was home-ported at Shelter Island, San Diego, California. (Id.) The Policy provided coverage for the Vessel and its equipment in the amount of $197,512 within the navigational limits of "U.S. Pacific Coastal Waters" (Doc. No. 1 Ex. B) and covered any accidental loss to the Vessel up to the Policy limit. (Doc. No. 1; Ex A at 2). The Policy also contained the following "Fraud and Concealment" provision:

"There is no coverage from the beginning of this policy if you or your agent has omitted, concealed, misrepresented, sworn falsely, or attempted fraud in reference to any matter relating to this insurance before of after any loss." (Doc. No. 1; Ex. A at 10.)

On or about April 21, 2009, while the Policy was in effect, Mike Scully commenced a solo fishing expedition from Shelter Island, San Diego to Santa Catalina Island, off the Southern California Coast. (Doc. No. 1.) He piloted the Vessel to the far side of the island and anchored approximately half of a mile off-shore to fish. (Doc. No. 17.) At approximately midnight, Mike Scully was below deck lubricating his fishing tackle with WD-40 by candle light, when he accidently over-sprayed the WD-40 and it, or its fumes, came into contact with the candle flame causing a fire to erupt onboard the Vessel. (Id.) As a result of the fire, he abandoned the Vessel in a dinghy and was discovered by rescue workers on a nearby shore the following morning. (Id.) Prior to this voyage, Mike Scully had never been to Santa Catalina Island or anchored the Vessel alone, overnight, at sea. (Doc. No. 1.)

Following the fire, Defendants submitted an insurance claim to Continental, through BoatU.S., for the damage sustained to the Vessel. (Id.) As part of the claims process, Continental obtained estimates to repair the damage.(Id.) Continental also sent an investigator to obtain a recorded statement from Mike Scully concerning how the fire occurred. (Id.)

In his recorded statement to the Continental investigator, Mike Scully stated that he had been asleep above deck when he was awoken by smoke and that his only explanation for how the fire started was that he had left a candle burning in the bathroom below deck. (Doc. No. 1 at ¶ 14.) When asked by the Continental investigator if there was anything else he could think of that might explain the fire, Mike Scully replied "Just a candle that's it. There's no other reason." (Id.)

Subsequently, Continental sent an attorney to obtain an official sworn statement from Mike Scully, in the form of an Examination Under Oath ("EUO"), also concerning how the fire occurred. (Id.) During the EUO, Mike Scully testified that he was not asleep when the fire started. He then revealed the version of events that included his accidentally lighting the fire with WD-40. (Doc. No. 1 at ¶ 15.) He also testified that he had been drinking Crown Royal and Coke the night of the fire. (Id.) Mike Scully further testified that he initially concealed how the fire started from the Continental investigator because: (1) he was embarrassed about how the fire started, (2) he thought there might be criminal ramifications because he had been drinking, and (3) he received bad legal advice from a family friend. (Id.) Mike Scully also testified to having thrown out the can of WD-40, without advising Continental, after the Vessel was salvaged and returned to port. (Id.)

On or about September 8, 2009, Continental invoked the "Fraud and Concealment" provision of the Policy to void and rescind the Policy based on "the material misrepresentations and concealments" committed by Mike Scully. (Doc. No.1; Ex. D.) Continental then filed the instant action, seeking relief for voiding the Policy for violation of the "Fraud and Concealment" provision, relief for rescission of the Policy for misrepresentation and concealment, and declaratory relief. (Doc. No. 1.)

In response, on December 23, 2009, Defendants filed a counterclaim for breach of contract and breach of the covenant of good faith and fair dealing. (Doc. No. 10.) On January 13, 2010, Continental filed this motion to dismiss the counterclaims pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. No. 13) and to strike the jury demand from the Defendants' complaint pursuant to Fed.R.Civ.P. 12(f). (Doc. No. 12.) Defendants oppose both motions. (Doc. No. 17,18.)



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