UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
August 7, 2012
JAMES PREVITI; THE JAMES PREVITI FAMILY TRUST; PREVITI REALTY FUND LLP; LARRY DAY; EMPIRE PATNERS INC.; EMPIRE RESIDENTIAL INC.; FORECAST CORPORATION; GUARDIAN COMMERCIAL REAL ESTATE LP; GUARDIN INVESTMENT CAPITAL LL; KMR AVIATION INC.; NEIL MILLER; PAUL ROMAN, PLAINTIFFS,
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH PA, DEFENDANT.
The opinion of the court was delivered by: Dean D. Pregerson United States District Judge
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS [Dkt. No. 7, 10]
Presently before the court is Defendant National Union Fire Insurance Company of Pittsburgh, PA ("National Union")'s Motion to Dismiss. Having considered the submissions of the parties and heard oral argument, the court grants the motion and adopts the following order.
National Union issued a Directors, Officers, and Private Company Liability Insurance Policy (the "First Policy") to Plaintiff Inland Empire Personnel, Inc. for the period of December 31, 2007 to April 28, 2009. (Complaint ¶ 19.) National Union issued a second, similar policy (the "Second Policy") to Plaintiff Forecast Corporation for the period from April 28, 2009 to April 28, 2010 and a third, similar policy to Forecast Corporation (the "Third Policy") for the period from April 28, 2010 to April 28, 2011.*fn1 (Compl. ¶¶ 20-21.)
Plaintiffs are defendants in twenty-five separate actions (the "Bankruptcy actions") currently pending in the United States Bankruptcy Court for the Central District of California, Riverside Division. (Compl. ¶ 47.) Plaintiffs reported the Bankruptcy Actions to National Union and claimed coverage under all three policies. (Compl. ¶ 52.) The Parties agree that Plaintiffs are insured under the First Policy, and National Union acknowledged potential coverage for the Bankruptcy Actions under the First Policy. (Compl. ¶¶ 33, 53.) National Union declined coverage, however, under the Second Policy and Third Policy.
Plaintiffs filed the instant suit on May 4, 2012. Plaintiffs seek a declaratory judgment that they are covered under all three policies, and that defense payments made in connection with the Bankruptcy Actions do not erode the liability limits of the policies. Plaintiffs also allege causes of action for breach of the duty to defend and tortious breach of the implied covenant of good faith. National Union now moves to dismiss the complaint on the ground that Plaintiffs have failed to satisfy the policies' conditions precedent to suit against the insurer.
II. Legal Standard
A complaint will survive a motion to dismiss when it contains "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal,556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a court must "accept as true all allegations of material fact and must construe those facts in the light most favorable to the plaintiff." Resnick
v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint need not include "detailed factual allegations," it must offer "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678. Conclusory allegations or allegations that are no more than a statement of a legal conclusion "are not entitled to the assumption of truth." Id. at 679. In other words, a pleading that merely offers "labels and conclusions," a "formulaic recitation of the elements," or "naked assertions" will not be sufficient to state a claim upon which relief can be granted. Id. at 678 (citations and internal quotation marks omitted).
"When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement of relief." Id. at 679. Plaintiffs must allege "plausible grounds to infer" that their claims rise "above the speculative level." Twombly, 550 U.S. at 555-56. "Determining whether a complaint states a plausible claim for relief" is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.
National Union argues that this suit should be dismissed as premature because Plaintiffs have not complied with the policies' conditions precedent to suit against the insurer.*fn2 (Mot. at 4.) All three policies state, at Clause 18:
Except as provided in Clause 17 of the policy, no action shall lie against the Insurer unless, as a condition precedent thereto, there shall have been full compliance with all of the terms of this policy, nor until the amount of the Insureds' obligation to pay shall have been finally determined either by judgment against the Insureds after actual trial or by written agreement of the Insureds, the claimant and the Insurer.
(Compl., Exs. 1-3.) The exception set out in Clause 17 states:
The Insured shall have the option, in its sole discretion, to submit all disputes or differences which may arise under or in connection with the policy . . . to the alternative dispute resolution ("ADR") set forth in this clause. . . .
There shall be two choices of ADR: (1) non-binding mediation administered by the American Arbitration Association . . . or (2) [binding] arbitration submitted to the American Arbitration Association . . . . In the event of mediation, either party shall have the right to commence a judicial proceeding; provided, however that no such judicial proceeding shall be commenced until the mediation shall have been terminated and at least 120 days shall have elapsed from the date of the date of the termination of the mediation.
Plaintiffs argue that the policies leave the decision to pursue alternative dispute resolution ("ADR") solely in the hands of the insured, and that therefore Plaintiffs are not required to pursue ADR. (Opp. at 7.) While Plaintiffs are correct, insofar as the policies clearly give them the sole discretion to pursue ADR in the first instance, that does not answer the question here. Here, National Union does not assert that Plaintiffs must engage in ADR. Rather, National Union argues that ADR is a condition precedent to a pre-judgment suit against the insurer. In other words, National Union argues, Plaintiffs do not necessarily need to engage in ADR at any point, but Plaintiffs do need to engage in ADR if they wish to sue National Union now, prior to a final determination that Plaintiffs' have any obligation to pay in the Bankruptcy Actions.
Plaintiffs further argue that "no action" clauses, which prohibit suits against insurers prior to a final determination of the insureds' obligations, apply only to indemnification cases, not to coverage disputes such as that here. (Opp. at 9). Plaintiffs are correct, as National Union recognizes, that "no action" clauses that operate as complete bars to declaratory actions adjudicating issues of coverage and defense are unenforceable. Eureka Federal Sav. & Loan Ass'n v. American Cas. Co. of Reading, Pa., 873 F.2d 229, 233 (9th Cir. 1989).
National Union contends, however, that Clause 18 is not a total bar to suit. Instead, Clause 18 states that suit may not be brought, prior to a final determination in the underlying case, until the ADR conditions of Clause 17 have been satisfied. Other courts in this district and circuit have dismissed insurance coverage actions for failure to comply with ADR conditions precedent. In Gemstar-TV Guide International, Inc. v. National Union Fire Insurance Co. of Pittsburgh, No. CV 05-5719 NM (CD Cal. December 22, 2005), the plaintiff filed a coverage action while non-binding mediation was still ongoing. Gemstar at 4. The relevant policy included a mandatory ADR provision and language, similar to that here, allowing for a judicial proceeding only after 120 days elapsed from the conclusion of mediation.*fn3 Having determined that the plaintiff failed to exhaust contractual preconditions to suit, the Gemstar court dismissed the action for lack of jurisdiction. Gemstar at 3 (citing Ritza v. Int'l Longshoremen's and Warehousemen's Union, 837 F.2d 365, 371 (9th Cir. 1988) (construing motion to dismiss for failure to exhaust contractual remedies as a "non-enumerated" Federal Rule of Civil Procedure 12(b) motion, and granting the motion)).
In Willis Corroon Corp. Of Utah, Inc. v. United Capitol Ins. Co., No. 97-2208 MHP, 1998 WL 30069 (N.D. Cal. January 5, 1998), the parties made an interim agreement to mediate an insurance coverage dispute. Corroon, 1998 WL at *2. The interim agreement provided that the parties could file a judicial proceeding thirty days after the conclusion of mediation. Id. at *3. Because the plaintiff in Corroon filed prior to the expiration of the 30-day waiting period, the court dismissed the complaint for failure to state a claim under Federal Rule of Procedure 12(b)(6). Id. at *8.
The circumstances here are similar to those in Gemstar and Corroon. The ADR provision in the three policies is not a total bar to suit, but rather controls the timing of suits brought by insureds prior to a final determination of their obligations.*fn4
Having failed to comply with the preconditions of each of the three policies, Plaintiffs' complaint must be dismissed.*fn5
For the reasons stated above, Defendant National Union's Motion to Dismiss is GRANTED. Plaintiffs' Motion for Summary Judgment (Dkt. No. 10) is VACATED.
IT IS SO ORDERED.