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Polcyn v. Liberty Mutual Insurance Co.

United States District Court, Ninth Circuit

May 30, 2013

SCOTT POLCYN, an individual; and SHERRI POLCYN, an individual, Plaintiffs,
v.
LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts corporation; and LIBERTY MUTUAL FIRE INSURANCE COMPANY, a Wisconsin corporation, Defendants.

ORDER DENYING MOTION TO DISMISS [Doc. No. 5]

CATHY ANN BENCIVENGO, District Judge.

On June 14, 2012, Defendants Liberty Mutual Insurance Company ("LMIC") and Liberty Mutual Fire Insurance Company ("LMFIC") (collectively "Liberty Mutual") filed a motion to dismiss the complaint. [Doc. No. 5.] On July 27, 2012, Plaintiffs filed an opposition to the motion. [Doc. No. 6.] On August 2, 2012, Defendants filed a reply to the opposition. [Doc. No. 7.] On August 8, 2012, the motion was taken under submission. [Doc. No. 8.] After reviewing the submissions of the parties, the Court HEREBY DENIES the motion to dismiss.

I. Background

On June 12, 2006, Thomas and Pia Eckwortzel (the "Eckwortzels") sued Scott and Sherri Polcyn (the "Polcyns") in state court for trespass with regard to a property dispute (the "Lawsuit"). Complaint ("Compl."), Doc. No. 1 at 2, ¶¶ 13 and 14. The Polycns had purchased insurance through Liberty Mutual Group including both homeowners coverage (throught LMFIC) and umbrella liability coverage (through LMIC). Compl. ¶ 17. The Polycns tendered the defense of the Lawsuit to Liberty Mutual within one or two days of being served. Compl. ¶ 18. Liberty Mutual did not immediately agree to defend the Polcyns, and the Polycns retained Attorney Craig Zafis to protect their interests in the Lawsuit. Compl. ¶ 19.

On August 10, 2006, Liberty Mutual issued a denial of coverage and rejected the tender of defense for both LMIC and LMFIC. Compl. ¶ 33. The Eckwortzels then filed a First Amended Complaint ("FAC") [Doc. No. 1-1 at 12], and the Polcyns again tendered the defense to Liberty Mutual. Compl. ¶ ¶ 38, 39. On November 20, 2006, Liberty Mutual denied coverage and refused the tender of defense of the FAC.

On April 13, 2007, Mr. Zafis again tendered the defense of the Lawsuit to Liberty Mutual with copies of discovery responses. Compl. ¶ 45. On May 2, 2007, Liberty Mutual again denied coverage and any duty to defend.

The Exkwortzel's then filed a Second Amended Complaint ("SAC"), and (on January 2, 2008) Mr. Zafis again requested Liberty Mutual provide coverage and defend the Polcyns. Compl. ¶ ¶ 52, 53. On May 11, 2009, Mr. Zafis again requested that Liberty Mutual provide coverage and defend the Polcyns. Compl. ¶ 55. On May 14, 2009, Liberty Mutual again denied coverage and any duty to defend. Compl. ¶ 56.

On May 29, 2009, Attorney William E. O'Nell (on behalf of the Polcyns) asserted that Liberty Mutual's denial of coverage and refusal to defend the Polycns had been in bad faith and requested that Liberty Mutual accept the Poycn's tender of defense of the Lawsuit. Compl. ¶ 58. On July 6, 2009, Mr. O'Nell again requested that Liberty Mutual accept the tender of the Polycns' defense. Compl. ¶ 59. On August 26, 2009, LMFIC accepted the tender and agreed to defend under the Homeowners Policy. Compl. ¶ 60.

By the end of 2009, Liberty Mutual had agreed to pay all of the Polcyns' defense costs from the original tender through the conclusion of the case. Compl. ¶ 66. Liberty Mutual also agreed to pay " Brandt fees"[1] incurred to both Mr. Zafis and Mr. O'Nell. Compl. ¶ ¶ 67, 68. Finally, Liberty Mutual agreed to pay interest on the amounts paid by the Polcyns for their attorneys' fees and defense costs (Compl. ¶ 69), but would not agree to pay the Polcyns for emotional distress damages (Compl. ¶ 70).

II. Discussion

A. Legal Standard.

Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the defense that the complaint "fail[s] to state a claim upon which relief can be granted, " generally referred to as a motion to dismiss. "To survive a motion to dismiss, a complaint must contain 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)). A claim is facially plausible when the collective facts pled "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). That is not to say that the claim must be probable, but there must be "more than a sheer possibility that a defendant has acted unlawfully." Id. Facts "merely consistent with' a defendant's liability" fall short of a plausible entitlement to relief. Id. (quoting Twombly, 550 U.S. at 557). Further, the Court need not accept as true "legal conclusions" contained in the complaint. Id.

B. Bad Faith Claim.

Defendants argue that Plaintiffs have failed to state a claim for bad faith because they have failed to allege any facts that Liberty unreasonably delayed accepting the defense of the Lawsuit. [Doc. No. 5-1 at 12-13.] Plaintiffs argue that they do state sufficient allegations to set forth a claim for bad faith, and that Defendants have ...


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