United States District Court, S.D. California
ORDER DENYING MOTION TO DISMISS
LARRY ALAN BURNS, District Judge.
Aspen Speciality Insurance Company brought this lawsuit against Willis Allen Real Estate to rescind a liability insurance policy. Willis Allen filed a Counter-Complaint against Aspen for failure to effectuate a settlement with a third-party within policy limits. Aspen has moved to dismiss the Counter-Complaint. (Docket no. 26.)
I. Factual Background
A. Willis Allen's Insurance Policy
Aspen issued a "claims made" insurance policy to Willis Allen, a real estate company. Under the policy, Aspen insured Willis Allen up to $2 million for damages arising out of negligence committed in the performance of its professional services, and Aspen was required to defend and investigate claims against Willis Allen.
B. The Polamalus' Lawsuit Against Willis Allen
Troy and Theodora Polamalu purchased a home through Willis Allen. Thereafter, a landslide caused a significant portion of their backyard to slide into an adjacent canyon. They sued multiple defendants, including Willis Allen, seeking rescission of the house purchase and recovery of the cost of making home improvements. Willis Allen tendered the defense of the Polamalus' complaint to Aspen, and Aspen agreed to defend.
During the Polamalus' litigation, the parties engaged in settlement efforts, including mediation. Willis Allen alleges: its defense counsel kept Aspen abreast of settlement efforts; defense counsel made Aspen aware of the possibility of above policy limits liability; defense counsel requested the authority to settle up to policy limits; and Willis Allen learned it could resolve the Polamalus' claims for substantially less than the policy limits and informed Aspen of this fact. But, Willis Allen alleges, Aspen didn't give policy limits settlement authority and made settlement offers well below the amount the Polamalus requested. Willis Allen contends these "lowball" offers prevented a settlement from being effectuated and drew out settlement negotiations. The Polamalus eventually settled with Willis Allen, but only after they had settled with all other defendants. The settlement completely exhausted the policy and Willis Allen was required to contribute substantial monies of its own. Willis Allen alleges that, absent Aspen's gamesmanship, it wouldn't have needed to contribute to the settlement.
C. Aspen's Lawsuit against Willis Allen and Willis Allen's Counter-Claim
In January 2014, before the settlement with the Polamalus was completed, Aspen filed its complaint against Willis Allen seeking declaratory judgment and rescission of the policy. Aspen alleged that Willis Allen misrepresented material facts when it obtained the policy from Aspen and that the Polamalus' claims against Willis Allen were not covered by the policy. In October 2014, Willis Allen filed its Counter-Complaint for breach of contract and tortious breach of the implied covenant of good faith and fair dealing, alleging Aspen acted in bad faith when it ignored liability exposure and refused to give policy limits settlement authority.
Aspen now moves to dismiss Willis Allen's Counter-Complaint for failure to sufficiently allege a cause of action. ( See Docket no. 26.) It argues that Willis Allen has failed to adequately allege claims for breach of contract and breach of the implied covenant of good faith and fair dealing, because Willis Allen didn't allege that the Polamalus made a policy limits demand or otherwise indicated they would settle within policy limits. Thus, according to Aspen, it had no duty to settle, only a duty to negotiate, which it met by participating in settlement negotiations and making settlement offers.
A. Legal Standard
A 12(b)(6) motion to dismiss for failure to state a claim challenges the legal sufficiency of a complaint. Fed.R.Civ.P. 12(b)(6). The Court must accept all factual allegations as true and construe them in the light most favorable to the non-moving party-Willis Allen. Cedars Sinai Med. Ctr. v. Nat'l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). To defeat Aspen's motion to dismiss, Willis Allen's factual allegations need not be detailed, but they must be sufficient to "raise a right to relief above the speculative level...." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, "[s]ome threshold of plausibility must be crossed at the outset" before a case can go forward. Id. at 558 (quotation omitted). 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." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "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. While the ...