United States District Court, S.D. California
BRIT UW LIMITED, for and on behalf of LLOYDS SYNDICATE #2987, Plaintiff,
CITY OF SAN DIEGO, a municipal corporation, Defendant. CITY OF SAN DIEGO, a municipal corporation, Counterclaimant,
BRIT UW LIMITED, for and on behalf of LLOYDS SYNDICATE #2987, Counterdefendant.
ORDER ON MOTION TO DISMISS AND STRIKE PORTIONS OF THE FIRST AMENDED COUNTER-COMPLAINT
JEFFREY T. MILLER, District Judge.
This order addresses Brit UW Limited's ("Brit's") motion to dismiss and strike parts of the City of San Diego's ("the City's") first amended counter-complaint. (Doc. No. 22.) The motion was fully briefed and found suitable for resolution without oral argument pursuant to Local Civil Rule 7.1.d.1. For the reasons set forth below, the motion is granted in part and denied in part.
A. Brit's Complaint
Brit initiated this insurance coverage action in September 2014. (Doc. No. 1.) Brit filed the operative, first amended complaint the next month, seeking a declaratory judgment that it had no obligation to defend or indemnify the City in a personal-injury lawsuit that was pending in San Diego Superior Court ("the state case" or "underlying action"). (Doc. No. 6.) Brit alleges as follows:
Brit, an insurer, is domiciled in London. The City is a California municipal corporation. This court has diversity jurisdiction, as the amount in controversy exceeds $75, 000.
In November 2010, Epic Pest Control ("Epic") agreed to provide pest-control services for certain parks and recreation areas operated by the City, including an athletic field called Robb Field. In August 2012, Brit issued a commercial general liability insurance policy to Epic. The policy provided coverage for "bodily injury" caused by an "occurrence, " as those terms are defined in the policy. (Id. ¶ 12.) It had a limit of $2 million per occurrence.
As a condition of doing business with the City, Epic requested coverage for the City as an additional insured. Accordingly, Brit issued an endorsement amending the policy to include as an additional insured "any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy." (Id. ¶ 14.) The endorsement provides coverage for injury caused by "Your acts or omissions, " or "The acts or omissions of those acting on your behalf in the performance of your ongoing operations and for that additional insured." (Id.) Brit claims that these provisions required it to provide coverage only for injuries caused by Epic's acts or omissions, not for harm caused by the City or its employees.
In August 2013, a personal injury lawsuit was filed in state court against Epic, the City, and several City employees. The plaintiff in that case, Andre Walker, sought recovery for injuries he suffered after he stepped in a hole caused by a burrowing rodent at Robb Field in September 2012.
According to Brit, after Epic and the City tendered the state case to Brit for defense and indemnification, Brit investigated and discovered that the City had interfered with Epic's pest-control efforts at Robb Field by countermanding Epic's choice of pest-control techniques and substances and by hiring outside vendors to do work at the field. Brit agreed to defend the City, but it reserved its right to withdraw the City's defense, to refuse to indemnify the City, and to seek reimbursement of fees and costs.
During the litigation of the state case, Brit claims, facts emerged showing that the City had, in fact, interfered with Epic's pest-control efforts in these ways. Brit claims that any injuries Walker suffered were thus caused by the interference and other independent acts of the City and its employees, not by Epic, so that Brit had no duty to defend or indemnify the City.
B. The City's Countercomplaint
The City filed a countercomplaint in November 2014, (Doc. No. 10), followed by the operative first amended countercomplaint ("FAXC") in December 2014, (Doc. No. 18). The City claims that Brit unreasonably declined to fulfill its defense obligations to the City. It provides the following account:
Epic and the City agreed that the City would be added to the policy as an additional insured, and Brit issued a certificate of liability naming the City and its employees as additional insureds. After the City tendered the state case for defense and indemnification, the City received a letter advising that Brit had retained counsel for the City. Due to a potential or actual conflict of interest between Epic and the City, Brit retained separate counsel for them. Brit agreed to provide a defense for the City, but it reserved its rights to withdraw the defense, to refuse to indemnify the City, and to seek reimbursement of fees and costs. As of the date of the filing of the FAXC, Brit had paid more than $150, 000 to defend the City and had not released its right to recoup that amount.
The City claims that Brit failed to provide a complete and adequate defense, despite its acknowledgment that it had an obligation to defend the City. Although Brit acknowledged the potential conflict between Epic and the City, it appointed the same claims adjuster to handle their claims, because of which the City's privileged and confidential information from its defense was disclosed to Epic's defense counsel. Brit also refused to participate meaningfully and in good faith in settlement negotiations on behalf of the City; engaged in settlement discussions without waiving its reservation of rights or involving the City; refused to accept reasonable settlement offers; attempted to induce the City to settle; and advanced theories that held the City liable, rather than advancing theories to exonerate and defend the City. And, while the state case was pending, Brit initiated this action seeking a declaration that it had no duty to defend or indemnify the City.
The City asserts claims for (1) declaratory judgment that Brit was obligated to provide a complete defense through the conclusion of the state case without any right to reimbursement; (2) breach of the contractual duty to defend; (3) specific performance of the duty to defend; and (4) breach of the implied covenant of good-faith and fair dealing, otherwise known as bad faith.
C. Brit's Motion to Dismiss and Strike
On December 22, 2014, Brit moved to strike some of the allegations and to dismiss the City's counterclaims for failure to state a claim. (Doc. No. 22.) The City filed an opposition on January 12, 2015, objecting to having to litigate this case while the state case was still ...