United States District Court, S.D. California
ZOE BERNSTEIN, a minor, by her Guardian ad Litem Kelsie Valdez, Plaintiff,
NAUTILUS INSURANCE COMPANY, Defendant.
ORDER GRANTING DEFENDANT'S MOTION TO
M. James Torenz United States District Judge.
insurance breach of contract and bad faith action, Defendant
Nautilus Insurance Company (“NIC”) filed a motion
to dismiss for failure to state a claim. Plaintiff Zoe
Bernstein opposed and NIC replied. The Court decides this
matter on the briefs without oral argument. See Civ.
L. R. 7.1.d.1. For the reasons stated below, Defendant's
motion is granted.
was injured in a single car accident. She filed a personal
injury complaint in San Diego County Superior Court against
the driver and owner of the vehicle, David Bernstein (the
“Underlying Action”). (See doc. no. 1-2
(“Compl.”) at 3.) Mr. Bernstein was employed by
Pierview Investments II, Corp. (“Pierview”). The
operative complaint in the Underlying Action alleged that the
accident was caused by his negligence in the course and scope
of his employment with Pierview.
relevant time, Pierview was covered by a commercial general
liability policy issued by NIC (the
“Policy”). Pierview tendered the defense of the
Underlying Action to NIC, which NIC refused. The Underlying
Action settled with Plaintiff taking judgment against
Pierview for $6, 240, 893.37, and Pierview assigning its
rights and interests in the Policy to Plaintiff.
Plaintiff filed this action against NIC pursuant to
California Insurance Code § 11580(b)(2) for breach of
contract and breach of the implied covenant of good faith and
fair dealing. Plaintiff alleged that NIC breached its duty to
defend and indemnify Pierview in the Underlying Action. NIC
removed the action to this Court based on diversity
jurisdiction under 28 U.S.C. § 1332, and filed a motion
to dismiss for failure to state a claim under Federal Rule of
Civil Procedure 12(b)(6).
12(b)(6) motion tests the sufficiency of the complaint.
Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).
In reviewing a Rule 12(b)(6) motion, the Court must assume
the truth of all factual allegations and construe them most
favorably to the nonmoving party. Huynh v. Chase
Manhattan Bank, 465 F.3d 992, 997, 999 n.3 (9th Cir.
2006). “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)). Dismissal is warranted where the
complaint lacks a cognizable legal theory. Shroyer v. New
Cingular Wireless Serv., Inc., 622 F.3d 1035, 1041 (9th
Cir. 2010) (internal quotation marks and citation omitted).
Alternatively, a complaint may be dismissed where it presents
a cognizable legal theory, yet fails to plead essential facts
under that theory. Robertson v. Dean Witter Reynolds,
Inc., 749 F.2d 530, 534 (9th Cir. 1984).
Breach of Insurance Contract
claims that NIC breached its insurance contract by failing to
defend and indemnify Pierview. NIC counters the case should
be dismissed because it had no duty to do either. To prevail
on a claim for breach of duty to defend,
the insured must prove the existence of a potential for
coverage, while the insurer must establish the
absence of any such potential. In other words, the
insured need only show that the underlying claim may fall
within policy coverage; the insurer must prove it cannot. The
duty to defend exists if the insurer becomes aware of, or if
the third party lawsuit pleads, facts giving rise to the
potential for coverage under the insuring agreement.
Delgado v. Interins. Exch. of Auto. Club of S. Cal.,
47 Cal.4th 302, 308 (2009) (emphasis in original, internal
quotation marks and citations omitted). "The nature and
kinds of risks covered by the insurance policy establish the
scope of duty to defend." Essex Ins. Co. v. City of
Bakersfield, 154 Cal.App.4th 696, 704 (2007) (citing
Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1,
19 (1995). "'If, as a matter of law, neither the
complaint nor the known extrinsic evidence indicate any basis
for potential coverage, the duty to defend does not arise in
the first instance.'" Essex, 154
Cal.App.4th at 704 (quoting Scottsdale Ins. Co. v. MV
Transportation, 36 Cal.4th 643, 655 (2005). Duty to
defend, "which applies even to claims that are
groundless, false, or fraudulent, is separate from and
broader than the insurer's duty to indemnify."
Waller, 11 Cal.4th at 19 (internal quotation marks
and citation omitted).
contends that the Policy's auto exclusion precludes
coverage, and the Underlying Action therefore did not trigger
a duty to defend. "An insurer is ... obligated to
provide a defense even when an exclusion applies but may be
reasonably interpreted to be inapplicable to the alleged
facts." Essex, 154 Cal.App.4th at 704 (citation
omitted). Accordingly, an insurer cannot escape its duty by
means of an exclusionary clause that is unclear. Id.
at 705 (citation omitted). Plaintiff maintains that the
Policy's auto exclusion is at best ambiguous and does not
clearly exclude coverage for bodily injuries arising from
Plaintiff's auto accident.
parties' arguments are focused on policy interpretation.
"Interpretation of an insurance policy is a question of
law. While insurance contracts have special features, they
are still contracts to which the ordinary rules of
contractual interpretation apply." Palmer v. Truck
Ins. Exch., 21 Cal.4th 1109, 1115 (1999) (internal
brackets, quotation marks and citations
starting point of policy interpretation is its express
language. If the language is unambiguous, the court need not
Under statutory rules of contract interpretation, the mutual
intention of the parties at the time the contract is formed
governs interpretation. Such intent is to be inferred, if