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Sentry Insurance a Mutual Co. v. New Alternatives, Inc.

United States District Court, S.D. California

November 13, 2019

SENTRY INSURANCE A MUTUAL COMPANY, a Wisconsin Corporation; and SENTRY CASUALTY COMPANY, a Wisconsin Corporation, Plaintiffs,
v.
NEW ALTERNATIVES, INC., a California nonprofit corporation; and DOES 1-100, Defendants, NEW ALTERNATIVES, INC., a California nonprofit corporation, Cross-Claimant,
v.
SENTRY INSURANCE A MUTUAL COMPANY, a Wisconsin Corporation and SENTRY CASUALTY COMPANY, a Wisconsin Corporation, Cross-Defendants.

          ORDER

          Hon. William Q. Hayes United States District Court

         The following matters are pending before the Court: 1) the Motion to Dismiss the Third Cause of Action (Fraud) in the Cross-Complaint filed by Plaintiffs (ECF No. 22) and 2) the Motion to Dismiss for Failure to State a Claim filed by Plaintiffs (ECF No. 27).

         BACKGROUND

         On November 21, 2018, Plaintiffs Sentry Insurance A Mutual Company (“Sentry Insurance”) and Sentry Casualty Company (“Sentry Casualty”) initiated this action by filing a Complaint against Defendant New Alternatives, Inc. (“New Alternatives”) for breach of contract. (ECF No. 1). Plaintiffs allege that Defendant breached Sentry Policies and Casualty Insurance Agreements regarding workers' compensation insurance coverage by failing to pay an outstanding balance of $573, 290.35. (ECF No. 24 at 9). Plaintiffs seek a money judgment, reasonable costs and attorneys' fees incurred, and further relief as the court deems just and proper.

         On February 26, 2019, Defendant filed an Answer, Affirmative Defenses, and a Counterclaim against Plaintiffs. (ECF No. 8). On July 24, 2019, Plaintiffs filed a Motion to Dismiss the Third Cause of Action (Fraud) in the Cross-Complaint filed by Defendant. (ECF No. 22).

         On August 8, 2019, Defendant filed an Answer, Affirmative Defenses, and the First Amended Counterclaim. (ECF No. 24). Defendant admits that Plaintiffs provided workers compensation insurance coverage for Defendant from January 1, 2013 until January 1, 2017. (ECF No. 24 at 2). Defendant admits that it agreed to pay premiums to Plaintiffs. Id. at 4. Defendant alleges that one or more of Plaintiffs' Policies are illegal, void, and unenforceable because Plaintiffs supplemented the Sentry Policies with Casualty Insurance Agreements contrary to California Insurance Code § 11658. Id. at 8-9. Defendant alleges the following five claims in the Amended Counterclaim: 1) declaratory relief and rescission, 2) tortious breach of the implied covenant of good faith and fair dealing, 3) fraud (nondisclosure and misrepresentation), 4) declaratory relief, and 5) unjust enrichment. Defendant seeks a declaration that the Casualty Insurance Agreements are void and unenforceable; rescission of the Casualty Insurance Agreements; general and special damages against Plaintiffs in a sum to be proven at trial with pre and post-judgment interest; and recovery of all attorneys' fees and consultants' fees, costs, and expenses.

         On August 29, 2019, Plaintiffs filed a Motion to Dismiss Defendant's Amended Counterclaim for Fraud (Counterclaim 3). (ECF No. 27). Plaintiffs contend that Defendant failed to plead its fraud counter-claim with specificity required by Fed. R. Civ. Proc. 9(b) and that the fraud counter-claim is time-barred. (ECF No. 27-1 at 3). On September 23, 2019, Defendant filed a Response in Opposition to Plaintiffs' Motion to Dismiss Defendant's Amended Counterclaim for Fraud (Counterclaim 3). (ECF No. 28). On September 30, 2019, Plaintiffs filed a Reply. (ECF No. 31).

         ALLEGATIONS OF THE FIRST AMENDED COUNTERCLAIM FOR FRAUD

Defendant alleges that Plaintiffs represented that the Sentry Policies and Casualty Insurance Agreements complied with California law, including the relevant applicable statutes and regulations. . . . These representations were false at the time made based on the specific violations of California law separately alleged, including the usage of an unapproved and illegal side agreement intended to bind New Alternatives prior to the required regulatory approval. Alternatively, Sentry did not disclose that the Casualty Side Agreement had not been approved by the California Insurance Commissioner . . . .

(ECF No. 24 at 13).

         Defendant alleges the Plaintiffs' misrepresentations and non-disclosures were material and relied upon. Id. at 13-14. Defendant alleges that Plaintiffs' misrepresentations and non-disclosures “served as a preface to irregularities in the manner and method of determining premiums all in furtherance of [Plaintiffs'] scheme starting with the Program Inception Date and continuing to the present.” Id. at 14. Defendant alleges that “Alternatively, [Plaintiffs'] intentional failure to disclose the alleged material facts commenced during the Policy application process, existed as of the Program Inception Date and continued without correction until June 7, 2013.” Id. Defendant alleges that it did not discover that Plaintiffs' alleged misrepresentations and non-disclosures until after Sentry Policies had been in force. Id. at 15. Defendant alleges that Plaintiffs' alleged conduct increased Defendant's insurance premiums and resulted in unnecessary and excessive, fees, costs, and expenses. Id.

         LEGAL STANDARD

         Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Federal Rule of Civil Procedure 8(a) provides that “[a] pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. See Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

         When reviewing a motion to dismiss, a court must accept as true all “well-pleaded factual allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, a court is not “required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). “In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, and reasonable inferences from that content, must be ...


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