United States District Court, S.D. California
ORDER GRANTING GENESIS MANAGEMENT AND INSURANCE
SERVICES CORPORATION'S MOTION TO DISMISS [DOC. NO.
Michael M. Anello, United States District Judge.
April 4, 2019, Plaintiff City of Escondido
(“Plaintiff” or “City”) filed a
Complaint for breach of contract, breach of the implied
covenant of good faith and fair dealing, and declaratory
relief in San Diego County Superior Court against Defendants
General Reinsurance Corporation (“GRC”) and
Genesis Management and Insurance Services Corporation
(“Genesis”). Doc. No. 1-2. Defendants
removed the action to this Court on May 9, 2019. Doc. No. 1.
23, 2019, Plaintiff filed the First Amended Complaint
(“FAC”), adding causes of action for concealment
and negligent misrepresentation. Doc. No. 8
(“FAC”). Genesis then moved to dismiss the FAC
pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc.
No. 10-1. On August 29, 2019, the Court granted Genesis's
motion to dismiss without prejudice and with leave to amend.
Doc. No. 16 at 15.
September 3, 2019, Plaintiff filed the operative Second
Amended Complaint (“SAC”) asserting causes of
action for (1) breach of contract; (2) breach of the implied
covenant of good faith and fair dealing; (3) concealment; (4)
negligent misrepresentation; (5) false promise; and (6)
declaratory relief. Doc. No. 17 (“SAC”). Genesis
now moves to dismiss Plaintiff's claims pursuant to
Federal Rule of Civil Procedure 12(b)(6). Doc. No. 18. For
the following reasons, the Court GRANTS
an insurance company and Genesis is a wholly owned subsidiary
of GRC. SAC ¶¶ 1-2. From February 1, 1990 to May
15, 1994, Defendants insured Plaintiff “for
workers' compensation payments to Plaintiff's covered
employees and allocated investigation, adjustment[, ] and
legal expenses . . . .” Id. ¶ 8.
Plaintiff alleges that the insurance policy was issued by
GRC, but that it “was directed by [D]efendants solely
to Genesis with respect to claims, questions[, ] and
reimbursement requests involving the policy, ” and
“was directed by [D]efendants to submit all its claims
status reports solely to Genesis representatives . . .
.” Id. ¶ 2. According to Plaintiff, it
only communicated with Genesis, who was the “sole
decision maker and entirely controlled whether or not
reimbursements were to be issued to [Plaintiff] under the
policy.” Id. “Over the course of more
than 15 years in dealing with [Plaintiff] concerning the
policy, GRC and Genesis acted jointly through Genesis, with
Genesis conducting all the communications with [Plaintiff]
concerning the policy” such that “Genesis is the
alter ego of GRC.” Id. ¶ 2, 3.
alleges that the policy requires Defendants to indemnify
Plaintiff when its expenditures on a worker's
compensation claim falling within the policy period exceed
the policy's $250, 000 self-insured retention.
Id. ¶ 8. During the policy period, Plaintiff
“paid or incurred liability to pay workers'
compensation claims plus allocated investigation,
adjustment[, ] and legal expenses in excess of $250,
000” on three claims: (1) GRC claim number 6040678 for
claimant Paula Westenberger (“Westenberger
Claim”); (2) GRC claim number 6037896 for claimant Aida
Faeldan (“Faeldan Claim”); and (3) GRC claim
number 6034852 for claimant Michael Gain (“Gain
Claim”) (collectively, the “Three Underlying
Claims”). Id. ¶ 10.
timely submitted requests for indemnity to Defendants for
amounts in excess of $250, 000 for each of the Three
Underlying Claims. Id. ¶ 11. Each time,
Plaintiff alleges Defendants “refused to pay
[Plaintiff] and . . . adopted a pattern and practice of
wrongful and bad faith claims evaluations, during which
[D]efendants have withheld benefits under the pretext of
continuing to investigate while they assert a variety of
challenges and excuses . . . .” Id.
Additionally, “[D]efendants have refused to reasonably
and timely investigate, refused to provide legitimate,
reasonable[, ] or accurate reasons for their refusal to
provide benefits owed, and have unreasonably withheld
benefits owed to Plaintiff.” Id. ¶ 12.
The Westenberger Claim
Westernberger injured her low back on July 30, 1993, while
working as an employee of Plaintiff. Id. ¶ 16,
17. She became temporarily totally disabled due to increased
pain. Id. ¶ 17. When conservative treatment
proved ineffective, Mrs. Westenberger underwent several
failed back surgeries. Id. ¶¶ 16-17. In
December 1995, Mrs. Westenberger began working at the City
Heights Town Council (“CHTC”). Id.
¶ 19. When her pain increased, she was referred to a
pain management specialist, which included a series of back
injections to alleviate back pain. Id. She also
received a right hip injection, which caused complications
necessitating a right hip replacement. Id. ¶
16. As a result, Mrs. Westenberger developed a left foot
deformity requiring multiple surgeries. Id.
“These surgeries were complicated by the development of
reflex sympathetic dystrophy (‘RSD').”
Id. ¶ 22. “[S]he was diagnosed with left
foot neurologic problems and complex regional pain syndrome
(‘CRPS'). Id. ¶ 16. Mrs.
Westenberger's worker's compensation case determined
that her “right hip replacement, left foot deformity,
left foot neurological problems, and CRPS were all causally
related to her industrial injury suffered while working [for
Plaintiff].” Id. Thus, Plaintiff was
responsible for paying for Mrs. Westenberger's treatment
for these conditions. Id.
the worker's compensation proceeding, Plaintiff sought a
right of contribution against CHTC and its insurer for costs
associated with Mrs. Westenberger's right hip problems
and right hip replacement. Id. ¶ 34.
Ultimately, 50% of Mrs. Westenberger's right hip problems
were apportioned to the 1993 back injury, and 50% were
apportioned to her full-time work at CHTC. Id.
¶ 35. However, CHTC “is a nonprofit community
advocacy group with no assets and it had no worker's
compensation insurance” during the time Mrs.
Westenberger was working full-time. Id. ¶ 37.
Thus, Plaintiff, with Defendants' concurrence, abandoned
the contribution claim. Id. As a result, Defendants
purportedly knew that Plaintiff faced “near certain
joint and several liability” for the costs of Mrs.
Westenberger's past and future treatment that would
likely exceed $1 million. Id. ¶ 31.
2011, Defendants authorized Plaintiff to offer a structured
settlement of $1.25 million to Mrs. Westenberger.
Id. The “Compromise and Release” would
release Plaintiff from further disability payments and any
obligation to pay for Mrs. Westenberger's future medical
care. Id. Genesis advised Plaintiff that it would
initially fund all components of the settlement, but that
Genesis would reimburse Plaintiff for “each such
settlement payment after [Plaintiff] submitted a request for
reimbursement to Genesis.” Id. ¶ 80. Mrs.
Westenberger rejected the offer because she believed her
future medical care would exceed the settlement amount.
Id. ¶ 31.
2012, Plaintiff and Mrs. Westenberger entered into a
“Stipulation with Request for Award.”
Id. ¶ 25. “Defendants authorized and
approved of [Plaintiff] entering into [the]
‘Stipulation with Request for Award' which stated
[Plaintiff] was liable for all future medical care for [Mrs.
Westenberger's] ‘low back, hips, left foot, psyche,
and RSD . . . .'” Id. ¶ 31.
alleges that Geneis's actions were part of a scheme where
Genesis would give authorization for settlement and then
The scheme works like this: the City was instructed to keep
Genesis apprised of claims and obtain Genesis'[s]
approval before settling any claim that would trigger payment
of any benefits under the Policy, which it did. Genesis
approves the settlement, the City settles, but then
GRC/Genesis refuse to pay and raise knowingly false excuses
for denying coverage. To escape liability, GRC says it never
approved the settlement, and Genesis says it never had
authority to approve the settlement and owes no duty of care
to the City. With respect to the Westenberger claim, Genesis
approved the City's settlement and promised the City it
would be reimbursed for its settlement payments to
Westenberger. However, GRC/Genesis have refused to reimburse
the City. Genesis states it did not have authority to approve
the settlement. GRC seeks to pretend it is a separate entity
from Genesis that did not know what Genesis knew and did not
authorize or ratify the things that Genesis did. GRC claims
it was not advised and did not know about the Westenberger
claim or the proposed settlement, although Genesis was fully
informed of all material facts related to the Westenberger
claim. GRC states the City's payments to Westenberger
were unauthorized, not related to Westenberger's
industrial injury and thus not covered under the Policy.
Id. ¶ 3; see also ¶¶ 62-68,
70-78, 80-82. “Prior to 2012[, ] Defendants reimbursed
[Plaintiff] approximately $800, 000 on the Westenberger
claim.” Id. ¶ 32. However,
“[s]ubsequent to the May 2012 Stipulation with Request
for Award[, ] Defendants made only a single reimbursement in
2015 and in 2018 Defendants began raising numerous objections
to [Plaintiff's] additional reimbursement
requests.” Id. Plaintiff alleges that the
“objections are meritless and are based upon false and
intentionally inaccurate grounds as well as knowing
misrepresentations of California law and the terms of the
Policy.” Id.; see also Id.
¶¶ 32-45, 68 (listing examples of Defendants'
The Faeldan Claim
September 1, 1993, Ms. Faeldan “experienced right arm
and elbow pain in connection with pushing a steel cabinet
file and lifting boxes of police files” while working
as a data entry operator for Plaintiff's Police
Department. Id. ¶ 46. Conservative treatment
minimally improved her pain and Ms. Faeldan returned to work
with limited use of her right arm. Id. She then
developed pain in her left arm and elbow from overuse.
Id. Ms. Faeldan “eventually had surgery on her
left elbow[ and] was diagnosed with bilateral carpal tunnel
syndrome[ and] myofascial pain syndrome.” Id.
She “received psychiatric treatment in connection with
her injuries and inability to work.” Id.
2008, Defendants issued Plaintiff a check for $8, 132.18 to
reimburse Plaintiff for the amounts expended in excess of the
policy's retention on the Faeldan claim. Id.
¶ 47. Years later, Plaintiff began making monthly life
pension payments to Ms. Faeldan pursuant to an earlier
stipulation and award. Id. ¶ 48. These payments
exceeded the policy's retention on the Faeldan claim.
Id. Plaintiff made numerous reimbursement requests
to Defendants for these payments to no avail. Id.
The Gain Claim
16, 1993, Mr. Gain was working as a fire investigator for
Plaintiff “when he fell through the second story of a
fire damaged building, suffering significant injuries to his
neck, low back, right shoulder, and right knee.”
Id. ¶ 51. As of 2008, “Defendants had
reimbursed Plaintiff approximately $133, 000, ” but
determined that they overpaid Plaintiff by $58, 000.
Id. Plaintiff “issued a check to Defendants in
2009 for $58, 481.75.” Id. After 2009,
Plaintiff has paid over $17, 000 in life pension payments to
Mr. Gain. Id. ¶ 52. For several years,
Plaintiff has submitted proper reimbursement requests for
these life pension payments but has not received any
reimbursement from Defendants. Id. ¶ 53. Most
of these requests have been ignored, “except for once
when Defendants incorrectly asserted the retention had not
been exceeded.” Id. Defendants ignored
Plaintiff's response with documentation showing the
exceeded retention. Id. In August 2017, Defendants
asked for more information regarding a reimbursement request.
Id. After receiving the information, Defendants did
not reimburse Plaintiff. Id. Since then, all of
Plaintiff's requests and e-mails to Defendants have been
12(b)(6) motion to dismiss tests the sufficiency of the
complaint. Navarro v. Block, 250 F.3d 729, 732 (9th
Cir. 2001). A pleading 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). However,
plaintiffs must also plead “enough facts to state a
claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007); Fed.R.Civ.P. 12(b)(6). The plausibility standard thus
demands more than a formulaic recitation of the elements of a
cause of action, or naked assertions devoid of further
factual enhancement. Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). Instead, the complaint “must contain
sufficient allegations of underlying facts to give fair
notice and to enable the opposing party to defend itself
effectively.” Starr v. Baca, 652 F.3d 1202,
1216 (9th Cir. 2011).
reviewing a motion to dismiss under Rule 12(b)(6), courts
must assume the truth of all factual allegations and must
construe them in the light most favorable to the nonmoving
party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336,
337-38 (9th Cir. 1996). The court need not take legal
conclusions as true merely because they are cast in the form
of factual allegations. Roberts v. Corrothers, 812
F.2d 1173, 1177 (9th Cir. 1987). Similarly, “conclusory
allegations of law and unwarranted inferences are not
sufficient to defeat a motion to dismiss.” Pareto
v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998).
allegations of fraud or mistake require the pleading party to
“state with particularity the circumstances
constituting fraud or mistake.” Fed.R.Civ.P. 9(b). The
context surrounding the fraud must “be ‘specific
enough to give defendants notice of the particular misconduct
. . . so that they can defend against the charge and not just
deny that they have done anything wrong.'”
Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th
Cir. 2009) (quoting Bly-Magee v. California, 236
F.3d 1014, 1019 (9th Cir. 2001)). “‘Averments of
fraud must be accompanied by “the who, what, when,
where, and how” of the misconduct charged.' A party
alleging fraud must ‘set forth more than the neutral
facts necessary to identify the transaction.'”
Kearns, 567 F.3d at 1124 (first quoting Vess v.
Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.
2003); and then quoting In re GlenFed, Inc. Sec.
Litig., 42 F.3d 1541, 1548 (9th Cir. 1994)),
superseded by statute on other grounds.
dismissal is appropriate, a court should grant leave to amend
unless the plaintiff could not possibly cure the defects in
the pleading. Knappenberger v. City of Phoenix, 566
F.3d 936, 942 (9th Cir. 2009).
Claims Based on Contract
previous order granting dismissal, the Court held that
Plaintiff failed to allege breach of contract, breach of the
implied covenant of good faith and fair dealing, and
declaratory relief based on breach of contract because it had
“not adequately pled facts to find Genesis liable under
either an alter ego theory of liability or a joint venture
theory.” Doc. No. 16 at 10-11. Now, Genesis argues that
Plaintiff alleges no contractual relationship and
Plaintiff's liability theories remain insufficient. Doc.
No. 18-1 at 9. Plaintiff responds that it has alleged
sufficient facts under California law to support liability
under both theories. Doc. No. 20 at 11-16.
Existence of a Contract
first element for a California breach of contract claim is
“the existence of a contract.” EPIS, Inc. v.
Fidelity & Guaranty Life Ins. Co., 156 F.Supp.2d
1116, 1124 (N.D. Cal. 2001) (citing Reichert v. General
Ins. Co., 68 Cal. 2d 822, 830 (Cal. 1968)). A defendant
must have been a consenting party to the contract at issue to
be liable for breach of contract and breach of the implied
covenant of good faith and fair dealing. Gruenberg v.
Aetna Ins. Co., 9 Cal.3d 566, 576 (1973) (holding that
the non-insurer defendants were not parties to the insurance
contract and cannot be liable for breach of the implied
covenant of good faith and fair dealing); Minnesota Mut.
Life Ins. Co. v. Ensley, 174 F.3d 977, 981 (9th Cir.
1999) (holding ...