Asher v. Reliance Insurance Company

• Citation: 308 F. Supp. 847
• Decision Date: 03 February 1970
• Docket Number: Civ. No. 52294.
• Court: U.S. District Court — Northern District of California
• Parties: Guy B. ASHER, Plaintiff, v. RELIANCE INSURANCE COMPANY, a corporation, Defendant.

308 F. Supp. 847

Guy B. ASHER, Plaintiff, v. RELIANCE INSURANCE COMPANY, a corporation, Defendant.

Civ. No. 52294.

United States District Court, N. D. California.

February 3, 1970.

COPYRIGHT MATERIAL OMITTED

Ernest M. Thayer, San Francisco, Cal., for plaintiff.

Thornton & Taylor, San Francisco, Cal., for defendant.

Memorandum of Decision

GERALD S. LEVIN, District Judge.

This action arises from a complaint for fraud, breach of contract and the declaration of a constructive trust, all of which pertain to a contract of insurance between plaintiff and defendant.

Plaintiff, a citizen of California, alleges that he negotiated with defendant to secure fire insurance for premises in Juneau, Alaska, owned and operated by plaintiff. Plaintiff accepted defendant's offer to insure the named premises against loss by fire up to the amount of $14,000.00 in return for payment by plaintiff of an annual premium of $78.00.

On or about June 21, 1968, a fire occurred on the insured premises and has since resulted in a financial loss to plaintiff in an amount alleged to be in excess of $14,000.00. Plaintiff alleges that he thereafter submitted a claim to defendant for such loss, to which defendant delayed action but repeatedly promised to make payment to plaintiff toward such loss. Plaintiff further alleges that finally, and for the first time, on September 3, 1969, defendant refused to honor any portion of plaintiff's claim. On September 24, 1969, plaintiff filed this complaint.

Plaintiff contends that his complaint states the following causes of action: an action for fraud, in that defendant never intended to insure plaintiff in the amount of $14,000.00 and thus misled plaintiff into signing a contract of insurance therefor; an action for breach of contract; and an action declaring defendant involuntary trustee of a constructive trust in plaintiff's favor consisting of the premium paid by plaintiff and the interest thereon.

Defendant now moves to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b) (6) of the Federal Rules of Civil Procedure and to strike certain portions of the complaint as redundant, sham, or irrelevant pursuant to Rule 12(f) of the Federal Rules of Civil Procedure.

DISCUSSION

It appears from the papers on file herein that the sufficiency of plaintiff's claim for relief is to be governed by the law of Alaska, that being the place where the contract of insurance was issued. National Life and Accident Insurance Co. v. Gorey, 249 F.2d 388, 392-393 (9th Cir. 1957). Cf. Christian v. Preferred Acc. Ins. Co., 89 F.Supp. 888, 890 (N.D. Cal. 1950). Because of a paucity of Alaska law on several of the issues under consideration here, the law of the forum, California, will be referred to whenever an issue is not otherwise determinable under Alaska law.¹

I. Motion to Dismiss

A. First Cause of Action

Defendant contends that plaintiff's first cause of action sounds in contract (for breach) rather than in tort (for fraud) as plaintiff claims, and that as a result plaintiff's prayer for punitive, consequential, and mental suffering damages is defective.

Even if plaintiff's first cause of action sounded solely in contract and not tort, nonetheless the court would be obliged to deny defendant's motion to dismiss with regard thereto. That certain elements or forms of relief might be unavailable under a stated cause of action does not render that cause of action susceptible to a motion to dismiss. A complaint is not to be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U. S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); DeWitt v. Pail, 366 F.2d 682, 685 (9th Cir. 1966). Since even under a cause of action sounding solely in contract the plaintiff herein would be entitled to some relief — such as compensatory damages — defendant's motion to dismiss could be denied on this ground alone.

We think it manifest, however, that plaintiff's first cause of action, if his allegations are accepted as true, sounds in tort rather than contract. The tort alleged is fraud in the inducement of the insurance contract. Whether or not plaintiff can prove this allegation must await further proceedings and is not to be decided at this preliminary stage on a motion to dismiss.

Defendant relies on Reichert v. General Insurance Company of America, 68 Cal.2d 822, 69 Cal.Rptr. 321, 442 P.2d 377 (1968) as a factually similar case calling for the conclusion that the claim being pleaded here is essentially one for breach of contract. Reichert involved an action by an insured against several insurers for damage allegedly resulting from the insurers' failure to promptly indemnify the insured for losses suffered by reason of fire damage. Previously, the insured had purchased a motel already insured against loss by fire up to a stipulated amount under policies issued by the defendant insurers. A fire occurred at the motel thereafter, but the insurers would not indemnify the insured and so the insured came under substantial financial pressure from his creditors. The insured was finally forced into involuntary bankruptcy and it was this "consequential" damage for which he sought recovery in his suit against the insurers.

The main issue decided by the court sitting en banc in Reichert was whether the insured had standing to maintain suit against the insurers for failure to promptly settle his claim or whether such action had passed instead to the trustee in bankruptcy. A divided court finally disposed of the matter² by holding that the action had passed to the trustee and could not be maintained by the insured.

Although the plaintiff in Reichert had alleged that the defendant insurers had "oppressively" and in "bad faith" failed to settle his claim, the court considered the claimed liability to be contractual in nature. The distinction between Reichert and the case before us is this: in Reichert the amended complaint before the court contained allegations referring only to the contracts of insurance and the breaches thereof; misrepresentation had been pleaded in earlier amended complaint, but had been deleted in the subsequent amended complaint before the court. In the case before us, misrepresentation in the procurement of the contract of insurance has been specifically pleaded. The court in Reichert did not hold that no action in fraud could be maintained on the facts presented there, but only that the plaintiff had not stated an action therefor.

The timing of the alleged wrongs also distinguishes Reichert from the case before us. In Reichert, the wrong was alleged to have occurred upon the defendant insurers' failure to settle plaintiff's claim after losses suffered because of the fire. In the present case, however, the first cause of action alleges the wrong to be fraud in the procurement of the contract of insurance itself rather than a failure of the defendant to settle under the contract.

B. Second Cause of Action

Defendant argues that plaintiff's second cause of action, for breach of contract, is defective in that punitive, consequential, and mental suffering damages are prayed for, but that none of these are allowable in an action sounding solely in contract.

Again, the answer is that even were all these items of damage impermissible forms of recovery, the motion to dismiss would have to be denied because some form of relief, such as compensatory damages, would certainly be available to remedy a breach of contract.

Contracts of insurance are, of course, to be judged by the same legal principles as any other contract.³ Ness v. National Indemnity Company of Nebraska, 247 F.Supp. 944, 947-948 (D. Alaska 1965). Alaska follows the generally accepted rule governing damages when a breach of contract, without more, is alleged: the injured party is to be put in as good a position as he would have been had the contract been fully performed. Anchorage Cen. D. Co. v. Van Wormer & Rodrigues, Inc., 443 P.2d 596, 599 (Alaska 1968); Green v. Koslosky, 384 P.2d 951, 952 (Alaska 1963). The measure of damages is that amount which will compensate the party aggrieved for all the detriment proximately caused by the defendant, or which, in the ordinary course of things, would be likely to result therefrom. Cal.Civ. Code, § 3300; Coughlin v. Blair, 41 Cal. 2d 587, 603, 262 P.2d 305 (1953).

Where a breach of contract only is involved, punitive damages are not recoverable,⁴ Cal.Civ.Code, § 3294; Crogan v. Metz, 47 Cal.2d 398, 405, 303 P.2d 1029 (1956); Baumgarten v. Alliance Assur. Co., 159 F. 275, 277-278 (N.D. Cal. 1908); nor, generally, are damages for mental suffering, 11 Williston on Contracts § 1341, at 214 (3d ed. 1968).

The claimed consequential damage may be recoverable, however, if such damage were "proximately caused" by or "flowed naturally and expectedly" from the defendant's breach. Thus plaintiff's claimed loss of rents, if that kind of damage which was within the contemplation of the parties at the time the contract of insurance was entered into, could be recoverable in an action based solely on breach of contract. See Overstreet v. Merritt, 186 Cal. 494, 502, 505, 200 P. 11 (1921); Kline v. Guaranty Oil Co., 167 Cal. 476, 483, 140 P. 1 (1914); Mack v. Hugh W. Comstock Associates, 225 Cal.App.2d 583, 587, 37 Cal.Rptr. 466 (1964); 28 Cal.Jur.2d § 613, at 388. See also Theodore v. Zurich General Accident & Liabil. Ins. Co., 364 P.2d 51, 56 (Alaska 1961).⁵

C. Third Cause of Action

Defendant contends that plaintiff's third cause of action, which seeks to impose a constructive trust on defendant in the amount of the insurance premium paid to it plus interest thereon, is defective because a constructive trust cannot be imposed in an action to recover for breach of contract.

Defendant cites no authority whatsoever for this contention nor do we find any to support defend...