Cornerstone Cmty. Alcohol & Other Drug Recovery Sys. v. Serv. Am. Indem. Co.
| Decision Date | 02 November 2022 |
| Docket Number | 1:22-cv-00225-SKO |
| Parties | CORNERSTONE COMMUNITY ALCOHOL AND OTHER DRUG RECOVERY SYSTEM dba KINGS GOSPEL MISSION, a Nonprofit Organization, Plaintiff, v. SERVICE AMERICAN INDEMNITY COMPANY, an Oklahoma Corporation; TANGRAM INSURANCE SERVICES, INC., a California Corporation; ARTHUR J. GALLAGHER & CO., an Illinois Corporation; and DOES 1 THROUGH 50, inclusive, Defendants. |
| Court | U.S. District Court — Eastern District of California |
ORDER GRANTING DEFENDANT ARTHUR J. GALLAGHER & CO.'S MOTION TO DISMISS FIRST AMENDED COMPLAINT AS TO DEFENDANT ARTHUR J. GALLAGHER & CO. WITH LEAVE TO AMEND [DOC. 6]
On October 28, 2021, Plaintiff Cornerstone Community Alcohol And Other Drug Recovery System, dba Kings Gospel Mission (“Cornerstone”) commenced this action in the Kings County Superior Court against Defendants Service American Indemnity Company (“SAIC”), Tangram Insurance Services, Inc., (“Tangram”), and Arthur J. Gallagher & Co. (“Gallagher”). On December 2, 2021, Plaintiff filed a First Amended Complaint (“FAC”), voluntarily dismissing Defendant Tangram. The FAC alleges five causes of action for breach of contract, equitable estoppel, breach of implied covenant of good faith and fair dealing, negligent performance of contract, and declaratory judgment. On February 22, 2022, Defendant Gallagher removed the action to this Court pursuant to 28 U.S.C. §§ 1441 and 1446(b)(3), insofar as this Court has original jurisdiction over Plaintiff's claims on the basis of diversity pursuant to 28 U.S.C. § 1332. (Doc. 1.)
On March 1, 2022, Defendant Gallagher filed a motion to dismiss the FAC pursuant to Fed.R.Civ.P. Rule 12(b)(6) based on failure to state a claim. (Doc. 6.) On March 15, 2022, Plaintiff filed an opposition to the motion to dismiss. (Doc. 10.) Defendant filed a reply on March 23, 2022. (Docs. 11.) On September 22, 2022, the case was reassigned to the undersigned for all further proceedings.[1] (Doc. 19.)
According to the FAC, Plaintiff maintained worker's compensation insurance in accordance with California law. Plaintiff's insurance carrier for the five years preceding this action was The Merriam Agency, an entity which was later acquired by Gallagher. Defendant Gallagher operated as Plaintiff's insurance broker, and Defendant Gallagher's insurance agent was Jon Barron (“Barron”).
On December 22, 2020, Barron's office contacted Plaintiff by email requesting that Plaintiff provide necessary documentation for renewal of Plaintiff's worker's compensation insurance policy for the year 2021.
On January 5, 2021, Plaintiff provided the requested documentation to Barron's office. On January 12, 2021, Barron's office confirmed receipt of the documents, and that Plaintiff's worker's compensation insurance coverage would renew effective February 1, 2021. On March 17, 2021, Plaintiff received from Barron's office a copy of Worker's Compensation Insurance Policy No. SATIS0396700 (the “Policy”), issued by Defendant SAIC. The Policy indicated that coverage would commence on February 1, 2021, through February 1, 2022, and SAIC was the insurance carrier.
In May of 2021, an employee of Plaintiff experienced an on-the-job injury, and Plaintiff tendered a worker's compensation claim to Gallagher. On May 20, 2021, Barron emailed Plaintiff, stating that the Policy had lapsed and was cancelled due to non-payment of premiums. Plaintiff then forwarded a copy of the Policy to Gallagher and confirmed that Plaintiff had not received any delinquency notices regarding non-payment of premiums.
Barron responded that there had been a “mix up,” but that he would see if the Policy could be reinstated. Later, Barron informed Plaintiff that reinstatement of the Policy with Defendant SAIC was not possible, and the claim would be denied for lack of coverage. As a result of the cancellation of the Policy, Plaintiff was compelled to cover the full cost of the claim of the injured employee. Plaintiff was also placed at risk of incurring fines and penalties for not maintaining sufficient worker's compensation coverage.
A motion to dismiss brought pursuant to Rule 12(b)(6) tests the legal sufficiency of a claim. Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quotation marks and citations omitted), cert. denied, 132 S.Ct. 1762 (2012). In resolving a 12(b)(6) motion, a court's review is generally limited to the operative pleading. Daniels-Hall v. National Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010); Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 2007); Huynh v. Chase Manhattan Bank, 465 F.3d 992, 1003-04 (9th Cir. 2006); Schneider v. California Dep't. of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998). However, courts may properly consider matters subject to judicial notice and documents incorporated by reference in the pleading without converting the motion to dismiss to one for summary judgment. U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).
“Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff must set forth “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw reasonable inferences that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
In considering whether a complaint states a claim on which relief may be granted, the court accepts as true the allegations in the complaint and construes the allegations in the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). The court is not required to assume the truth of legal conclusions that are cast in the form of factual allegations. Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994). Although Rule 8(a) does not require detailed factual allegations, “it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A pleading is insufficient if it offers more “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 676 (). It is inappropriate to assume that the plaintiff “can prove facts which it has not alleged or that defendants have violated the ... laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).
In ruling on a motion to dismiss brought under Rule 12(b)(6), the court is permitted to consider material which is properly submitted as part of the complaint, documents that are not physically attached to the complaint if their authenticity is not contested and the plaintiff's complaint necessarily relies on them, and matters of public record. Lee v. City of L.A., 250 F.3d 668, 688-89 (9th Cir.2001).
Plaintiff claims that Plaintiff and Defendants entered into a written contract requiring Defendants to provide worker's compensation insurance coverage to Plaintiff. Plaintiff contends that it performed all or substantially all of the requirements of the contract. Plaintiff claims that Defendants failed to perform as promised in the contract by cancelling the Policy without notice and by denying coverage despite previously representing that the Policy was valid through February of 2022.
Defendant Gallagher contends that it is not a party to the contract, and therefore, it cannot be held liable for a breach thereof. Gallagher argues that there can be no liability for someone who is not a party to a contract.
Plaintiff contends that California law allows for extra-contractual liability in situations such as this, where a party to a contract suffers damages probably traceable to a third party not in privity of contract with the damaged party.
Defendant Gallagher responds that Plaintiff cannot establish extra-contractual liability against Gallagher. Gallagher contends it was not a party to the contract and did not owe any obligations under the contract. Gallagher claims that Plaintiff fails to cite any law that would establish a claim against it for breach of contract.
In federal court in California, to state a claim for a breach of contract, Plaintiff must sufficiently allege: (1) that a contract exists between the parties; (2) that plaintiff performed his contractual duties or was excused from nonperformance; (3) that the defendant breached his contractual duties; and (4) and that plaintiff's damages were a result of the breach. Walters v. Fidelity Mortg of Cal., Inc., No. 2:09-cv-3317 FCD-KJM, 2010 WL 1493131 at *7 (E.D.Cal. Aug.14, 2010); Oasis West Realty, LLC v. Goldman, 124 Cal.Rptr.3d 1115, 1121 (Cal. 2011). Under California law, all insurance brokers have a duty to “use reasonable care, diligence, and judgment in procuring the insurance requested.” Pacific Rim Mech. Contractors, Inc. v. Aon Risk Ins. Servs. West, Inc., 138 Cal.Rptr.3d 294, 297 (Cal.Ct.App. 2012). Further, California recognizes that a breach of contract cause of action arises where the agent or broker breaches an oral agreement to obtain insurance as requested by the client. Saunders v. Cariss, 224...
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