Jacobellis v. State Farm Fire & Cas. Co.

• Decision Date: 14 July 1997
• Docket Number: No. 95-56661,95-56661
• Citation: 120 F.3d 171
• Parties: 97 Cal. Daily Op. Serv. 5529, 97 Daily Journal D.A.R. 8985 George JACOBELLIS; Michelle Jacobellis, Plaintiffs-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, a California corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 171

120 F.3d 171

97 Cal. Daily Op. Serv. 5529, 97 Daily Journal

D.A.R. 8985

George JACOBELLIS; Michelle Jacobellis, Plaintiffs-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, a California corporation, Defendant-Appellee.

No. 95-56661.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 5, 1997.

Decided July 14, 1997.

Steven A. Kivo, Law Offices of Kivo & Weiss, Woodland Hills, CA, for plaintiffs-appellants.

Mitchell C. Tilner, Horvitz & Levy, Encino, CA, for defendant-appellee.

Appeal from the United States District Court for the Central District of California Audrey B. Collins, District Judge, Presiding. D.C. No. CV-95-02267-ABC.

Before: SCHROEDER, FERGUSON and LEAVY, Circuit Judges.

FERGUSON, Circuit Judge:

After sustaining earthquake damage to their home, George and Michelle Jacobellis ("Appellants" or "Jacobellises") filed suit against their residential property insurer, State Farm Fire and Casualty Company ("State Farm"), for negligent and intentional misrepresentation, bad faith, negligent and intentional infliction of emotional distress, and violation of Cal. Ins.Code §§ 10081 et seq. (West 1989) ("the Earthquake Insurance Act"). The district court granted State Farm's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). The Jacobellises appealed the dismissal of all causes of action except for the claim of negligent misrepresentation. We have jurisdiction under 28 U.S.C. § 1291. We reverse the district court's dismissal of the claim under the Earthquake Insurance Act.

STANDARD OF REVIEW

A dismissal for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6) is a ruling on a question of law and is reviewed de novo. Lewis v. Telephone Employees Credit Union, 87 F.3d 1537, 1545 (9th Cir.1996). Review is limited to the contents of the complaint. Allarcom Pay Television, Ltd. v. General Instrument Corp., 69 F.3d 381, 385 (9th Cir.1995).

All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir.1996). A complaint should not 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. Lewis, 87 F.3d at 1545.

A district court's interpretation of state law is reviewed under the same independent de novo standard as are questions of federal law. Salve Regina College v. Russell, 499 U.S. 225, 239, 111 S.Ct. 1217, 1225, 113 L.Ed.2d 190 (1991).

FACTUAL BACKGROUND

The First Amended Complaint alleged the following facts: In August, 1987, Appellants purchased homeowners insurance from State Farm for their home on Pala Mesa Drive, Northridge, California. At the time they purchased this policy, their State Farm agent informed them that obtaining earthquake insurance was cost prohibitive. Based on their financial circumstances at the time, Appellants did not purchase earthquake insurance. Appellants resided in the Pala Mesa home for about two years.

In March, 1989, Appellants bought a new home on Willow Tree Lane, in Northridge, and obtained another homeowners insurance policy through State Farm. In March, 1993, State Farm sent Appellants a bill to renew their homeowners insurance. At no time between 1989 and the filing of the action did State Farm offer earthquake coverage to Appellants for their second home. At the time they purchased their second home, earthquake coverage would not have been cost prohibitive to Appellants, but they were unaware of its availability.

On January 17, 1994, an earthquake struck Northridge and Appellants' Willow Tree Lane home was damaged in an amount not less than $300,000. Appellants notified State Farm of the damage and requested all of their policy documentation. Upon reviewing these documents Appellants discovered that Michelle Jacobellis's name had been forged on "Earthquake Coverage Documents," which appeared to indicate Appellants had rejected earthquake coverage. State Farm informed Appellants that the earthquake damage was not covered by their homeowners insurance policy.

ANALYSIS

The Earthquake Insurance Act provides that no residential property insurance may be issued or delivered unless the named insured is offered coverage for loss or damage caused by the peril of earthquake. ¹ Subsequent sections specify the parameters of a conforming offer in terms of time allowed, contents, typeface, and other provisions. ² The Jacobellises claimed that State Farm's failure to conform with the offer requirements upon the issuance and renewal of their second residential property policy constituted an actionable violation of the Earthquake Insurance Act.

The district court dismissed the Jacobellises' claim, deciding that the Earthquake Insurance Act did not create a private right of action. Since California courts have not yet addressed whether a private right of action is to be implied for violations of the Earthquake Insurance Act, we must review de novo whether the California Supreme Court would interpret it as creating a private right of action. See Salve Regina College v. Russell, 499 U.S. at 239, 111 S.Ct. at 1225 (1991); Vernon v. City of Los Angeles, 27 F.3d 1385, 1391 (9th Cir.1994).

Our first task in construing a statute is to ascertain the intent of the legislature so as to effectuate the purpose of the law. Dyna-Med v. Fair Employment and Hous. Comm'n, 43 Cal.3d 1379, 1386, 241 Cal.Rptr. 67, 70, 743 P.2d 1323, 1326 (1987).

The Earthquake Insurance Act was originally passed by the California Legislature in 1984, as Assembly Bill 2865. The historical and statutory notes accompanying § 10081 state:

It is the intent of the Legislature in enacting this act to promote awareness of earthquake insurance by residential property owners and tenants by requiring insurers to offer that coverage. It is the intent of the Legislature to make clear that loss caused by or resulting from an earthquake shall be compensable by insurance coverage only when earthquake protection is provided through a policy provision or endorsement designed specifically to indemnify against the risk of earthquake loss, and not through policies where the peril of earthquake is specifically excluded even though another cause of loss acts together with an earthquake to produce the loss.

West's Ann. Cal. Ins.Code, § 2 of Stats.1984, c. 916. Thus, there appear to be two intended effects of the statute: 1) increasing awareness on the part of residential property owners about the availability of earthquake coverage, and 2) clarifying insurer's liability for damage caused by earthquake concurrently with other, covered, causes of loss. The Legislature intended to create a right to be offered insurance coverage, and therefore, a private right of action should be implied to enforce this right.

I. Application of Moradi-Shalal

The district court held that the Earthquake Insurance Act did not create a private right of action because the sections were "substantially similar in character" to the Unfair Practices Act, Cal. Ins.Code §§ 790 et seq., which the California Supreme Court has held not to imply a private right of action. See Moradi-Shalal v. Fireman's Fund Ins. Cos., 46 Cal.3d 287, 304, 250 Cal.Rptr. 116, 126, 758 P.2d 58, 68 (1988). In Moradi-Shalal, the court considered the text of the Unfair Practices Act, reports of the legislative analyst and legislative counsel, alternative methods of enforcement, adverse consequences of implying the private cause of action, and analytical difficulties defining the scope of the cause of action in arriving at this conclusion.

Whereas application of these factors compelled the court's decision against a private right of action in Moradi-Shalal, application of the same factors compels the opposite conclusion in the case at hand. For instance, the text of the Unfair Practices Act specifically provided for enforcement by the Insurance Commissioner in the form of cease and desist orders. Moradi-Shalal, 46 Cal.3d at 294, 250 Cal.Rptr. at 119, 758 P.2d at 61. In contrast, the Earthquake Insurance Act does not provide for administrative enforcement. Because "[t]he general rule is that '[f]or every wrong there is a remedy,' " Faria v. San Jacinto Unified School Dist., 50 Cal.App.4th 1939, 1947, 59 Cal.Rptr.2d 72, 77 (1996) (quoting Cal. Civ.Code § 3523), the absence of alternative remedies to the harm caused by violations of the Earthquake Insurance Act requires that a private right of action be implied in this case.

The Earthquake Insurance Act also differs from the legislation reviewed in Moradi-Shalal insofar as the analytical difficulties and adverse practical consequences of implying a private right of action against violations of the Unfair Practices Act are absent. For example, in Moradi-Shalal, the court held that the difficulty in determining when an insurer's business practices are "unfair enough" to justify a private cause of action weighed against the judicial creation of a private cause of action. Moradi-Shalal, 46 Cal.3d at 303, 250 Cal.Rptr. at 126, 758 P.2d at 67-68. In contrast, the Earthquake Insurance Act's specific offer and notice requirements are clear and direct. See supra, n. 2.

Moradi-Shalal overruled a case which had mistakenly determined that the Legislature intended to confer a private right of action under the Unfair Practices Act. Moradi-Shalal did not hold that courts should never imply a private right of action. The Earthquake Insurance Act requires a private right of action for its enforcement and the judicial recognition of such a right of action does not raise the analytical difficulties and adverse consequences the California Supreme Court avoided in Moradi-Shalal. Thus, the district court's reliance on Moradi-Shalal was misplaced.

II. Restatement Test

Before Moradi-Shalal, California adopted the Restatement test for determining whether a private cause of action could be implied from a statute. See ...