Marshall v. Standard Ins. Co.

• Decision Date: 30 October 2000
• Docket Number: Case No. CV 00-07962 MMM (BQRx).
• Citation: 214 F.Supp.2d 1062
• Court: U.S. District Court — Central District of California
• Parties: Linda MARSHALL, Plaintiff, v. STANDARD INSURANCE COMPANY; Does 1 through 20, inclusive, Defendants.

214 F.Supp.2d 1062

Linda MARSHALL, Plaintiff, v. STANDARD INSURANCE COMPANY; Does 1 through 20, inclusive, Defendants.

Case No. CV 00-07962 MMM (BQRx).

United States District Court, C.D. California.

October 30, 2000.

Robert S. Gianelli, Sherril Nell Babcock, Gianelli & Morris, Los Angeles, CA, Raymond

E. Mattison, Ernst & Mattison, San Luis Obispo, CA, for plaintiff.

Shawn E. Hanson, Katherine S. Ritchey, Anthony P. Schoenberg, Pillsbury Winthrop, San Francisco, CA, for defendant.

ORDER RE DEFENDANT'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO STRIKE

MORROW, District Judge.

This is an action for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of California's Unfair Competition Act, Business & Professions Code §§ 17200 et seq. Plaintiff Linda Marshall was insured by defendant Standard Insurance Company under a group disability policy issued to Marshall's employer, the City of Lompoc. Standard has moved to dismiss Marshall's third cause of action for unfair business practices, to the extent it purports to seek relief on behalf of the general public. Alternatively, Standard seeks an order striking Marshall's prayer for disgorgement and injunctive relief.

I. FACTUAL BACKGROUND

In deciding a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the court's review is limited to the contents of the complaint. See Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir.1996). The court must accept as true all allegations of material fact set forth in the complaint, and construe them in the light most favorable to the nonmoving party. See Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir.1996). Accordingly, this statement of facts recites and accepts as true the allegations contained in Marshall's complaint.

A. The Policy

Standard insured Marshall under a group disability policy issued to her employer, the City of Lompoc (the "policy").¹ Pursuant to the terms of the policy, Marshall and/or the City of Lompoc agreed to pay premiums and, in return, Standard promised to pay benefits to Marshall in the amount of 66.66% of her basic monthly earnings if she became totally disabled. The policy defined total disability as follows:

"During the first 24 months of disability, disability means complete inability of the Member to engage in her regular occupation. Thereafter during the continuance of the same period of disability, disability means the complete inability of the Member to engage in any employment or occupation for which he is or becomes reasonably fitted by reason of education, training or experience."²

B. Marshall's Claim

Marshall alleges that, while the policy was in effect, she became totally disabled.³ She asserts that she performed all conditions precedent to recovery of benefits under the policy, and specifically that she made a claim and filed an appropriate proof of loss.⁴

Standard agreed that Marshall was entitled to disability benefits, and paid such benefits through January 13, 2000. Marshall alleges that it has refused to pay benefits from and after that date, and that it has also offset workers' compensation benefits in an allegedly illegal manner.⁵

C. Standard's Claims Handling Practices

Marshall contends that Standard's denial of benefits was the result of bad faith claims handling,⁶ specifically, a failure to investigate properly the facts surrounding her claim, and to review and credit medical and employment information demonstrating that she was totally disabled.⁷ Marshall further charges that Standard uses the "changing ... language of the definition of disability" to deny allegedly valid claims (presumably including her own). In this regard, she asserts that, after twenty-four months, Standard denies claims on the basis that insureds are not disabled from performing occupations other than their regular one despite the fact that there is no material difference between the jobs. Moreover, she alleges that Standard disregards "elements ... of [the other] occupation [definition] ... set forth in the [policy] and ... controlling California case law."⁸ Finally, Marshall asserts that Standard knowingly uses "erroneous standards" in determining whether to pay total disability claims.⁹

As a result of Standard's termination of benefits and alleged bad faith claims handling, Marshall alleges that she is entitled to recover damages equal to the benefits she would have received under the policy from and after January 13, 2000, as well as damages for emotional distress.¹⁰ Additionally, on behalf of the general public, Marshall seeks issuance of an order enjoining Standard from denying future claims on the bases described in the complaint, and directing that it reopen the claim of any California insured it denied in reliance on the "changing definitional language" in the policy.¹¹ Marshall also seeks an order directing Standard to disgorge any profits it has realized as a result of its claims handling practices.¹²

II. DISCUSSION

A. Legal Standard Governing Motions To Dismiss

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. Rule 12(b)(6) must be read in conjunction with Rule 8(a) which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." 5A Charles A. Wright & Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE, § 1356 (1990).

A court may not dismiss a complaint for failure to state a claim "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). See also Johnson v. Knowles, 113 F.3d 1114, 1117 (9th Cir. 1997); Moore v. City of Costa Mesa, 886 F.2d 260, 262 (9th Cir.1989) (quoting Conley, supra). In other words, a Rule 12(b)(6) dismissal is proper only where there is either a "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.1988). As noted above, in deciding a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the court's review is limited to the contents of the complaint. See Campanelli, supra, 100 F.3d at 1479; Allarcom Pay Television, Ltd. v. General Instrument Corp., 69 F.3d 381, 385 (9th Cir.1995). The court must accept all factual allegations pleaded in the complaint as true, and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. See Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir.1995). It need not, however, accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. See Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.1981).

Because Rule 12(b)(6) review is confined to the complaint, the court may not consider material outside the pleading (e.g., facts presented in briefs, affidavits, or discovery materials). See In re American Continental Corp./Lincoln Savings & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir.1996). It may, however, properly consider exhibits submitted with the complaint, documents whose contents are alleged in the complaint when their authenticity is not questioned, and matters that may be judicially noticed pursuant to Federal Rule of Evidence 201. See Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19 (9th Cir.1989); Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994). The court is "not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint." Steckman v. Hart Brewing Inc., 143 F.3d 1293, 1295 (9th Cir.1998).

B. Marshall's Representative Action Under Business & Professions Code § 17200

Marshall's third claim for relief is brought on behalf of the general public, and alleges that Standard has engaged in unlawful, unfair, and/or fraudulent business practices in violation of California Business & Professions Code §§ 17200 et seq. She incorporates into this claim her allegation that Standard uses the second prong of the policy's disability definition to deny claims after twenty-four months by asserting that there is some occupation for which the insured is qualified by virtue of education, training, or experience and in which he or she can engage, despite the fact that other possible jobs are not materially different from the occupation the insured previously performed. She also incorporates her allegations that Standard disregards elements of the other occupation definition set forth in the policy and controlling California case law, and that it utilizes "erroneous standards" in determining whether to pay total disability claims.

Any person or entity who has engaged, is engaging, or threatens to engage "in unfair competition may be enjoined in any court of competent jurisdiction." CAL. BUS. & PROF.CODE §§ 17201, 17203. "Unfair competition" includes "any unlawful, unfair or fraudulent business act or practice and unfair deceptive, untrue or misleading advertising." CAL. BUS. & PROF.CODE § 17200. See also ABC International Traders, Inc. v. Matsushita Electric Corp. of America, 14 Cal.4th 1247, 1268, n. 11, 61 Cal.Rptr.2d 112, 931 P.2d 290 (1997). Business conduct need not be illegal to be enjoined under § 17203. See State Farm Fire & Casualty Co. v. Superior Court, 45 Cal. App.4th 1093, 1103-05, 53 Cal.Rptr.2d 229 (1996) (holding that a breach of the duty of good faith and fair dealing will support an injunction under § 17200). Rather, the "test ... is that a practice merely be unfair." Allied Grape Growers v. Bronco Wine Co., 203 Cal.App.3d 432, 452, 249 Cal.Rptr. 872 (1988). This requires that the court balance the "the impact of the practice or act on its victim ... against the reasons, justifications and motives of the alleged wrongdoer." Klein v. Earth...