Opinion
Case No. 20-cv-00096-CRB
04-16-2020
FLRISH RETAIL MANAGEMENT & SECURITY SERVICES LLC, et al., Plaintiffs, v. HALLMARK SPECIALTY INSURANCE COMPANY, Defendant.
ORDER GRANTING MOTION TO DISMISS
Plaintiffs (collectively, "FLRish") have sued Hallmark Specialty Insurance Co., claiming that Hallmark wrongfully denied coverage and violated its duty to defend FLRish against a discrimination and retaliation action brought by a former employee. Because the claim at issue was clearly excluded from coverage under the applicable policies, Hallmark's motion to dismiss is granted with prejudice.
I. BACKGROUND
On March 1, 2018, Hallmark issued an employment practices liability policy of insurance to FLRish. Compl. (dkt. 1) ¶ 9. The initial policy ran from March 1, 2018, to March 1, 2019, Policy One (dkt. 11, Ex. A) at HSIC 3, and was renewed for a period running from March 31, 2019, to March 31, 2020, Policy Two at HSIC 34. Both policies excluded from coverage any claim:
The Court incorporates by reference the first and second Hallmark policies (dkt. 11, Exs. A & B) and FLRish's Notice of Claim and attachments (dkt. 11, Ex. D) because those documents are referenced in the Complaint and are the basis for FLRish's claim. See Compl. ¶¶ 9, 13; see also Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018). Because Hallmark's other requests for judicial notice are not necessary to resolve this matter, they are denied as moot. For ease of reference, this Order employs Hallmark's numbering when citing to Policy One, Policy Two, and the Notice of Claim. --------
alleging, arising out of, based upon, relating to, attributable to, directly or indirectly resulting from or in consequence of, or in any way involving any Wrongful Act or Related Wrongful Act or any fact, circumstance or situation which has been the subject of any Claim or notice of circumstance reported under any other policy of which this Policy is a renewal, replacement, or which this Policy may succeed in time.("Exclusion B"). Policy One at HSIC 12; Policy Two at HSIC 42.
The claim at the heart of this dispute (the "Moothery claim") arose from a discrimination and retaliation suit brought by a former bookkeeper for FLRish. Compl. ¶ 12. FLRish initially reported Moothery's lawsuit to a different insurer, the Beazely Group. Notice of Claim at HSIC 133. FLRish's Beazely policy ran from December 1, 2015, to December 1, 2016. Id. at HSIC 135. Beazely initially agreed to provide coverage, id. at HSIC 133, but, according to FLRish, later withdrew coverage, Opp'n (dkt. 14) at 1. At that point FLRish reported the claim to Hallmark. Id. When Hallmark declined coverage, FLRish filed the instant action, bringing claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief. Compl. ¶¶ 21-35.
II. LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for failure to state a claim upon which relief may be granted. Dismissal may be based on either "the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th Cir. 2019). A complaint must plead "enough facts to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 697 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678.
When evaluating a motion to dismiss, the Court "must presume all factual allegations of the complaint to be true and draw all reasonable inferences in favor of the nonmoving party." Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). "[C]ourts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).
If a court does dismiss a complaint for failure to state a claim, it should "freely give leave [to amend] when justice so requires." Fed. R. Civ. P. 15(a)(2). A court nevertheless has discretion to deny leave to amend due to "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of amendment." Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 532 (9th Cir. 2008) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
III. DISCUSSION
This action is precluded by Exclusion B. That provision bars coverage of any claim that was previously "reported under any other policy . . . which this Policy may succeed in time." Policy One at HSIC 12; Policy Two at HSIC 42. The Moothery claim was previously reported under the Beazley policy. Notice of Claim at HSIC 133. The Beazley policy period was December 1, 2015, to December 1, 2016, so the Hallmark policy "succeed[ed] [it] in time." Id. at HSIC 135; see also Policy One at HSIC 3. Ergo, Exclusion B applies to the Moothery claim. See Landmark Am. Ins. Co. v. Navigators Ins. Co., 354 F. Supp. 3d 1078, 1084 (N.D. Cal. 2018) (interpreting the scope of a nearly identical exclusion).
FLRish does not contest that the Moothery claim was reported under the Beazley policy, or that the Hallmark policy succeeded the Beazley policy in time. Indeed, it relies on these facts to try to excuse its late reporting of the Moothery claim to Hallmark. See Opp'n at 1. It makes two other arguments that Exclusion B should not apply.
First, it argues that the exclusion is inapplicable because Beazley withdrew coverage and "[t]here is nothing in the Hallmark policy . . . that addresses what happens when the first carrier providing coverage later withdraws the coverage." Opp'n at 3. To the contrary, Exclusion B plainly applies anytime a claim has been reported under a prior policy. Policy One at HSIC 12; Policy Two at HSIC 42. It thus applies whether that claim is covered by the prior policy or not. As Hallmark points out, the fact that the policy does not address a situation where the first carrier withdraws coverage cuts against FLRish—it means there is no exception to the plain language of Exclusion B in this situation. Reply at 9. FLRish complains that this is a harsh result: "Plaintiff is left without the coverage it contracted for and relied upon." Opp'n at 3. But this cannot justify inventing ambiguity where none exists, see Gen. Reinsurance Corp. v. St. Jude Hosp., 107 Cal. App. 4th 1097, 1108 (Cal. Ct. App. 2003), as FLRish suggests, and in any event that outcome is as attributable to Beazley's withdrawal of coverage than to the operation of Exclusion B.
Second, FLRish claims Exclusion B cannot apply here because Hallmark's interpretation of its scope would deny coverage even if the Moothery claim had been reported under a clearly inapplicable prior policy, such as a homeowner's policy. Opp'n at 8. FLRish does not claim that the Beazley policy was clearly inapplicable, and "no authority permit[s] an insured to manufacture hypothetical scenarios beyond those encompassed by the pleadings or the facts known to the insurer in order to give rise to" coverage. All Green Elec., Inc. v. Sec. Nat'l Ins. Co., 22 Cal. App. 5th 407, 417 (Cal. Ct. App. 2018).
Exclusion B is fatal to all three causes of action. Because Hallmark had no obligation to provide coverage, FLRish does not state a claim for breach of contract. See Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (Cal. 2011). The claim for breach of the implied covenant of good faith and fair dealing fails because Hallmark had no duty to provide coverage. See Am. Med. Int'l, Inc. v. Nat'l Union Fire Ins. Co., 244 F.3d 715, 720 (9th Cir. 2001). And FLRish's request for declaratory relief relies on the allegations underlying the first two causes of action, so it dies with them. See Compl. ¶¶ 32-35. Because Exclusion B constitutes sufficient reason to dismiss on its own, there is no need to consider Hallmark's other arguments for dismissal.
FLRish avows that if given leave to amend it will cure the deficiencies in its Complaint. See Supp. Opp'n (dkt. 22) at 1. But it offers no explanation of how amended or additional allegations will avoid application of Exclusion B, and the Court can conceive of no path around that obstacle. Because it appears amendment would be futile, dismissal is with prejudice. Leadsinger, 512 F.3d at 532.
IV. CONCLUSION
For the foregoing reasons, FLRish's Complaint is dismissed with prejudice.
IT IS SO ORDERED.
Dated: April 16, 2020
/s/_________
CHARLES R. BREYER
United States District Judge