Opinion
For Ruth Ann Wunderman Cooper, as assignees, and on behalf of the members of the class of investor/member investors of QHL Holdings Fund Ten LLC, a California Limited Liability Company, and Golden State TD Investments, LLC a California Limited Liability Company, Marc Sobel, as assignees, and on behalf of the members of the class of investor/member investors of QHL Holdings Fund Ten LLC, a California Limited Liability Company, and Golden State TD Investments, LLC a California Limited Liability Company, Plaintiffs: Joseph G Balice, LEAD ATTORNEY, Larry Wayne Gabriel, Ezra Brutzkus Gubner LLP, Woodland Hills, CA.
For Certain Underwriters at Lloyd's, London, Subscribing to Syndicate Nos. 623 and 2623 Under Contract No. W15HUJ07PNDM, Defendant: Darren K Ishmael, PRO HAC VICE, DLA Piper LLP US, New York, NY; Eric S Connuck, PRO HAC VICE, DLA Piper LLP, Philadelphia, PA; Joseph G Finnerty, III, PRO HAC VICE, DLA Piper LLP, New York, NY; Sean R Crain, DLA Piper LLP US, Los Angeles, CA; Jeffrey A Rosenfeld, DLA Piper LLP, Los Angeles, CA.
Proceedings: (In Chambers) Order Re: Motion to Dismiss First Amended Complaint
Fernando M. Olguin, United States District Judge.
Having reviewed and considered all the briefing filed with respect to defendant's Motion to Dismiss the First Amended Complaint (" Motion, " Dkt. No. 35), the court concludes that oral argument is not necessary to resolve the Motion. See Fed.R.Civ.P. 78(b); Local Rule 7-15; Willis v. Pac. Mar. Ass'n, 244 F.3d 675, 684 n. 2 (9th Cir. 2001).
INTRODUCTION
This case arises from the settlement of multiple lawsuits following the 2007 bankruptcy of Quality Home Loans, Inc. (" QHL") and some of its affiliates, including QHL Holdings Fund Ten, LLC (" Fund Ten") and Golden State TD Investments, LLC (" Golden State") (QHL, Fund Ten, and Golden State are collectively referred to as the " insureds"). (See First Amended Complaint (" Amended Complaint, " Dkt. No. 31) at p. 1 & ¶ ¶ 1, 2 & 20-22). Plaintiff Ruth Ann Wunderman-Cooper represents a class of investors/members of Fund Ten, and plaintiff Marc Sobel represents a class of investors/members of Golden State (collectively, Wunderman-Cooper and Sobel are referred to as " plaintiffs"). Fund Ten and Golden State are assignees to an excess insurance policy issued by defendant Certain Underwriters at Lloyd's London, Syndicate No. 2623 (" Lloyd's" or " defendant"), which was administered by Beazley USA Services, Inc. (" Beazley"). (See id. at ¶ 2).
The action was originally filed against Syndicate Nos. 2623 and 623. On December 18, 2014, the parties stipulated to the dismissal of the action against Syndicate No. 623. (See Stipulation of Dismissal, Dkt. No. 15).
On July 16, 2015, the court entered the parties' stipulation dismissing the claims against Beazley. (See Order Approving Stipulation to Accept Service of Process, to Dismiss Defendant Beazley USA Services, Inc., and to Extend Time to Respond to the Complaint, Dkt. No. 41).
Plaintiffs, who seek the entirety of the excess policy limits of $5 million, (see Amended Complaint at p. 25), assert three causes of action: (1) breach of contract, (see id. at ¶ ¶ 70-75), (2) breach of the implied covenant of good faith and fair dealing, (see id. at ¶ ¶ 76-81), and (3) declaratory relief. (See id. at ¶ ¶ 62-69). Lloyd's filed its motion to dismiss the Amended Complaint, to which plaintiffs filed an opposition, and defendant replied. (See Motion; Plaintiffs' Opposition to Defendant's Motion to Dismiss Plaintiffs' First Amended Complaint (" Opp'n, " Dkt. No. 36); Defendant's Reply in Further Support of Motion to Dismiss the First Amended Complaint (" Reply, " Dkt. No. 37)).
ALLEGATIONS IN THE AMENDED COMPLAINT
I. THE TOWER.
At the time of the bankruptcy filing, the insureds had in place a directors and officers liability insurance tower totaling $15 million by three insurers. (See Amended Complaint at ¶ 19). The primary policy, issued by Greenwich Insurance Company (" Greenwich"), provided the first layer of coverage in the amount of $5 million. (See id. at ¶ 19(a) & Exh. 1 (" primary policy")). The first excess policy, issued by RSUI, provided the second layer of coverage in the amount of $5 million after exhaustion of the primary policy. (See id. at ¶ 19(b) & Exh. 2 (" RSUI excess policy")). The second excess policy, issued by Lloyd's and administered by Beazley, provided the third layer of coverage in the amount of $5 million after exhaustion of the primary and RSUI excess policies. (See id. at ¶ 19(c) & Exh. 3 (" Lloyd's excess policy")).
II. RELEVANT TERMS OF THE LLOYD's EXCESS POLICY.
Under the terms of the Lloyd's excess policy, Lloyd's had no obligation to defend or indemnify insureds until the limits of the underlying policies in the tower -- that is, the primary policy and the RSUI excess policy -- were exhausted. (See Lloyd's excess policy at § V). Section V explains how the underlying policies are exhausted:
If by reason of the payment of any claims or losses or costs and expenses incurred in the defense or settlement of such claims or losses by the insurers of the Underlying Policies, the amounts of the Underlying Policy Limits are:
A. Partially reduced, then this Policy shall continue to apply in excess of the reduced amounts of the Underlying Policy Limits; or
B. Totally exhausted, then this Policy shall continue in force as primary insurance with respect to any subsequent claim; . . .
(Lloyd's excess policy at § V) (emphasis in original). "Underlying Policy Limits" is defined as " the combined limits of liability of the Underlying Policies for each type of insurance, including costs and expenses incurred in the defense or settlement of any claim." (Lloyd's excess policy at § II.G).
The Lloyd's excess policy provides that " [a]ny dispute concerning the interpretation of this Policy shall be governed by the laws of the state designated in Item 7. of the Declarations." (Lloyd's excess policy at § XI). Item 7 provides that New York's substantive law applies. (See id. at Declarations, Item 7).
III. THE SETTLEMENT AGREEMENT AMONG PLAINTIFFS, THE INSUREDS, AND RSUI.
After the 2007 filing of QHL's petition for bankruptcy, multiple actions were filed against the insureds. The investors/members of Fund Ten and Golden State filed class actions against some of the insureds. (See Amended Complaint at ¶ ¶ 25, 33, 35) (" class actions"). RSUI also filed an action against the insureds to rescind the RSUI excess policy (" RSUI action"). (See id. at ¶ 48). Multiple parties, including plaintiffs, the insureds, and RSUI attended multiple mediation sessions to resolve their disputes concerning QHL. (See id. at ¶ ¶ 36-38 & 41). Beazley (on behalf of Lloyd's) did not participate in any of these settlement discussions or enter into any settlement agreements. (See id. at ¶ ¶ 41, 50-51).
No one disputes that the primary policy issued by Greenwich has been exhausted. (See Amended Complaint at ¶ 19(a) (the " $5,000,000 limit of liability was fully exhausted by Greenwich's payment of settlements and Defense Expenses on behalf of numerous Insureds."); see generally, Motion & Reply)). Plaintiffs allege that the RSUI excess policy has also been exhausted by the terms of (1) a global QHL Master Settlement Agreement, (see Amended Complaint at Exh. 6 (" Master Settlement Agreement")); and (2) a Settlement Agreement and Policy Release. (See id. at Exh. 11 (" RSUI Settlement Agreement")).
Under the Master Settlement Agreement, RSUI and the insureds agreed to transfer a total of $3.65 million into an account they called the " RSUI Policy Limits Exhaustion Trust Account." (See Master Settlement Agreement at ¶ 2.1(a)(i)). RSUI transferred $2 million, and the insureds transferred $1.65 million into the RSUI Policy Limits Exhaustion Trust Account. (See RSUI Settlement Agreement, p. 284, at ¶ ¶ 1 & 3; Master Settlement Agreement at ¶ 2.1(a)(i)). The RSUI Settlement Agreement explains that the RSUI Policy Limits Exhaustion Trust Account is a trust that was set up and maintained by counsel for plaintiffs. (See RSUI Settlement Agreement, p. 284, at ¶ 1; Amended Complaint at ¶ 58(a)).
Plaintiffs allege that the $3.65 million transferred into the RSUI Policy Limits Exhaustion Trust Account, coupled with $1,467,515.23 RSUI paid in defense costs, exhausted the RSUI excess policy. (See Amended Complaint at ¶ 60(d); see RSUI Settlement Agreement, p. 284, at ¶ 2 (describing $1,467,515.23 RSUI paid in defense costs)). Specifically, the RSUI Settlement Agreement states, " [t]he payments made pursuant to Paragraphs 1, 2 and 3 are deemed by all Parties to exhaust the limit of liability of the RSUI Policy, and in fact exceed the limits of the RSUI Policy by $117,515.23." (RSUI Settlement Agreement, p. 284, at ¶ 5).
LEGAL STANDARD
A motion to dismiss for failure to state a claim should be granted if plaintiff fails to proffer " enough facts to state a claim to relief that is plausible on its face." Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007); see Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009); Cook v. Brewer, 637 F.3d 1002, 1004 (9th Cir. 2011). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. at 1949; Cook, 637 F.3d at 1004; Caviness v. Horizon Cmty. Learning Ctr., Inc., 590 F.3d 806, 812 (9th Cir. 2010). The plaintiff must provide " more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do, " Twombly, 550 U.S. at 555, 127 S.Ct. at 1965; see Iqbal, 556 U.S. at 678, 129 S.Ct. at 1949; Cholla Ready Mix, Inc. v. Civish, 382 F.3d 969, 973 (9th Cir. 2004), cert. denied, 544 U.S. 974, 125 S.Ct. 1828, 161 L.Ed.2d 724 (2005) (" [T]he court is not required to accept legal conclusions cast in the form of factual allegations if those conclusions cannot reasonably be drawn from the facts alleged. Nor is the court required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.") (citations and internal quotation marks omitted). " Specific facts are not necessary; the [complaint] need only give the defendant[s] fair notice of what the . . . claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007) (per curiam) (citations and internal quotation marks omitted); see Twombly, 550 U.S. at 555, 127 S.Ct. at 1964.
In considering whether to dismiss a complaint, the court must: (1) accept the allegations of the complaint as true, see Erickson, 551 U.S. at 94, 127 S.Ct. at 2200; Albright v. Oliver, 510 U.S. 266, 268, 114 S.Ct. 807, 810, 127 L.Ed.2d 114 (1994); (2) construe the pleading in the light most favorable to the pleading party; and (3) resolve all doubts in the pleader's favor. See Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1849, 23 L.Ed.2d 404 (1969); Berg v. Popham, 412 F.3d 1122, 1125 (9th Cir. 2005); Hebbe v. Pliler, 627 F.3d 338, 340 (9th Cir. 2010). Nevertheless, the " court need not . . . accept as true allegations that contradict matters properly subject to judicial notice or by exhibit." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Johnson v. Fed. Home Loan Mortgage Corp., 793 F.3d 1005, 1008 (9th Cir. 2015) (" we need not accept as true allegations contradicting documents that are referenced in the complaint.").
DISCUSSION
I. CHOICE OF LAW.
This is a diversity case, (see Amended Complaint at ¶ ¶ 11 & 12), so the court follows the choice of law rules of California, the forum state. See Patton v. Cox, 276 F.3d 493, 495 (9th Cir. 2002) (" When a federal court sits in diversity, it must look to the forum state's choice of law rules to determine the controlling substantive law."). " If the parties state their intention in an express choice-of-law clause, California courts ordinarily will enforce the parties' stated intention[.]" Hatfield v. Halifax PLC, 564 F.3d 1177, 1182 (9th Cir. 2009) (citations omitted). Here, the Lloyd's excess policy is subject to a New York choice of law provision. (See Lloyd's excess policy at Declarations, Item 7 & § XI).
Once the court has determined the parties' intention, it must analyze whether " (1) the chosen jurisdiction has a substantial relationship to the parties or their transaction; or (2) any other reasonable basis for the choice of law provision exists." Hatfield, 564 F.3d at 1182. If either one of these tests is satisfied, the court will " enforce the provision unless the chosen jurisdiction's law is contrary to California public policy." Id. That is, the court may " decline to enforce a law contrary to this state's fundamental policy." Id.
Plaintiffs contend that California law should apply because New York has no relationship to the parties, who are citizens of California (the insureds), Connecticut (Beazley), and London, England (Lloyd's). (See Opp'n at 10; Amended Complaint at p. 1 & ¶ ¶ 8-9). Plaintiffs' contention is unavailing.
As Lloyd's notes, insurers " certainly have a rational interest in having insurance policies issued throughout the country 'governed by one body of law.'" (Reply at 4). Moreover, Beazley's and Lloyd's headquarters are proximately close to the state of New York. See, e.g. 1-800-Got Junk? LLC v. Superior Court, 189 Cal.App.4th 500, 515, 116 Cal.Rptr.3d 923 (2011) (franchisor headquartered in Vancouver, British Columbia rationally chose Washington state law for its franchise agreements given Washington's proximity to Vancouver and given franchisor's interest in having one body of law govern its franchise agreements).
Additionally, plaintiffs fail to explain how application of New York law would be contrary to any public policy of California. (See, generally, Opp'n). The court has strained to construe plaintiffs' reliance on AIU Ins. Co. v. FMC Corp., 51 Cal.3d 807, 821-22, 274 Cal.Rptr. 820, 799 P.2d 1253 (1990) and other California case law to mean that California has a public policy to construe ambiguities in insurance contracts against the insurers, who are the drafters of those agreements. (See Opp'n at 7-8). But New York courts also construe ambiguities in contracts against the drafter, including insurers. See, e.g., Scalia v. Equitable Life Assur. Soc. of U.S., 263 A.D.2d 537, 693 N.Y.S.2d 218, 218 (1999) (noting " the well-established principle that any ambiguities in an insurance policy will be construed against the insurer, the drafter of the policy"). As such, the court's application of New York law would not violate a fundamental public policy of California. In short, the court will apply New York law to the Lloyd's excess policy.
II. BREACH OF CONTRACT.
Both New York and California apply the same principles of contract interpretation. " [A]n insurance policy, like any contract, must be construed to effectuate the intent of the parties as derived from the plain meaning of the policy's terms." Andy Warhol Found. for Visual Arts, Inc. v. Fed. Ins. Co., 189 F.3d 208, 215 (2d Cir. 1999) (applying New York law); see AIU Ins. Co., 51 Cal.3d at 821-22 (" Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. Such intent is to be inferred, if possible, solely from the written provisions of the contract. The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense, ' unless 'used by the parties in a technical sense or a special meaning is given to them by usage' controls judicial interpretation.") (citations omitted). Thus, " [i]f the language of the insurance contract is unambiguous, we apply its terms." Andy Warhol, 189 F.3d at 215; see AIU Ins., 51 Cal.3d at 822 (" Thus, if the meaning a lay person would ascribe to contract language is not ambiguous, we apply that meaning.").
Section V of the Lloyd's excess policy provides that: (1) " [i]f by reason of the payment of any claims or losses or costs and expenses incurred in the defense or settlement of such claims or losses, " (2) " by the insurers of the Underlying Policies, " (3) " the amounts of the Underlying Policy Limits are" " [t]otally exhausted, " then (4) the Lloyd's excess policy " shall continue in force as primary insurance." (Lloyd's excess policy at § V). In other words, (4) Lloyd's is obligated to defend and indemnify insureds (3) when the underlying policies are exhausted (1) " by reason of" payment of losses or defense costs litigating or settling a lawsuit (2) by the insurers. (See id.).
Plaintiffs make multiple arguments to support their contention that the RSUI excess policy has been exhausted. None have merit.
First, plaintiffs claim that the term " payment" in § V of the Lloyd's excess policy is ambiguous and susceptible to the meaning " satisfaction of an obligation." (See Opp'n at 17-18). That does not help plaintiffs, because even if " payment" is replaced with " satisfaction of an obligation, " that " satisfaction of an obligation" must be made " by the insurers of the Underlying Policies." (See Lloyd's excess policy at § V). However, the insureds -- not RSUI -- made the $1.65 million transfer to " satisfy the obligation." (See RSUI Settlement Agreement at ¶ 5) (" [t]he Parties intend that no payment shall be required from RSUI under the RSUI Policy other than for the payments provided for under Paragraphs 1 [$2 million] and 2 [$1,467,515.34].").
Second, plaintiffs contend that the $1.65 million that the insureds transferred to the RSUI Policy Limits Exhaustion Trust Account should be considered a payment by RSUI because " QHL paid the $1,650,000 to settle [the RSUI action]; not to settle the [class actions and other claims]." (Opp'n at 13; see Amended Complaint at ¶ 60(a)) (" QHL agreed to pay RSUI $1,650,000 to settle all of the claims asserted in the RSUI Action, including RSUI's attempts to rescind the RSUI Policy."). Plaintiffs' contention is unpersuasive.
The RSUI Settlement Agreement unequivocally says that the insureds made that $1.65 million payment to settle the RSUI action and the class actions and other lawsuits. Specifically, the RSUI Settlement Agreement states that the insureds made the $1.65 million payment after " (i) receipt of notice of entry of the dismissal with prejudice and without costs of the last of the Lawsuits [including the class actions] in accordance with the terms of Section 4.7 of the [Master] Settlement Agreement and the RSUI Action in accordance with the terms of Section 10 of this Agreement or (ii) Settling Plaintiffs providing the payment instructions and other information required by Section 3.2 of the Settlement Agreement." (RSUI Settlement Agreement, p. 284, at ¶ 3). Given the clear language of the RSUI Settlement Agreement, the court will disregard plaintiffs' contradictory allegations in the Amended Complaint. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (" court need not . . . accept as true allegations that contradict matters properly subject to judicial notice or by exhibit."); Johnson v. Fed. Home Loan Mortg. Corp., 793 F.3d 1005, 1008 (9th Cir. 2015) (" we need not accept as true allegations contradicting documents that are referenced in the complaint.").
Third, plaintiffs rely on paragraph 5 of the RSUI Settlement Agreement, which states that " [t]he payment made pursuant to Paragraphs 1, 2 and 3 are deemed by all Parties to exhaust the limit of liability of the RSUI Policy, and in fact exceed the limits of the RSUI Policy by $117,515.23." (RSUI Settlement Agreement, p. 284, at ¶ 5). But the parties' -- that is, RSUI, plaintiffs, and the insureds -- efforts to " deem" the RSUI policy as exhausted cannot bind Lloyd's, especially where, as here, Lloyd's did not participate in the settlement negotiations and was not a party to the RSUI Settlement Agreement. (See Amended Complaint at ¶ ¶ 41, 50-51) (Lloyd's did not participate in any of these settlement discussions or enter into any settlement agreements).
Finally, the cases plaintiffs on are unpersuasive. For example, unlike the Lloyd's excess policy, which is unambiguous, the excess policy in Zeig v. Mass. Bonding & Ins. Co., 23 F.2d 665 (2d. Cir. 1928) was ambiguous as to whether an excess policy was triggered when an insured settled his claims for $6,000, which was below the underlying limits of the $15,000 amount of primary insurance that the insured carried, but which was above the $5,000 minimum amount of primary insurance he was required to maintain under the terms of the excess policy. See id. at 666.
In E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 853 F.Supp. 98 (S.D.N.Y. 1994), the language in the excess policy obligated the excess insurer to defend and indemnify when " the Assured, or any company as his insurer, or both, become obligated to pay by reason of personal injury . . . through adjudication or compromise." Id. at 101. In contrast, the Lloyd's excess policy is not triggered by " obligation to pay, " but by " payment." (Compare id. with Lloyd's excess policy at § V (" If by reason of the payment")). The Lloyd's excess policy is not triggered by " adjudication or compromise" by the " assured, or any company as his insurer, or both" but by " payment" " by the insurers of the Underlying Policies." ( Compare E.R. Squibb, 853 F.Supp. at 101 with Lloyd's excess policy at § V).
Plaintiffs also rely on Koppers Co. v. Aetna Cas. & Surety Co., 98 F.3d 1440, 1454 (3d Cir. 1996), which stated that " settlement with the primary insurer functionally 'exhausts' primary coverage and therefore triggers the excess policy -- though by settling the policyholder loses any right to coverage of the difference between the settlement amount and the primary policy's limits." The court in Koppers, however, held that the insured may recover against an excess insurer for a " proven loss to the extent that it exceeds the primary policy limits." Id. Here, plaintiffs do not have a " proven loss, " but rather an amount that was negotiated through settlement.
Finally, Phoenix Ins. Co. v. United States Fire Ins. Co., 189 Cal.App.3d 1511, 1528, 235 Cal.Rptr. 185 (1987), does not stand for the proposition that " primary coverage was 'exhausted' when the primary insurers paid their share of the settlement and were dismissed from the declaratory relief action." (See Opp'n at 18). Rather, the court in Phoenix found that the excess insurer had failed to timely vindicate its rights under the terms of the excess policy. See 189 Cal.App.3d at 1529-30 (" had USCFIC wanted to raise this issue [that primary insurance policies had not been exhausted], it could simply have named Olympic and Central as defendants in its cross-complaint"); see also Fuller-Austin Insulation Co. v. Fireman's Fund Ins. Co., 2002 WL 31005090, *16 (Cal. S.Ct. 2002) (" If the Joint Defendants wanted to challenge exhaustion of coverage provided by settling insurance companies, they had the right to. . . . Having declined to pursue these remedies, the remaining Joint Defendants cannot challenge the exhaustion of the settled policies."). Here, there is nothing untimely about Lloyd's challenge to plaintiffs' argument that the RSUI excess policy has been exhausted.
Plaintiffs also rely on Diamond Heights Homeowners, Ass'n v. Nat'l Am. Ins. Co., 227 Cal.App.3d 563, 277 Cal.Rptr. 906 (1991), but that case does not even address whether an underlying policy is exhausted by settlement or otherwise.
The terms of the Lloyd's excess policy clearly and unambiguously provide that the underlying policies must be exhausted " by the insurers of the Underlying Policies." (Lloyd's excess policy at § V). Here, the RSUI excess policy has not been exhausted because the $1.65 million that insureds transferred to the RSUI Policy Limits Exhaustion Trust Account was not made " by the insurers of the Underlying Policies." (See id.; RSUI Settlement Agreement at ¶ 5) (" [t]he Parties intend that no payment shall be required from RSUI under the RSUI Policy other than for the payments provided for under Paragraphs 1 [$2 million] and 2 [$1,467,515.34]."). In short, plaintiffs have not adequately alleged a claim for breach of contract.
Lloyd's also claims that the filing of the RSUI action constituted breach of § IV of the Lloyd's excess policy because the insureds failed to maintain the underlying policies. (See Motion at 23-24). But the Lloyd's excess policy provides that " the Underlying Policies shall be maintained in full effect during the Policy Period[, ]" and the RSUI action commenced after the end of the Policy Period. (See RSUI Settlement Agreement, p. 283) (complaint in RSUI action filed on August 2, 2010).
III. BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING.
" [A]s a general matter, implied terms should never be read to vary express terms" of an agreement. Carma Dev. (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal.4th 342, 374, 6 Cal.Rptr.2d 467, 826 P.2d 710 (1992); see Phoenix Capital Inv. LLC v. Ellington Mgmt. Grp., L.L.C., 51 A.D.3d 549, 859 N.Y.S.2d 46, 48 (2008) (" the implied covenant of good faith and fair dealing will be enforced only to the extent it is consistent with the provisions of the contract" and will not enforce terms that " would unjustifiably frustrate the expectations of the parties as made explicit in the contract."); Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 36, 44 Cal.Rptr.2d 370, 900 P.2d 619 (1995) (as modified on denial of reh'g) (" It is clear that if there is no potential for coverage and, hence, no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer.") (emphasis omitted).
For the reasons set forth above, see supra at § II., the express terms of the Lloyd's excess policy unambiguously detail the conditions that constitute exhaustion of the underlying policies. Any claim that Lloyd's breached the implied covenant of good faith and fair dealing would necessarily imply a term in the Lloyd's excess policy that is directly at odds with its express terms, which would unjustifiably frustrate the parties' expectations at the time of contract formation. Accordingly, Lloyd's motion to dismiss the claim for breach of the implied covenant of good faith and fair dealing is granted.
IV. DECLARATORY RELIEF.
Plaintiffs seek declaratory relief that: (1) the Lloyd's excess policy is governed by California law (see Amended Complaint at ¶ 67(a)); (2) the transfer of $3.65 million to plaintiffs' trust account exhausted the RSUI excess policy (see id. at ¶ 67(b)); (3) Lloyd's is obligated to defend and indemnify the insureds because the underlying policies have been exhausted (see id. at ¶ 67(c)); and (4) the Lloyd's excess policy does not require exhaustion by actual payment in cash by the underlying insurers of the underlying limits. (See id. at ¶ ¶ 67(d) & 68).
As noted above, see supra at § I., the Lloyd's excess policy is governed by New York law. Also, as the court concluded above, see supra at § II., plaintiffs have failed to establish that the underlying policies have been exhausted under the terms of the Lloyd's excess policy. Accordingly, Lloyd's motion to dismiss the declaratory relief claim is granted.
V. LEAVE TO AMEND.
Rule 15 of the Federal Rules of Civil Procedure provides that the court " should freely give leave [to amend] when justice so requires." Fed.R.Civ.P. 15(a)(2); see Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990) (the policy favoring amendment must " be applied with extreme liberality."). However, " [i]t is settled that the grant of leave to amend the pleadings pursuant to Rule 15(a) is within the discretion of the trial court." Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S.Ct. 795, 802, 28 L.Ed.2d 77 (1971). This decision is guided by an examination of several factors, including: (1) whether the amendment causes the opposing party undue prejudice; (2) whether the amendment is sought in bad faith; (3) whether the amendment causes undue delay; (4) whether the amendment constitutes an exercise in futility; and (5) whether the plaintiff has previously amended his or her complaint. See DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 & n. 3 (9th Cir. 1987).
Having liberally construed and assumed the truth of the allegations in the Amended Complaint, the court is persuaded that plaintiffs' claims cannot be saved through amendment. See Lopez v. Smith, 203 F.3d 1122, 1129 (9th Cir. 2000) (" Courts are not required to grant leave to amend if a complaint lacks merit entirely."). This is the second time plaintiffs have attempted to adequately allege their claims. See Cafasso, United States ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1058 (9th Cir. 2011) (" [T]he district court's discretion to deny leave to amend is particularly broad where plaintiff has previously amended the complaint.") (internal quotation marks omitted). The court is not persuaded by plaintiffs' argument that the Lloyd's excess policy is ambiguous and susceptible to more than one interpretation. See supra at § II. Rather, the terms of that agreement unambiguously provide that the insureds' transfer of $1.65 million into plaintiffs' trust account cannot be attributed to RSUI so as to constitute exhaustion of the underlying policies. In light of the allegations in the Amended Complaint, particularly the allegations regarding the terms of the Master Settlement Agreement and RSUI Settlement Agreement, which specifically set forth how insureds transferred $1.65 million to a trust set up by and maintained by plaintiffs' counsel to settle the RSUI action, class actions, and other claims, plaintiffs cannot plead additional or different facts to save their claims. Accordingly, plaintiff's Amended Complaint will be dismissed without leave to amend.
CONCLUSION
This Order is not intended for publication. Nor is it intended to be included in or submitted to any online service such as Westlaw or Lexis.
Based on the foregoing, IT IS ORDERED THAT Lloyd's Motion to Dismiss the First Amended Complaint (Document No. 35) is granted. Plaintiffs' First Amended Complaint is dismissed with prejudice. Judgment shall be entered accordingly.