Evanston Ins. Co. v. Harrison ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 EVANSTON INSURANCE COMPANY, an No. 2:20-cv-01672 WBS KJN Illinois Corporation 13 Plaintiff, 14 MEMORANDUM AND ORDER RE: v. COUNTER-DEFENDANT EVANSTON 15 INSURANCE COMPANY’S MOTION TO BRIAN HARRISON, individually and DISMISS AND MOTION TO STRIKE 16 doing Business as KINGDOM OF HARRON PRODUCTIONS, and 17 CHRISTOPHER GELMS, an individual, 18 Defendants. 19 20 21 ----oo0oo---- 22 This case arises out of a dispute over whether 23 plaintiff Evanston Insurance Company (“Evanston”) has a duty to 24 indemnify or defend defendant Brian Harrison, individually and 25 doing business as “Kingdom of Harron Productions” (“Harrison”), 26 under a commercial general liability insurance policy issued to 27 Harrison by Evanston. Evanston has moved to dismiss Harrison’s 28 1 second counterclaim for breach of the implied covenant of good 2 faith and fair dealing (see Evanston’s Mot. to Dismiss (Docket 3 No. 22)) and has moved to strike the portions of Harrison’s 4 counterclaim relating to punitive damages (see Evanston’s Mot. to 5 Strike (Docket No 21)). 6 I. Factual and Procedural Background 7 On March 2-3, 2019, Harrison held the “Kingdom of 8 Harron’s Edge of Spring Celtic Fantasy Fair” (the “Fair”) in 9 Auburn, California. (Pl.’s Compl. ¶ 10 (“Compl.”) (Docket No. 10 1).) Prior to holding the Fair, Harrison purchased event 11 insurance coverage (“the Policy”) provided by Evanston via the 12 website Eventhelper.com to cover it from any liability arising 13 out of the Fair. (Id.) 14 The Policy covers Harrison for any payments Harrison 15 becomes legally obligated to pay as damages due to “bodily 16 injury” or “property damage” occurring at the Fair, and gives 17 Evanston a “duty and right” to defend any suit seeking those 18 damages, with a policy limit of $1,000,0000 per occurrence 19 (“Coverage A”). (Compl. ¶ 11-12.) It also covers Harrison for 20 medical expenses arising out of “bodily injury” caused by 21 accident at the Fair, with a policy limit of $5,000 per person 22 (“Coverage C”). (Compl. ¶¶ 11, 16.) The Policy contains 23 multiple exclusions, however. 24 Coverage A contains an exclusion for bodily injuries or 25 property damage that occurs as a result of an audience member, 26 patron, or customer of the Fair’s participation in a contest or 27 athletic event (the “Participation Exclusion”). (Compl. ¶ 15.) 28 It also contains an exclusion for any injuries arising out of any 1 “assault or battery” occurring at the Fair (the “Assault or 2 Battery Exclusion”). (Compl. ¶ 17.) Coverage C contains an 3 exclusion for medical expenses for bodily injury to any person 4 engaged in physical exercise, games, or athletic contests at the 5 Fair (the “Athletic Activities Exclusion”). (Compl ¶ 16.) 6 Coverage C also contains an exclusion for any medical expenses 7 arising out of bodily injury that would otherwise be excluded 8 under Coverage A (the “Coverage A Exclusion”). 9 Defendant Christopher Gelms (“Gelms”) attended the Fair 10 on March 2, 2019. (Compl. ¶ 18.) Gelms participated in a “tug- 11 of-war” event at the Fair where participants were made to stand 12 on wooden blocks, and he broke his leg when a boy pushed him off 13 his wooden block. (Id.) On March 20, 2019, Gelms filed a 14 personal injury complaint in Placer County Superior Court for 15 damages against Harrison for the injuries he sustained at the 16 Fair (“the underlying action”). (Compl. ¶¶ 6, 22.) Harrison 17 tendered a defense to Evanston and requested that Evanston 18 indemnify it against the claims in the underlying action under 19 the Evanston policy. Evanston denied coverage, contending that 20 Gelms’ claims were not covered by the Evanston policy due to the 21 policy’s various exclusions. (Compl. ¶¶ 20-21, 24.) 22 On August 20, 2020, Evanston filed a complaint in this 23 court seeking declaratory relief against defendants Harrison and 24 Gelms under 28 U.S.C. § 2201. (See generally Compl.) Evanston 25 seeks a declaration that it has no duty to defend or indemnify 26 Harrison in the underlying action based on the Policy’s relevant 27 exclusions. (See id.) 28 On November 18, 2020, the court denied defendants’ 1 motion to dismiss. (See Docket No. 14.) Defendant Harrison 2 subsequently filed an answer denying liability, alleging multiple 3 affirmative defenses as to each of Evanston’s claims, and 4 asserting two counterclaims against Evanston: one for breach of 5 contract, and one for breach of the implied covenant of good 6 faith and fair dealing. (See Docket No. 16.) 7 II. Discussion 8 A. Motion to Dismiss 9 “A motion to dismiss a counterclaim brought pursuant to 10 Rule 12(b)(6) is evaluated under the same standard as motion to 11 dismiss a plaintiff's complaint.” Niantic, Inc. v. Gobal++, No. 12 19-cv-03425-JST, 2020 WL 1548465, at *2 (N.D. Cal. Jan. 30, 13 2020). The inquiry before the court is whether, accepting the 14 allegations in the complaint as true and drawing all reasonable 15 inferences in the plaintiff’s favor, the complaint has stated “a 16 claim to relief that is plausible on its face.” Bell Atl. Corp. 17 v. Twombly, 550 U.S. 544, 570 (2007). “The plausibility standard 18 is not akin to a ‘probability requirement,’ but it asks for more 19 than a sheer possibility that a defendant has acted unlawfully.” 20 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 21 As a general rule, “a district court may not consider 22 any material beyond the pleadings in ruling on a Rule 12(b)(6) 23 motion.” Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 24 2001). “A court may, however, consider certain materials-- 25 documents attached to the complaint, documents incorporated by 26 reference in the complaint, or matters of judicial notice-- 27 without converting the motion to dismiss into a motion for 28 summary judgment.” United States v. Ritchie, 342 F.3d 903, 908 1 (9th Cir. 2003). 2 California law provides that “every contract imposes 3 upon each party a duty of good faith and fair dealing in its 4 performance and its enforcement.” See, e.g., Jonathan Neil & 5 Assocs., Inc. v. Jones, 33 Cal. 4th 917, 937 (Cal. 2004). The 6 precise nature and extent of the duty imposed by the implied 7 covenant of good faith depends on the purpose underlying a 8 contract. Id. The implied covenant of good faith and fair 9 dealing cannot impose substantive duties beyond those 10 incorporated in the specific terms of a contract. Guz v. Bechtel 11 National, Inc., 24 Cal. 4th 317, 349 (Cal. 2000). 12 Under California law, an insurer’s unreasonable refusal 13 to defend an insured is considered a breach of the implied 14 covenant of good faith and fair dealing and is actionable as a 15 tort. See, e.g., Amato v. Mercury Cas. Co., 53 Cal. App. 4th 16 825, 831 (Cal. Ct. App. 1997). In order to plead a claim for 17 tortious breach of the implied covenant of good faith and fair 18 dealing, a complaint must allege facts which demonstrate a 19 failure or refusal to discharge contractual responsibilities 20 “prompted not by an honest mistake, bad judgment, or negligence, 21 but rather by a conscious and deliberate act, which unfairly 22 frustrates the agreed common purposes and disappoints the 23 reasonable expectations of the other party.” Careau & Co. v. 24 Sec. Pac. Bus. Credit, Inc., 222 Cal. App. 3d 1371, 1395 (Cal. 25 Ct. App. 1990). Refusal to defend, without more, does not 26 constitute a breach of the implied covenant. Tibbs v. Great Am. 27 Ins. Co., 755 F.2d 1370, 1375 (9th Cir. 1985); accord Campbell v. 28 Superior Court, 44 Cal. App. 4th 1308, 1319–1320 (Cal. Ct. App. 1 1996) (only unreasonable breach of duty to defend constitutes a 2 tort); Amato, 53 Cal. App. 4th at 831 (same). “If the 3 allegations do not go beyond the statement of a mere contract 4 breach and, relying on the same alleged acts, simply seek the 5 same damages or other relief already claimed in a companion 6 contract cause of action, they may be disregarded as superfluous 7 as no additional claim is actually stated.” Careau, 222 Cal. 8 App. 3d at 1395; Env’t Furniture, Inc. v. Bina, No. CV 09-7978 9 PSG (JCx), 2010 WL 5060381, at *3 (C.D. Cal. Dec. 6, 2010) 10 (citing Careau, 222 Cal. App. 3d at 1395). 11 Harrison’s counterclaim alleges that Evanston “denied 12 coverage for Defendant Gelm’s [sic] claim, prior to the 13 underlying lawsuit being filed, stating no coverage existed” 14 under each of the relevant exclusions in the Evanston Policy. 15 (See Harrison’s Countercompl. ¶¶ 32, 34, 36-37 (Docket No. 16).) 16 Harrison further alleges that “by engaging in [this conduct], 17 [Evanston] breached its contract with [Harrison] . . . by 18 wrongfully, tortiously, and unreasonably denying coverage under 19 the Policy” both prior to and after the underlying lawsuit was 20 filed. (See id. at ¶¶ 33, 35, 38.) Finally, Harrison alleges 21 that, because of Evanston’s “breach of duty to contract, breach 22 of its duty to defend, as well as its breach of its implied 23 covenant of good faith and fair dealing, [Harrison] was unable to 24 afford a defense for the underlying action . . . [and] default 25 has been entered and default judgment may soon be entered.” (See 26 id. at ¶ 40.) 27 These allegations are identical to the allegations that 28 form the basis of Harrison’s counterclaim for breach of contract. 1 (Compare id. at ¶¶ 32-40 with id. at 10-29). Besides conclusory 2 statements that Evanston “wrongfully, tortiously, and 3 unreasonably denied coverage under the Policy,” Harrison’s 4 allegations do not plead any specific facts that evidence a 5 “conscious and deliberate act” by Evanston to unfairly frustrate 6 the agreed common purposes of its agreement with Harrison or 7 disappoint the reasonable expectations of Harrison. See Careau, 8 222 Cal. App. 3d at 1395. Because Harrison’s allegations amount 9 to little more than a garden variety claim that Evanston failed 10 to defend and indemnify Harrison under the Policy, “the breach of 11 the implied covenant of good faith and fair dealing must give way 12 to the breach of contract claim.” See Env’t Furniture, 2010 WL 13 5060381, at *3 (dismissing claim for breach of the implied 14 covenant of good faith and fair dealing because it was identical 15 to breach of contract claim). 16 In its opposition, Harrison argues that the 17 “information before this Court reasonably leads to the inference 18 that Evanston acted in bad faith” because Evanston did not 19 conduct any additional investigation between its first and second 20 denial of Harrison’s claim and defense, did not contact Harrison 21 directly or “collect key extrinsic facts,” and did not properly 22 apply California law when it “narrowly interpreted and applied 23 various policy exclusions in order to deny Harrison coverage and 24 a defense.” (Harrison’s Opp’n to Mot. to Dismiss at 4.) But 25 these assertions are not supported by specific allegations set 26 forth in Harrison’s countercomplaint, or even Harrison’s answer 27 or Evanston’s original complaint. Rather, Harrison offers only 28 statements made in its attorney’s declaration and two attached 1 denial-of-coverage letters sent to Harrison by Evanston, which 2 are not incorporated by reference in Harrison’s countercomplaint 3 and of which Harrison has not asked the court to take judicial 4 notice. See Ritchie, 342 F.3d at 908 (“Certain written 5 instruments attached to pleadings may be considered part of the 6 pleading . . . if the plaintiff refers extensively to the 7 document or the document forms the basis of the plaintiff's 8 claim.”). 9 Harrison’s arguments that Evanston adopted “narrow and 10 arbitrary” interpretations of each of the Policy’s relevant 11 exclusions also suffer from a more fundamental defect, in that 12 they do not show that adopting such a narrow interpretation of an 13 insurance contract amounts to bad faith, rather a standard 14 disagreement over the contract’s terms. (See Harrison’s Opp’n to 15 Mot. to Dismiss at 6-15.) For example, Harrison argues that 16 Evanston’s interpretation of the Policy’s Participation Exclusion 17 was unduly narrow because Evanston failed to account for 18 California case law that has held similar exclusions inapplicable 19 when the activity at issue was not advertised specifically for 20 spectator entertainment and when the participants did not know 21 ahead of time the situation in which they were involving 22 themselves. (See Harrison Opp’n to Mot. to Dismiss at 7-11 23 (citing Essex Ins. Co. v. FD Event Co. LLC, No. EDCV16607 JGB 24 (DTBx), 2017 WL 3309605, at *9 (C.D. Cal. July 25, 2017)).) But 25 the cases upon which Harrison relies do not address the implied 26 covenant of good faith and fair dealing. (See id.) Rather, 27 Harrison cites only to cases in which courts have held, at the 28 summary judgment stage, that an insurer either did or did not 1 have a duty to defend under the terms of policy at issue. See 2 Essex, 2017 WL 3309605; see also, e.g., Essex Ins. Co. v. Insider 3 Prods., LLC, No. 2:15–cv–09762–SVW–RAO, 2016 WL 7655691 (C.D. 4 Cal. Jun. 29, 2016). Harrison’s argument merely shows that 5 Evanston and Harrison adopted differing opinions as to the scope 6 of the Policy’s coverage. Nothing in Harrison’s counterclaim, or 7 even the evidence submitted by Harrison in its moving papers, 8 suggests that Evanston adopted its interpretations of the Policy 9 in bad faith rather than as a result of a genuine dispute. See 10 Raisin Bargaining Ass’n v. Hartford Cas. Ins. Co., 715 F. Supp. 11 2d 1079, 1088 (E.D. Cal. 2010) (Wanger, J.) (dismissing claim for 12 breach of the implied covenant of good faith and fair dealing 13 because complaint failed to allege specific facts evidencing bad 14 faith, and instead “simply demonstrate[d] a difference of opinion 15 between Defendant and Plaintiffs”). 16 Because Harrison’s counterclaim contains no mention of 17 any failure on the part of Evanston to investigate, does not 18 allege that Evanston failed to contact Harrison or “collect key 19 extrinsic facts” before denying coverage (see Harrison’s 20 Countercompl. ¶¶ 30-45), and does not include sufficient detail 21 to plausibly explain why Evanston’s interpretations of the Policy 22 were “unreasonable” or the result of anything other than a 23 genuine difference of opinion as to the scope of the Policy’s 24 coverage, its conclusory allegations that Evanston wrongfully, 25 tortiously, and unreasonably denied coverage fail to “allege 26 facts establishing the bad faith breach of the implied covenant.” 27 See Env’t Furniture, 2010 WL 5060381, at *3 (emphasis in 28 original); Iqbal, 556 U.S. at 678. Accordingly, the court will 1 dismiss Harrison’s second counterclaim with leave to amend. 2 B. Motion to Strike 3 Under Federal Rule of Civil Procedure 12(f), the Court 4 “may order stricken from any pleading ... any redundant, 5 immaterial, impertinent, or scandalous matter.” The essential 6 function of a Rule 12(f) motion is to “avoid the expenditure of 7 time and money that must arise from litigating spurious issues by 8 dispensing with those issues prior to trial.” Fantasy, Inc. v. 9 Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993); see also Sagan v. 10 Apple Computer, Inc., 874 F. Supp. 1072, 1077 (C.D. Cal. 1994) 11 (citing same language). Rule 12(f) motions are generally 12 “disfavored” because they are “often used as delaying tactics, 13 and because of the limited importance of pleadings in federal 14 practice.” Schwarzer, et al., Federal Civil Procedure § 9:375 15 (citing Colaprico v. Sun Microsystems, Inc., 758 F. Supp. 1335, 16 1339 (N.D. Cal. 1991)). 17 In light of the court’s decision to dismiss Harrison’s 18 second counterclaim, Evanston argues that the court should strike 19 allegations in Harrison’s counterclaim for breach of contract 20 stating that Harrison is entitled to punitive damages, as well as 21 the demand for punitive damages in the countercomplaint’s prayer 22 for relief, because punitive damages are not available for breach 23 of contract claims as a matter of law. (See Evanston’s Mot. to 24 Strike at 4-5.) Evanston is correct that, “[u]nder California 25 law, punitive damages are not available for breaches of contract 26 no matter how gross or willful.” Tibbs, 755 F.2d at 1375. 27 However, in Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970 28 (9th Cir. 2010), the Ninth Circuit made clear that “Rule 12(f) 1 does not authorize district courts to strike claims for damages 2 on the ground that such claims are precluded as a matter of law.” 3 Id. at 974-75. 4 As noted by the Ninth Circuit, Rule 12(f) does not 5 contemplate striking a claim for relief because it is precluded 6 as a matter of law; nor does a claim for relief fall under one of 7 the categories articulated in Rule 12(f). See id. (noting a 8 claim for damages “is clearly not an insufficient defense”; 9 “could not be redundant,” . . . “is not immaterial, because 10 whether these damages are recoverable relates directly to the 11 plaintiff's underlying claim for relief”; “is not impertinent, 12 because whether these damages are recoverable pertains directly 13 to the harm being alleged”; and “is not scandalous”). Though 14 some post-Whittlestone courts have continued to strike requests 15 for punitive damages on the theory that such damages are 16 precluded as a matter of law, see Johnson v. Napa Valley Wine 17 Train, Inc., No. 15-cv-04515-TEH, 2016 WL 493229, at *13 (N.D. 18 Cal. Feb. 9, 2016) (collecting cases), these courts have 19 “generally d[one] so without addressing the effect of 20 Whittlestone.” Powell v. Wells Fargo Home Mortgage, No. 14-cv- 21 04248-MEJ, 2017 WL 2720182, at *7 (N.D. Cal. Jun. 23, 2017). 22 Rather, the weight of authority in this circuit has held that, in 23 light of Whittlestone, motions to strike certain types of damages 24 because they are precluded as a matter of law should be denied. 25 See id. (collecting cases). Accordingly, the court will not 26 strike the allegations in Harrison’s countercomplaint regarding 27 punitive damages or the countercomplaint’s prayer for punitive 28 damages. 1 The court further declines to treat Evanston’s Rule 2 12(f) motion to strike as a Rule 12(b)(6) motion to dismiss. It 3 is true that, “where a motion is in substance a Rule 12(b)(6) 4 motion, but is incorrectly denominated as a Rule 12(f) motion, a 5 court may convert the improperly designated Rule 12(f) motion 6 into a Rule 12(b)(6) motion.” Kelley v. Corrections Corp. of 7 Am., 750 F. Supp. 1132, 1146 (E.D. Cal. 2010) (Ishii, J.); see 8 also Rhodes v. Placer Cty., No. 2:09-cv-00489 MCE KJN PS, 2011 WL 9 1302240, at *20 (E.D. Cal. Mar. 31, 2011) (noting that, in light 10 of Whittlestone, “courts sometimes construe such deficient 11 motions to strike as motions to dismiss and analyze them 12 accordingly”). 13 However, because the court is already granting Harrison 14 leave to amend its complaint in this Order, and given that 15 Evanston did not request that the court, in the alternative, 16 treat its motion as a motion to dismiss until its reply brief 17 (which, consequently, has not allowed the parties to brief the 18 relevant issues under the applicable Rule 12(b)(6) framework), 19 the court declines to do so in this instance. 20 IT IS THEREFORE ORDERED that Evanston’s motion to 21 dismiss Harrison’s Second Counterclaim for Breach of the Implied 22 Covenant of Good Faith and Fair Dealing (Docket No. 22) be, and 23 the same hereby is, GRANTED. Harrison is given 20 days from the 24 date of this order to file amended counterclaim if he can do so 25 consistent with this Order. 26 IT IS FURTHER ORDERED that Evanston’s motion to strike 27 (Docket No. 21) be, and the same hereby is, DENIED. 28 /// eee IIE III I INE IIE II OS IIE OI) IEE I EE ae itl A hh. be □ 1 Dated: January 26, 2021 Pi he Vi (eh 2 UNITED STATES DISTRICT JUDGE 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13