FLRish Retail Management & Security Services LLC v. Hallmark Specialty Insurance Company ( 2020 )

1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 FLRISH RETAIL MANAGEMENT & Case No. 20-cv-00096-CRB SECURITY SERVICES LLC, et al., 9 Plaintiffs, ORDER GRANTING MOTION TO 10 DISMISS v. 11 HALLMARK SPECIALTY INSURANCE 12 COMPANY, 13 Defendant. 14 Plaintiffs (collectively, “FLRish”) have sued Hallmark Specialty Insurance Co., claiming 15 that Hallmark wrongfully denied coverage and violated its duty to defend FLRish against a 16 discrimination and retaliation action brought by a former employee. Because the claim at issue 17 was clearly excluded from coverage under the applicable policies, Hallmark’s motion to dismiss is 18 granted with prejudice. 19 I. BACKGROUND 20 On March 1, 2018, Hallmark issued an employment practices liability policy of insurance 21 to FLRish. Compl. (dkt. 1) ¶ 9. The initial policy ran from March 1, 2018, to March 1, 2019, 22 Policy One (dkt. 11, Ex. A) at HSIC 3,1 and was renewed for a period running from March 31, 23 2019, to March 31, 2020, Policy Two at HSIC 34. Both policies excluded from coverage any 24 25 1 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 26 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 27 other requests for judicial notice are not necessary to resolve this matter, they are denied as moot. 1 claim: 2 3 alleging, arising out of, based upon, relating to, attributable to, directly or indirectly resulting from or in consequence of, or in any 4 way involving any Wrongful Act or Related Wrongful Act or any fact, circumstance or situation which has been the subject of any 5 Claim or notice of circumstance reported under any other policy of which this Policy is a renewal, replacement, or which this Policy may 6 succeed in time. 7 (“Exclusion B”). Policy One at HSIC 12; Policy Two at HSIC 42. 8 The claim at the heart of this dispute (the “Moothery claim”) arose from a discrimination 9 and retaliation suit brought by a former bookkeeper for FLRish. Compl. ¶ 12. FLRish initially 10 reported Moothery’s lawsuit to a different insurer, the Beazely Group. Notice of Claim at 11 HSIC 133. FLRish’s Beazely policy ran from December 1, 2015, to December 1, 2016. Id. at 12 HSIC 135. Beazely initially agreed to provide coverage, id. at HSIC 133, but, according to 13 FLRish, later withdrew coverage, Opp’n (dkt. 14) at 1. At that point FLRish reported the claim to 14 Hallmark. Id. When Hallmark declined coverage, FLRish filed the instant action, bringing claims 15 for breach of contract, breach of the implied covenant of good faith and fair dealing, and 16 declaratory relief. Compl. ¶¶ 21–35. 17 II. LEGAL STANDARD 18 Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for 19 failure to state a claim upon which relief may be granted. Dismissal may be based on either “the 20 lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal 21 theory.” Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th Cir. 2019). A complaint 22 must plead “enough facts to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 23 556 U.S. 662, 697 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A 24 claim is plausible “when the plaintiff pleads factual content that allows the court to draw the 25 reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. 26 When evaluating a motion to dismiss, the Court “must presume all factual allegations of 27 the complaint to be true and draw all reasonable inferences in favor of the nonmoving party.” 1 complaint in its entirety, as well as other sources courts ordinarily examine when ruling on 2 Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by 3 reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & 4 Rights, Ltd., 551 U.S. 308, 322 (2007). 5 If a court does dismiss a complaint for failure to state a claim, it should “freely give leave 6 [to amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2). A court nevertheless has 7 discretion to deny leave to amend due to “undue delay, bad faith or dilatory motive on the part of 8 the movant, repeated failure to cure deficiencies by amendments previously allowed, undue 9 prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of 10 amendment.” Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 532 (9th Cir. 2008) (citing 11 Foman v. Davis, 371 U.S. 178, 182 (1962)). 12 III. DISCUSSION 13 This action is precluded by Exclusion B. That provision bars coverage of any claim that 14 was previously “reported under any other policy . . . which this Policy may succeed in time.” 15 Policy One at HSIC 12; Policy Two at HSIC 42. The Moothery claim was previously reported 16 under the Beazley policy. Notice of Claim at HSIC 133. The Beazley policy period was 17 December 1, 2015, to December 1, 2016, so the Hallmark policy “succeed[ed] [it] in time.” Id. at 18 HSIC 135; see also Policy One at HSIC 3. Ergo, Exclusion B applies to the Moothery claim. See 19 Landmark Am. Ins. Co. v. Navigators Ins. Co., 354 F. Supp. 3d 1078, 1084 (N.D. Cal. 2018) 20 (interpreting the scope of a nearly identical exclusion). 21 FLRish does not contest that the Moothery claim was reported under the Beazley policy, or 22 that the Hallmark policy succeeded the Beazley policy in time. Indeed, it relies on these facts to 23 try to excuse its late reporting of the Moothery claim to Hallmark. See Opp’n at 1. It makes two 24 other arguments that Exclusion B should not apply. 25 First, it argues that the exclusion is inapplicable because Beazley withdrew coverage and 26 “[t]here is nothing in the Hallmark policy . . . that addresses what happens when the first carrier 27 providing coverage later withdraws the coverage.” Opp’n at 3. To the contrary, Exclusion B 1 Policy Two at HSIC 42. It thus applies whether that claim is covered by the prior policy or not. 2 As Hallmark points out, the fact that the policy does not address a situation where the first carrier 3 withdraws coverage cuts against FLRish—it means there is no exception to the plain language of 4 Exclusion B in this situation. Reply at 9. FLRish complains that this is a harsh result: “Plaintiff is 5 left without the coverage it contracted for and relied upon.” Opp’n at 3. But this cannot justify 6 inventing ambiguity where none exists, see Gen. Reinsurance Corp. v. St. Jude Hosp., 107 Cal. 7 App. 4th 1097, 1108 (Cal. Ct. App. 2003), as FLRish suggests, and in any event that outcome is as 8 attributable to Beazley’s withdrawal of coverage than to the operation of Exclusion B. 9 Second, FLRish claims Exclusion B cannot apply here because Hallmark’s interpretation 10 of its scope would deny coverage even if the Moothery claim had been reported under a clearly 11 inapplicable prior policy, such as a homeowner’s policy. Opp’n at 8. FLRish does not claim that 12 the Beazley policy was clearly inapplicable, and “no authority permit[s] an insured to manufacture 13 hypothetical scenarios beyond those encompassed by the pleadings or the facts known to the 14 insurer in order to give rise to” coverage. All Green Elec., Inc. v. Sec. Nat’l Ins. Co., 22 Cal. App. 15 5th 407, 417 (Cal. Ct. App. 2018). 16 Exclusion B is fatal to all three causes of action. Because Hallmark had no obligation to 17 provide coverage, FLRish does not state a claim for breach of contract. See Oasis W. Realty, LLC 18 v. Goldman, 51 Cal. 4th 811, 821 (Cal. 2011). The claim for breach of the implied covenant of 19 good faith and fair dealing fails because Hallmark had no duty to provide coverage. See Am. 20 Med. Int’l, Inc. v. Nat’l Union Fire Ins. Co., 244 F.3d 715, 720 (9th Cir. 2001). And FLRish’s 21 request for declaratory relief relies on the allegations underlying the first two causes of action, so 22 it dies with them. See Compl. ¶¶ 32–35. Because Exclusion B constitutes sufficient reason to 23 dismiss on its own, there is no need to consider Hallmark’s other arguments for dismissal. 24 FLRish avows that if given leave to amend it will cure the deficiencies in its Complaint. 25 See Supp. Opp’n (dkt. 22) at 1. But it offers no explanation of how amended or additional 26 allegations will avoid application of Exclusion B, and the Court can conceive of no path around 27 that obstacle. Because it appears amendment would be futile, dismissal is with prejudice. IV. CONCLUSION For the foregoing reasons, FLRish’s Complaint is dismissed with prejudice. 2 IT IS SO ORDERED. ° co A Dated: April 16, 2020 4 CHARLES R. BREYER United States District Judge 6 7 8 9 10 11 gq 12 © 15 16 & = 17 Z 18 19 20 21 22 23 24 25 26 27 28