Opinion
CASE NO. 10-cv-2273 BEN (RBB).
April 21, 2011
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS THE SECOND CAUSE OF ACTION [Docket No. 8]
Before the Court is Defendant's motion to dismiss ("Motion") Plaintiff's Second Cause of Action, pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket No. 8.) For the reasons set forth below, the Motion is GRANTED.
BACKGROUND
This action relates to a construction defect action titled Pacific Pines Racquet Club Owners Association v. Pacifica Encinitas, L.P., San Diego Superior Court, Case No. GIC 878 280 (the "Underlying Action"). In the Underlying Action, Plaintiff alleged that Sully-Jones Contractors, Inc. ("Sully-Jones") performed defective roofing work on Plaintiff's property. (Compl., ¶¶ 1, 8, 20.) On or around July 30, 2010, Plaintiff and Sully-Jones entered into a stipulated judgment for $4,800,000. (Compl., Ex. A.) Plaintiff then instituted this action to recover the $4,800,000 stipulated judgment from Sully-Jones' insurance company, i.e., Defendant. (Compl., ¶¶ 1, 8, 20.) The Court notes that Defendant contests coverage, and the issue of coverage is currently pending in this Court, in the case Sully-Jones Contractors, Inc. v. American Safety Indemnity Company, 08-cv-1976 BEN (RBB).Plaintiff asserts two causes of action against Defendant: (1) Third Party Judgment Creditor against Insurer (Insurance Code section 11580) (First Cause of Action), and (2) Breach of the Implied Covenant of Good Faith and Fair Dealing (Second Cause of Action). Defendant's Motion only seeks dismissal of the Second Cause of Action.
Being fully briefed, the Court finds the Motion suitable for determination on the papers without oral argument, pursuant to Civil Local Rule 7.1.d.1.
DISCUSSION
Under Federal Rule of Civil Procedure 12(b)(6), dismissal is appropriate if, taking all factual allegations as true, the complaint fails to state a plausible claim for relief on its face. Fed.R.Civ.P. 12(b)(6); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556-57 (2007). Under this standard, dismissal is appropriate if the complaint fails to state enough facts to raise a reasonable expectation that discovery will reveal evidence of the matter complained of, or if the complaint lacks a cognizable legal theory under which relief may be granted. Id. at 556.
As noted, the Second Cause of Action alleges bad faith. Specifically, Plaintiff alleges Defendant breached its obligation to act fairly and in good faith by (1) failing to defend, settle or indemnify Sully-Jones in the Underlying Action, and (2) failing to pay Plaintiff as judgment creditor under the stipulated judgment. (Compl., ¶ 22.)
An insurer's duty of good faith and fair dealing arises from the insurance contract and runs to the insured. Kransco v. Am. Empire Surplus Lines Ins. Co., 23 Cal. 4th 39, 400-01 (2000); Murphy v. Allstate Ins. Co., 17 Cal.3d 937, 941-44 (1976). No such duty can be implied in favor of a third-party claimant because the claimant is a "stranger" to the contract. Id. Nor can the claimant reasonably expect there to be a duty, as the insurer's and the insured's interests are aligned against the claimant. Id.
The decision in Hand v. Farmers Ins. Exch., 23 Cal. App. 4th 1847 (1994) does not change this general rule. The Hand court held that the implied covenant of good faith and fair dealing imposes a duty on the insurer not to unreasonably withhold payment of damages, when the insured has become obligated to pay such damages by way of judgment. In that case, the issue of liability had been adjudicated and reduced to judgment. The insurance company had also promised to cover the plaintiff's claim and had defended the insured during litigation. Subsequent courts have recognized and confirmed that Hand only applies in those limited circumstances. Maxwell v. Fire Ins. Exch., 60 Cal. App. 4th 1446, 1452 (1998) (refusing to apply Hand and affirming trial court's grant of summary judgment in favor of insurer on third-party's bad faith claim); Hughes v. Mid-Century Ins. Co., 38 Cal. App. 4th 1176, 1184-85 (1995) (holding that third-party could not maintain a bad faith claim against insurer because the underling judgment was not final when the bad faith claim was filed). Plaintiff has not alleged such circumstances exist in this case, nor has it alleged it obtained an assignment of Sully-Jones' rights against Defendant. Murphy, 17 Cal. 3d at 944. Accordingly, the Court finds that Plaintiff's Second Cause of Action fails to state a claim for relief against Defendant. The Court does not address Defendant's other arguments, as those arguments are moot.
CONCLUSION
For the reasons set forth above, Defendant's motion to dismiss the second cause of action in Plaintiff's Complaint is GRANTED. Plaintiff is granted leave to amend to correct the deficiencies outlined above. Fed.R.Civ.P. 15(a) ("The court should freely give leave when justice so requires."). Any such amended complaint must be filed no later than May 9, 2011.
IT IS SO ORDERED.
Date: April 20, 2011