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Campana v. Allstate Ins. Co.

United States District Court, N.D. California
Sep 12, 2001
No. C-01-1 842 PJH (N.D. Cal. Sep. 12, 2001)


No. C-01-1 842 PJH

September 12, 2001


The motion of defendant, Allstate Insurance Company ("Allstate") to dismiss the complaint came on for hearing on September 12, 2001, before this court, the Honorable Phyhis J. Hamilton presiding. Defendant was represented by Sonia Martin. Rachel Campana ("plaintiff"), a minor, by and through her guardian ad item, Laureen Campana, was represented by Richard Raines. Having reviewed the parties' papers and considered the arguments of counsel and the relevant legal authority, and good cause appearing, the court hereby GRANTS the motion to dismiss for the following reasons.


Plaintiff brings this action against defendant Allstate Insurance Company ("Allstate') for declaratory relief. Plaintiff seeks a judicial declaration that Allstate owes a duty to defend and indemnify its insureds in an action pending in Contra Costa County Superior Court. (Underlying Action").

In the Underlying Action, plaintiff alleges that she was molested by two minor boys while in the care of Cheryl Garber, Kenneth Garber, and Cheryl Garber Day Care (the "Garbers"). Plaintiff claims that the day care owners had actual or constructive knowledge of the dangers presented by the presence of these boys. Plaintiff alleges that the sexual assaults had a serious, adverse impact on her psychological and developmental well-being. At the time of the alleged sexual assault, Allstate insured the Garbers under a policy of liability insurance. Plaintiff filed a declaratory relief action in Contra Costa County Superior Court to determine whether coverage existed for her injuries under Allstate's policy of liability insurance issued to the Garbers. The case was removed to federal court based on diversity of citizenship.

Allstate now moves to dismiss plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b) for failure to state a claim upon which relief can be granted on two grounds: 1) plaintiff lacks standing to sue the Garbers' insurer, and 2) no actual controversy exists at this time between plaintiff and Allstate.


A. Legal Standard

A Rule 12(b)(6) motion to dismiss for failure to state a claim tests the legal sufficiency of the claim or claims stated in the complaint. The court must decide whether the facts alleged, if true, would entitle plaintiff to some form of legal remedy. Unless the answer is unequivocally "no," the motion must be denied. Schwarzer, Tashima Wagstaffe, Federal Civil Procedure Before Trial § 9:187.

A Rule 12(b)(6) dismissal is proper only where there is either a "lack of a cognizable legal theory" or the "absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). A claim should not be

dismissed under Rule 12(b)(6) "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45 (1957).

In resolving a Rule 12(b)(6) motion, the court must 1) construe the complaint in the light most favorable to the plaintiff; 2) accept the well-pleaded factual allegations as true; and 3) determine whether plaintiff can prove any set of facts to support a claim that would merit relief. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337 (9th Cir. 1996).

B. Allstate's Motion to Dismiss

1. Standing

Allstate moves to dismiss the complaint on the ground that plaintiff lacks standing to sue Allstate for declaratory relief. Allstate argues that plaintiff is not an insured person under its policy and has recovered no judgment against an insured person.

Plaintiff responds that she has standing as a third-party beneficiary allowing her to make a potentially covered claim against a policy of liability insurance under traditional contract principles. Plaintiff argues that under Cal. Health Saf. § 1597.531, plaintiff qualifies as a third-party beneficiary of the Allstate policy because she is a "client or guest" for which the policy is intended to protect.

As a general rule, absent an assignment of rights or a final judgment, a third-party claimant may not bring a direct action against an insurance company on the contract because the insurer's duties flow to the insured. J.C. Penney Casualty Ins. Co. v. M.K., 52 Cal.3d 1009, 1018 (1991); Clemmer v. Hartford Ins. Co., 3d 865, 889 (1978); Murphy v. Allstate Ins. Co., 17 Cal.3d 937, 943-44 (1976). Therefore, a third-party claimant cannot sue a tortfeasor's insurer directly unless she first reduces her claim to a judgment and then sues directly under Insurance Code § 11580(b)(2), or she obtains an assignment from the insured of the latter's contractual rights. Mitrpby, 17 Cal.3d at 944; Shaolian v. Safeco Ins. Co., 71 Cal.App.4th 268, 271-72 (2d Dist. 1999); Barrera v. State Farm Mut. Automobile Ins. Co., 71 Cal.2d 659 (holding that a third-party claimant who obtains a judgment against an at-fault driver has standing to sue the insurer directly).

An exception to this rule is that a claimant may sue the insurer as a third party beneficiary utilizing traditional contract principles. Harper v. Wausau Ins. Co., 56 Cal.App.4th, 1079, 1086-87 (2d Dist. 1997). Under Cal. Civ. § 1559, a third-party beneficiary to a contract has the right to enforce the terms of the contract where the contracting parties intended to benefit that individual and such intent appears in the terms of the agreement. Id. Additionally, traditional third-party beneficiary principles do not require that the person to be benefitted be named in the contract. Id. Nevertheless, the lack of an enforceable contractual right precludes declaratory relief where such a cause of action is predicated on recognized contractual rights. Blank v. Kirwan, 39 Cal.3d 311, 331 (1985) (nonparty to contract lacks standing to seek declaratory relief).

Cal Health Saf. Code § 1597.53, pro\'ides in part,

All family day care homes for children shall maintain in force either liability insurance covering injury to clients and gi.tests in the amount of at least one hundred thousand dollars ($100,000) per occurrence and three hundred thousand dollars ($300,000) in the total annual aggregate, sustained on account of the negligence of the licensee or its employees. (Emphasis added)

The public policy behind the statute is to ensure that persons injured at day care homes will be compensated for their injuries.

Here, plaintiff does not fall within the general rule allowing a third-party claimant to bring a direct action against the insurer. No judgment has been rendered in the Underlying Action nor have the Garbers assigned any of their contractual rights to plaintiff. The two cases that plaintiff cites in her opposition, Armstrong World Industries v. Aetna, 45 Cal.App.4th 1 (1st Dist. 1996), and Reserve Ins. Co. v. Apps, 85 Cal.App.3d 228 (2d Dist. 1978), do not support her position because they do not involve third-party claimants Moreover, plaintiff does not possess any contractual rights against Allstate to make her a third-party beneficiary. She does not even allege that she is a policy holder under Allstate's insurance. Even if plaintiff establishes that she falls within the scope of protected members under Cal. Health. Saf. Code § 1597.53, plaintiff has no contractual rights to enforce at this time without a judgment against the Garbers. Until she obtains a judgment, her injury is hypothetical and conjectural at best. Consequently, the court finds that plaintiff has no standing to sue Allstate for declaratory relief at this time.

2. Controversy

Allstate also argues that plaintiff cannot bring an action for declaratory relief because no justiciable controversy exists between plaintiff and Allstate. Allstate contends that by defending the Garbers in the Underlying Action pursuant to a reservation of rights, Allstate is satisfying the only duty it could presently owe with respect to that case. Plaintiff does not respond to this particular aspect of Allstate's argument in her opposition.

Plaintiff alleged that Allstate asserted lack of coverage in the Underlying Action because it claimed the sexual assaults allegedly suffered by plaintiff did not constitute "bodily injury" under Allstate's policy. However, the extent of coverage is speculative until a judgment is rendered in the Underlying Action.

A complaint for declaratory relief must demonstrate: 1) a proper subject of declaratory relief, and 2) an actual controversy involving justiciable questions relating to the rights or obligations of a party. Brownfield v. Daniel Freeman Niarina Hosp., 208 Cal.App.3d 405, 410 2d 1989); see City of Tiburon v. Northwestern Pac. R.R. Co., 4 Cal.App.3d 160, 170 (1st Dist. 1970). Declaratory relief is inappropriate where there is no "actual controversy." Id. The "actual controversy" requirement concerns the existence of "present controversy relating to the legal rights and duties of the respective parties." Cal. Civ. Proc. § 1060. "Where the allegations of the complaint reveal the controversy to be conjectural, anticipated to occur in the future, or an attempt to obtain an advisory opinion from the court, the fundamental basis of declaratory relief is lacking." Brownfield, 208 Cal.App.3d at 410.

A liability insurer owes two duties under California law: a duty to defend and a duty to indemnify. Montrose Chem. Corp. of Calif. V. Admiral Ins. Co., 10 Cal.4th 645, 549 n. 9 (1995); see Certain Underwriters At Lloyd's, London v. Sup. Ct of Los Angeles County, 24 Cal.4th 945, 958 (2001). The duty to defend has "as its purpose `to avoid or at least minimize liability . . . before liability is established'" whereas the duty to indemnify "has as its purpose `to resolve liability . . . after liability is established.'" Certain Underwriters Al Lloyd's, 24 Cal.4th at 958 (citing Aerojet-General Corp. v. Transport Indemnity, Co., 27 Cal.4th 38, 56 (1997)). Moreover, the duty to defend "entails the rendering of a service, viz., the mounting and funding of a defense" whereas the duty to indemnify "entails the payment of money." Id.

Here, plaintiff will have no actual controversy with Allstate unless: 1) she obtains a judgment against the Garbers in the Underlying Action, 2) the judgment is for covered damages, and 3) Allstate does not pay the judgment. However, since no judgment has been entered in the Underlying Action, the only issue here is Allstate's duty to defend . To that extent, Allstate is currently defending the Garbers in the Underlying Action, thereby fulfilling its duty at this time. Consequently, there is no actual dispute at this time as to any duty under Allstate's policy.

Accordingly, Allstate's motion to dismiss is GRANTED without prejudice to plaintiff's refiling an action should she obtain standing or should an actual controversy arise.

This order fully adjudicates the motion found at Docket Nos. 4, 10, 11 and terminates all other pending motions. The clerk shall close the file.


Summaries of

Campana v. Allstate Ins. Co.

United States District Court, N.D. California
Sep 12, 2001
No. C-01-1 842 PJH (N.D. Cal. Sep. 12, 2001)
Case details for

Campana v. Allstate Ins. Co.

Case Details

Full title:RACHEL CAMPANA, a minor, by and through her guardian ad item, LAUREEN…

Court:United States District Court, N.D. California

Date published: Sep 12, 2001


No. C-01-1 842 PJH (N.D. Cal. Sep. 12, 2001)