Davis v. Nat'l Interstate Ins. Co.

686 F.Supp.3d 984

Anthony DAVIS, Plaintiff, v. NATIONAL INTERSTATE INSURANCE COMPANY, Defendant.

Case No. 1:23-cv-00936-ADA-CDB

United States District Court, E.D. California

Signed August 11, 2023

Iverson Matthew Jackson, Iverson Matthew Jackson Law Firm, North Hollywood, CA, Seth N. O'Dell, Jeremy D. Swanson, Swanson O'Dell, APC, Bakersfield, CA, for Plaintiff.

Colin Cortez, Graham Arthur Van Leuven, Nicholas Hans Rasmussen, McCormick Barstow Sheppard Wayte & Carruth, LLP, Fresno, CA, for Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS COMPLAINT PURSUANT TO FED. R. CIV. P. 12(b)(6) AND GRANTING LEAVE TO AMEND

Christopher D. Baker, UNITED STATES MAGISTRATE JUDGE

Pending before the Court is the motion by Defendant National Interstate Insurance Company to dismiss the complaint of Plaintiff Anthony Davis, filed June 29, 2023, pursuant to Fed. R. Civ. P. 12(b)(6). (Doc. 3).¹ The Court has received and considered Plaintiff's opposition papers (Doc. 5) and Defendant's reply (Doc. 8).

Background

On October 21, 2019, Plaintiff filed a personal injury lawsuit in the Superior Court for the State of California, County of Kern, against Ten-West Towing, its alleged owner, James R. Cady, and an employee, Brandon Edwards. See Complaint (Doc. 1-1) ¶ 10. Plaintiff amended the complaint twice, and the operative, third amended complaint was filed on August 28, 2020 (the "Underlying Action"). Id. ¶ 17. In the Underlying Action, Plaintiff alleged he sustained personal injuries while at Ten-West Towing's property on or around April 15, 2019. Id. ¶ 11. Specifically, Plaintiff alleged that on that date, he was directed to Ten-West Towing's property when Cady confronted him and began swearing and directing racial epithets towards Plaintiff. Id. ¶ 17. At some point, Edwards allegedly "ran up to Plaintiff, and punched Plaintiff, dropping Plaintiff to the ground without provocation." Id. Plaintiff alleged that he was "viciously beaten up." Although Edwards allegedly claimed he merely was trying to "get in between [Plaintiff] and [Cady]" during the engagement, according to Plaintiff's allegations, "video footage shows that [Edwards] did not take any action to separate Plaintiff from the owner." Id. Further, Plaintiff alleges that "Edwards' excuse of 'protecting the owner' is not substantiated by the actual video footage and it can be reasonably inferred that [Edwards] was irrationally angry and motivated to hurt Plaintiff." Id. Plaintiff alleged that "the assault" by Edwards caused him both physical injury and mental and emotional distress. Id.

Defendant National Interstate Insurance Company ("NIIC" or "Defendant") issued an insurance policy to Ten-West Towing for the policy period of November 1, 2018 to November 1, 2019 (the "Policy"). The Policy included a Commercial General Liability Coverage Form that provides, in general, that NIIC will pay those sums that Ten-West Towing becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which the Policy applies. Complaint ¶ 9 & Exhibit A (Doc. 1-1 at ECF p. 82). The Policy further provides that NIIC will have the right and duty to defend the insured against any "suit" seeking those damages. Complaint Exhibit A (Doc. 1-1 at ECF p. 82). The Policy also includes an "Expected or Intended Injury" exclusion, which states that: "This insurance does not apply to . . . 'Bodily injury' . . . expected or intended from the standpoint of the insured. This exclusion does not apply to 'bodily injury' resulting from the use of reasonable force to protect persons or property." Id. at ECF p. 83.

Additionally, the Policy included an endorsement entitled "EXCLUSION - ASSAULT & BATTERY." Complaint Exhibit A (Doc. 1-1 at ECF p. 112). That endorsement modified the Policy to add an exclusion precluding coverage for, as relevant here, (1) assault, battery or any other violent crime, and (2) "Any act or omission in connection with the prevention or suppression of assault, battery or any other violent crime." Id.

In connection with the Underlying Action, Ten-West Towing and/or Cady notified NIIC and requested coverage and defense under the Policy from NIIC. Complaint ¶ 12. On January 27, 2020, NIIC issued a letter to Ten-West Towing asserting its "Reservation of Rights." Id. NIIC initially accepted tenders of defense, subject to reservations of its rights, but on January 26, 2021, declined to continue providing coverage or a defense to the insureds after discovering information it claimed precluded coverage under the aforementioned assault and battery endorsement/exclusion. Id. ¶¶ 12, 14, 15, 18.

According to Plaintiff's allegations, on November 14, 2022, the parties in the Underlying Action settled the case. Complaint ¶ 22. A copy of the settlement agreement is attached to and incorporated in Plaintiff's complaint in the instant action. Among other things, the settlement agreement provides that Plaintiff is assigned Ten-West Towing and Cady's rights under the Policy for breach of NIIC's duty to defend, bad faith, "and any other applicable claims both in contract and tort." Id. The parties agreed to the terms of a stipulated judgment in the amount of $5 million in Plaintiff's favor, but also agreed that the final judgment in the Underlying Action "be held and not entered pending resolution of the Assigned Claims against NIIC." Id. Exhibit B ¶ 1. In exchange for a payment of $200,000 from NIIC, Plaintiff agreed not to attempt to collect on the final judgment in the Underlying Action. Id. ¶ 4.

On May 10, 2023, Plaintiff filed this action against Defendant in the Superior Court for the State of California, County of Kern. In the complaint, Plaintiff asserts four causes of action: (1) breach of contract; (2) breach of implied covenant - unreasonable failure to defend; (3) breach of implied covenant - refusal to accept reasonable settlement demand; (4) declaratory judgment. On June 22, 2023, Defendant removed the action to this Court.

Party Contentions

In its pending motion, Defendant argues that Plaintiff's breach of contract claim should be dismissed because Defendant did not have a duty to defend in the Underlying Action. Specifically, Defendant asserts that the Policy at issue does not apply to the parties' dispute due to certain of its terms, exclusions and endorsements. Defendant asserts that the Policy's "Exclusion - Assault & Battery" endorsement and "Expected or Intended Injury" exclusion apply to preclude coverage. Defendant separately argues that California Insurance Code § 533 applies to preclude coverage, and also, that the Policy is inapplicable because the Underlying Action was predicated on events that do not constitute a coverable "Occurrence" under the policy.

In opposition, Plaintiff argues that the Policy is ambiguous and, accordingly, must be construed in accordance with Plaintiff's reasonable expectations. (Doc. 5 pp. 11-13). Specifically, Plaintiff asserts that the "Expected or Intended Injury" exclusion expressly excepts "bodily injury resulting from the use of reasonable force to protect persons or property." (Id. p. 11). Under the facts and circumstances that Plaintiff proffers concerning the events in the Underlying Action, this "reasonable force" exception "creates a potential for coverage" and that such exceptions are interpreted broadly under California law in favor of coverage. Further, Plaintiff argues that the assault and battery exclusion is an "inconsistent" and "competing provision[ ]" and that the resulting ambiguity requires an interpretation of the Policy that favors finding a duty to defend. (Id. pp. 12-13). Additionally, Plaintiff argues that Insurance Code § 533 does not apply because that policy's named insureds (a corporate entity and its CEO) are not alleged to have engaged in willful conduct, but rather, would be liable (if at all) vicariously.

In its reply, Defendant points out that Plaintiff does not challenge the effectiveness or enforceability of the assault and battery exclusion. (Doc. 8 pp. 5-6) Further, Defendant argues that while the Policy is not ambiguous, even if there was an ambiguity due to the two exclusions Plaintiff asserts are inconsistent and in conflict, under California law, the assault and battery exclusion takes precedence because it is contained in an endorsement to the Policy. Defendant urges the Court to disregard the extrinsic evidence Plaintiff proffers in his opposition papers. (Id. p. 7). Defendant also argues that Plaintiff is incorrect to assert that California Insurance Code § 533 is no bar to coverage because, here, the named insureds ratified the tortfeasor's willful conduct. (Id. pp 8-10).

Legal Standard

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) asks a court to dismiss a plaintiff's complaint for failing "to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the complaint's sufficiency. N. Star Int'l v. Ariz. Corp. Comm'n., 720 F.2d 578, 581 (9th Cir. 1983) (citing Peck v. Hoff, 660 F.2d 371, 374 (8th Cir. 1981)). A complaint may be dismissed as a matter of law either for lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't., 901 F.2d 696, 699 (9th Cir. 1990) (citing Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984))

To survive a motion to dismiss under Rule 12(b)(6), a complaint must provide sufficient factual matter to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see Fed. R. Civ. P. 8(a)(2) (a complaint must contain a short and plain statement of the claim showing that the pleader is entitled to relief). A complaint satisfies the plausibility requirement if it contains sufficient facts for the court to "draw [a] reasonable inference that the defendant is liable for the misconduct alleged." Bell Atl. Co...