RONALD M. WHYTE, District Judge.
Defendant State Farm General Insurance Company ("State Farm") moves to dismiss plaintiff Farhad Zaghi's first amended complaint ("FAC"). Dkt. Nos. 21, 26. The court held a hearing on this motion on March 27, 2015. For the reasons explained below, the court GRANTS State Farm's motion to dismiss as to the breach of contract and negligence claims but DENIES the motion as to the equitable estoppel claim (or, more accurately, promissory estoppel claim).
This case arises out of the parties' dispute over insurance proceeds paid by State Farm to its insureds, Karapet Gayanya and Karine Osmanyen ("the insureds"), following the destruction of their house by fire on January 4, 2014. Dkt. No. 21 at ¶ 7. The insureds purchased the house by means of a hard money mortgage from plaintiff Farhad Zaghi, secured by a deed of trust on the property.
Plaintiff alleges that following a conference call with plaintiff and the insureds, on January 13, 2014, Rosey Gyadakyan, an agent for State Farm, agreed to and issued an amended declaration page designating plaintiff as a mortgagee and an additional insured under the policy.
Plaintiff attached to the FAC an internal State Farm document which states that plaintiff is "1st Additional Type: PAY." Dkt. No. 21-2, Ex. E., at ECF p. 26. Plaintiff alleges that this document, which is dated "14/02/01," was backdated to January 2, 2014, a date before the fire. Dkt. No. 21, at ¶ 13. Also attached to the FAC is an internal State Farm document, dated after the fire, which states "PLEASE ADD AS LOSS PAYEE: PH HAS A `PERSONAL HARD MONEY LOAN,'" Dkt. No. 21-2, Ex. F, at ECF p. 28. Plaintiff contends that this document authorized adding plaintiff as a loss payee on the policy. Dkt. No. 21, at ¶ 13.
The FAC also alleges that between the time of the fire and the issuance of a settlement check to the insureds, State Farm received a fire report stating that plaintiff was the first mortgagee on the property and made a written notation in their file confirming that plaintiff had been added as an additional insured and that plaintiff had a hard money loan secured by a deed of trust on the property.
Plaintiff filed this suit in Santa Clara County Superior Court on September 19, 2014.
Plaintiff filed his FAC on January 29, 2015. Dkt. No. 21. The FAC adds new factual allegations, and adds a cause of action for equitable estoppel, in addition to those for breach of contract and negligence.
A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering whether the complaint is sufficient to state a claim, the court must accept as true all of the factual allegations contained in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). However, the Court need not accept as true "allegations that contradict matters properly subject to judicial notice or by exhibit" or "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). While a complaint need not allege detailed factual allegations, it "must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."
In ruling on a motion to dismiss, the court may consider materials attached to and submitted with the complaint. U.S. v. Corinthian Colleges, 655 F.3d 984, 999 (9th Cir. 2011). The court may also take judicial notice of and consider unattached evidence on which the complaint relies if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the document.
The complaint recites three causes of action: (1) breach of contract; (2) negligence; and (3) equitable estoppel.
Plaintiff alleges that State Farm breached the insurance policy at issue in this case by failing to name plaintiff on the March 10, 2014 settlement check. For the following reasons, the court finds that plaintiff has failed plead a cause of action for breach of contact.
Insurance policies are contracts to which the ordinary rules of contract interpretation apply. Travelers Cas. & Sur. Co. v. Transcon. Ins. Co., 122 Cal.App.4th 949, 955 (2004); see also Bank of the West v. Superior Court, 2 Cal.4th 1254, 1264 (1992). The parties do not dispute that the policy here is a contract formed in California and governed by California law. Accordingly, California's substantive insurance law governs this diversity case.
In California, recovery of proceeds under an insurance contract is generally limited to the named insureds. Bonaparte v. Allstate Ins. Co., 49 F.3d 486, 488 (9th Cir. 1994); see also Russell v. Williams, 58 Cal.2d 487 (1962) (per curiam). The reason is that "insurance does not insure the property covered thereby, but is a personal contract indemnifying the insured against loss resulting from the destruction of or damage to his interest in that property." Russell, 58 Cal.2d at 490.
In its prior order, the court dismissed plaintiff's breach of contract claim, finding that plaintiff was not a party to the insurance contract and plaintiff's rights under the deed of trust do not support a breach of contract cause of action against State Farm. Dkt. No. 18, at 4-7. The FAC adds several new factual allegations in an attempt to remedy these defects.
First, the FAC alleges that Ms. Gyadakyan, as an agent for State Farm, represented to plaintiff that by amending the Policy Declarations page after the fire to name plaintiff as a mortgagee, plaintiff would have all the rights of an insured as if plaintiff had originally been named on Declarations page before the fire and would be named on any settlement check related to the fire. Dkt. No. 21, at ¶ 10. The FAC also alleges that Ms. Gyadakyan represented to plaintiff that the Policy allowed State Farm to add plaintiff as a mortgagee and loss payee, and that there were no exclusions in the policy that would prevent plaintiff from being named on any settlement check for the subject fire, despite his having been added to the Declarations page after the fact.
What the FAC has added, then, are allegations that State Farm intended to add plaintiff as a named mortgagee after the fact, and represented to plaintiff that this would result in his inclusion in the settlement check State Farm planned to issue to cover the fire loss. Plaintiff argues that because the FAC alleges that plaintiff, the insureds, and State Farm agreed to issue a new Declarations page and to include plaintiff on any settlement check, State Farm's subsequent failure to include plaintiff's name on the insurance payout arising from the fire constitutes breach of the insurance contract. Dkt. No. 27, at 5-7. State Farm, in its motion to dismiss and reply, makes the same general argument it made on the previous motion to dismiss: that named insureds at the time of loss are entitled to receive insurance proceeds, and a party cannot be retroactively added to create such a right absent reformation, the requirements for which have not been plead in this case. Dkt. No. 26, at 6-11.
The new allegations in the FAC do not give rise to a viable claim for breach of contract. First, as the court clearly held in its previous order, see Dkt. No. 18, at 4-5, first party property insurance, such as that at issue here, "cannot be obtained for damage which has already occurred because the absence of risk precludes coverage." Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 692 (1995). Plaintiff does not address this issue, and provides no citations to authority in support of its assertions that a party may be added retroactively after the date of loss. While plaintiff's additional allegations in the FAC suggest that an agent of State Farm may have been under the impression that plaintiff could be added retroactively as a loss payee after the date of loss, plaintiff provides no citation to case law suggesting this is permissible in light of Montrose, and the court can find none.
Second, the court previously held that an argument based on reformation as a means of retroactively adding plaintiff as a loss payee was precluded by the Ninth Circuit's holding in Bonaparte. Dkt. No. 18, at 5. As the court explained in its prior order, reformation requires evidence of mutual mistake.
Despite the new allegations in the FAC, it remains uncontroverted that plaintiff was not a named insured or loss payee under the policy on the date of loss. Dkt. No. 21, at ¶ 9 (several days after the fire, "[o]n or about January 6, 2014, Plaintiff was informed that the property owners failed to designate Plaintiff as an additional insured in violation of the subject deed of trust"). Accordingly, the court finds that plaintiff has failed to make out a cognizable cause of action for breach of contract.
Plaintiff's second cause of action alleges that State Farm was negligent in issuing a check to the insureds that did not list plaintiff as a loss payee. Dkt. No. 21, at ¶¶ 41-45. According to plaintiff, State Farm's policy required it to list plaintiff, as a mortgagee, when it paid proceeds under the policy to the insureds.
The court previously held that plaintiff had conceded that he had no viable negligence cause of action by advancing arguments of bad faith, which is a separate and distinct cause of action. Dkt. No. 18, at 7. The FAC contains the following additional allegation: "[f]rom the time Defendant agreed to add Plaintiff as a mortgagee on the subject Declaration Page up to the issuance of the settlement check, Defendant failed to notify Plaintiff that the despite no time limitations in the Declaration Page and no written exclusions in the subject policy, Defendant never intended to provide Plaintiff with the rights of a mortgagee named at the inception of the policy." Dkt. No. 21, at ¶ 42.
Plaintiff argues that he has alleged more than ordinary negligence, again apparently conceding that California law does not recognize a cause of action for negligence based on an insurer's handling of a claim. Dkt. No. 27, at 8; see Sanchez v. Lindsey Morden Claims Services, Inc., 72 Cal.App.4th 249, 254 (1999) ("Negligence is not among the theories of recovery generally available against insurers."); see also Aceves v. Allstate Ins. Co., 68 F.3d 1160, 1166 (9th Cir. 1996) (holding that mere negligence is not sufficient to constitute a breach of the implied covenant of good faith and fair dealing owed to insureds). For this reason alone, plaintiff's cause of action for negligence is defective.
In his opposition, plaintiff nevertheless argues that his allegations support a cause of action for negligence. Specifically, plaintiff asserts that the allegations pleaded in the FAC are consistent with the requirements set forth in Century Sur. Co. v. Polisso, 139 Cal.App.4th 922, 949 (2006), as modified on denial of reh'g (June 16, 2006). However, Century involved a bad faith, or breach of the implied covenant of good faith and fair dealing, cause of action, not one for negligence.
Accordingly, the court GRANTS defendant's motion to dismiss plaintiff's cause of action for negligence.
The plaintiff's third cause of action is for equitable estoppel. Although the factual allegations in the third cause of action do not clearly state a claim for promissory estoppel based upon State Farm's alleged promise to put plaintiff's name on the settlement check for the fire loss, the first amended complaint as a whole (including the factual allegations of the first two claims incorporated in the third claim) alleges facts sufficient to state a claim for promissory estoppel. The elements of a promissory estoppel claim are: (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise was made; (3) reliance that is both reasonable and foreseeable; and (4) injury suffered by the relying party as a result of his reliance. US Ecology v. State, Inc., 129 Cal.App.4th 887 (2005). Plaintiff satisfies those elements by the following allegations: (1) Rosey Gyadakyan, State Farm's agent, confirmed that "Plaintiff would be named on any settlement check that related to the subject fire," Dkt. No. 21, at 3:21-22; (2) "Plaintiff relied on Defendants statement and took no further action to insure that Plaintiff was to be named on any settlement check paid in regards to the subject fire,"
State Farm suggested at oral argument that the insureds, Karapet Gayanya and Karine Osmanyen, caused the loss and that State Farm's conduct did not cause plaintiff's loss. However, State Farm's failure to do as it allegedly promised was a substantial factor in causing the loss. If it had done what it allegedly promised, the insureds could not have cashed the check. If plaintiff had known that he was not going to be a payee of the settlement check, he could have taken action (such as obtaining a restraining order) to protect himself.
Accordingly, the court treats plaintiff's third claim as one for promissory estoppel and DENIES defendant's motion to dismiss that claim.
For the foregoing reasons, the court GRANTS State Farm's motion to dismiss plaintiff's causes of action for breach of contract and negligence and DENIES its motion to dismiss the promissory estoppel claim.
