NextG Networks, Inc. v. OneBeacon America Insurance Company, No. 5:2011cv05318 - Document 32 (N.D. Cal. 2012)
Court Description: ORDER GRANTING DEFENDANT'S MOTION TO DISMISS WITHOUT PREJUDICE re 22 (rmwlc2, COURT STAFF) (Filed on 7/23/2012)
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NextG Networks, Inc. v. OneBeacon America Insurance Company Doc. 32 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 SAN JOSE DIVISION United States District Court For the Northern District of California 10 11 NEXTG NETWORKS, INC., Plaintiff, 12 13 14 v. ONEBEACON AMERICA INSURANCE COMPANY, Defendant. 15 16 ) ) ) ) ) ) ) ) ) ) ) ) Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE [Re Docket No. 22] 17 Plaintiff NextG Networks, Inc. (“plaintff”) brings claims for breach of contract, breach of 18 the covenant of good faith and fair dealing and declaratory relief against its general liability 19 insurer, defendant One Beacon America Insurance Company (“defendant”), stemming from 20 defendant’s refusal to pay for plaintiff’s participation in a pending administrative investigation. 21 Defendant moves to dismiss under Fed. R. Civ. P. 12(b)(6). For the reasons below, the court grants 22 the motion to dismiss without prejudice. 23 I. BACKGROUND 24 A. Factual Allegations 25 This action arises out of an October 2007 fire that burned over 3,800 acres in the Malibu 26 area of Southern California (the “Fire”). The fire started when several electrical transmission 27 towers (“ET towers”) fell to the ground during a windstorm and made contact with nearby 28 1 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM Dockets.Justia.com 1 vegetation. See Dkt. No. 19 (SAC) ¶ 3; Dkt. No. 14, Ex. A (Order Instituting Investigation or 2 “OII”). 1 Plaintiff, a telecommunications company, is one of several entities alleged to have been 3 responsible for the installation of equipment on and maintenance of the ET towers. See id. at 2. At the time of the fire, plaintiff was insured under a primary Commercial General Liability 5 Policy issued by defendant (the “Policy”). SAC, Ex. A. 2 The policy requires defendant to defend 6 plaintiff against any “suit” seeking “damages” as a result of “bodily injury” or “property damage.” 7 Id., Ex. A at 1. The policy also contains a “no-voluntary payments” provision stating that “no 8 insured will, except at that insured’s own expense, voluntarily make a payment, assume any 9 obligation, or incur any expense, other than for first aid, without [the insurer’s] consent.” Id. at 11. 10 United States District Court For the Northern District of California 4 In late 2007 and 2008, plaintiff was joined as a defendant in one or more private civil 11 actions (the “Civil Actions”) related to the fire. Id. ¶ 8. Pursuant to the policy, plaintiff tendered 12 the defense of the civil actions to defendant. Id. ¶ 9. Defendant accepted, appointing the law firm 13 of Wilson, Elser, Moskowitz, Edelman and Dicker LLP (the “Wilson Firm”) to act as plaintiff’s 14 counsel of record. Id. 15 On January 29, 2009, the California Public Utilities Commission (“CPUC”) initiated an 16 investigation (the “CPUC proceeding”) into whether plaintiff and other entities had “violated any 17 provision of the Public Utilities Code, general orders, other rules, or requirements regarding their 18 facilities linked to the Malibu fire.” OII at 4. The agency indicated that plaintiff would be required 19 to appear at public hearings, respond to written discovery, and provide documents in order to 20 “establish that it has not committed [such] violations … , and that the [fire] did not occur as a result 21 22 23 24 25 26 27 28 1 The court takes judicial notice of the Order Instituting Investigation because it is a public record “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b); see also Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (The court “may take judicial notice of filings and other matters of public record.”). Unlike the allegations of the complaint, however, the court does not assume the content of the OII to be accurate in considering this motion. 2 Plaintiff was also covered by a Commercial Umbrella Liability Policy issued by defendant, and alleges that defendant breached both policies. As the operative language in both policies is the same, the court will refer to them collectively as the “policy.” 2 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 of any violation.” Id. at 5-6. The investigation would also determine the appropriate remedies for 2 any proven misconduct. Id. at 4. 3 Plaintiff subsequently informed defendant that its participation in the CPUC proceeding 4 required the support of “legal and/or other professionals,” and asked defendant to pay for the costs 5 of such assistance. SAC ¶ 21. Defendant refused, contending that it had “no obligation to defend 6 or indemnify [plaintiff] in the PUC Regulatory Proceeding.” Dkt. No. 14 ¶ 11. Plaintiff therefore 7 hired independent regulatory counsel to manage its involvement in the investigation. 8 9 Over the next several years, it became clear that the CPUC proceeding could impact the outcome of the civil actions. For example, the civil plaintiffs have purportedly argued that United States District Court For the Northern District of California 10 testimony submitted in the CPUC proceeding is admissible in the individual lawsuits, both as 11 substantive evidence and for impeachment purposes. SAC ¶¶ 13-14. In March 2012, the Los 12 Angeles Superior Court allowed two civil plaintiffs to amend their complaint on the basis of an 13 unidentified document produced before the CPUC that allegedly supports causes of action for fraud 14 and punitive damages. See SAC, Ex. C at 6. In granting the motion to amend, the Superior Court 15 noted that the private plaintiffs seek to “pursue this new evidence by amending the complaint, 16 tracking the [CPUC] hearing and conducting additional depositions.” Id. at 5. Plaintiff also asserts 17 that one of its defenses in the civil actions is that its work on the failed ET towers was performed 18 with adequate care and in compliance with CPUC regulations, and that the civil plaintiffs have 19 argued that the CPUC’s rulings with respect to these issues are binding in the civil actions. SAC ¶¶ 20 11-12, 16. 21 In addition, plaintiff alleges that the Wilson firm, which continues to defend plaintiff in the 22 civil actions, worked “closely” with plaintiff’s regulatory counsel to: (1) prepare plaintiff’s initial 23 response to the CPUC; (2) develop testimony by lay and expert witnesses to ensure that such 24 testimony is consistent with the Wilson Firm’s strategy in the civil actions; (3) question a CPUC 25 engineer at a deposition to disprove his calculations regarding the safety factors applicable to the 26 failed ET tower; (4) prepare responses to written discovery propounded on plaintiff in the CPUC 27 proceeding; (5) respond to informal data requests; (6) facilitate fact investigation and expert 28 3 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 analysis relating to liability issues raised in the civil actions; (7) maintain the integrity of a joint 2 defense 3 in the CPUC proceeding; and (8) monitor discovery in the CPUC proceeding against a 3 third-party against whom plaintiff has asserted a cross-complaint for indemnity in the civil actions. 4 See SAC ¶ 19(a)-(h). 5 While defendant apparently paid for the Wilson Firm’s involvement in the CPUC 6 proceeding, it declined several further requests to cover expenses incurred by plaintiff. SAC ¶ 21. 7 As a result, plaintiff alleges that has been required to spend more than $500,000 in “legal and/or 8 professional” expenses defending itself before the agency. SAC ¶ 24. 9 B. United States District Court For the Northern District of California 10 Procedural History In November 2011, plaintiff filed a complaint in this court, alleging that defendant’s refusal 11 to assume such costs constituted a breach of its duty to defend under the policy. Plaintiff sought 12 compensatory damages of at least $500,000 and a declaration that defendant was obligated to cover 13 future expenses related to the investigation. Defendant moved to dismiss, arguing that because the 14 policy limited its duty to defend to “suits” for “damages,” it did not apply to administrative 15 proceedings under California law. See Foster-Gardner, Inc. v. National Union Fire Ins. Co., 18 16 Cal. 4th 857 (Cal. 1998) (administrative proceeding is not a “suit” for damages). In opposition, 17 plaintiff insisted that whether defendant had an “independent” duty to defend the CPUC 18 proceeding was irrelevant. Instead, plaintiff advanced the rather novel theory that its costs were 19 recoverable under Aerojet-General Corp. v. Transport Indemnity Co., 17 Cal. 4th 38 (Cal. 1997), 20 which found that an insurer could be held liable for expenses incurred in connection with an 21 environmental cleanup effort conducted by its insured if such expenses were “reasonable and 22 necessary” to minimize liability in civil actions for which the insurer owed a duty to defend. 23 Essentially, plaintiff argued that because the costs of defending the CPUC proceeding were 24 25 26 27 28 3 Respondents in the CPUC proceeding include plaintiff, Southern California Edison Company, Verizon Wireless, Sprint Communications Company and AT & T Communications of California. See OII at 1. With the exception of AT & T, each is also a defendant in the civil action pending before the Los Angeles Superior Court. See SAC, Ex. C. 4 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 “reasonable and necessary” to minimize its liability in the civil actions, defendant breached its duty 2 to defend those actions by refusing plaintiff’s requests. 3 On February 10, 2012, the court dismissed plaintiff’s claims with leave to amend. The 4 court found that while plaintiff’s expenses could, in theory, be recoverable under Aerojet, the 5 complaint failed to “provide enough factual information to determine the relationship between the 6 costs incurred in the CPUC investigation and the defense of the civil actions.” NextG Networks, 7 Inc. v. One Beacon Am. Ins. Co., No. 11-05318, 2012 U.S. Dist. LEXIS 16952, at *14 (N.D. Cal. 8 Feb. 10, 2012). Accordingly, the court held that “plaintiff has not met its burden to plead facts 9 showing that such costs are reasonable and necessary to minimize liability in the civil actions.” Id. United States District Court For the Northern District of California 10 at *16. 11 Plaintiff filed its SAC on March 12, 2012. The pleading contains numerous additional 12 allegations regarding the connection between the civil actions and the CPUC proceeding. 13 However, upon further consideration, the court finds that its previous order failed to distinguish the 14 situation in Aerojet from that involved here. As discussed below, in light of settled principles of 15 California law, the court holds that Aerojet is inapplicable where, as here, an insurer accepts the 16 defense of a covered action pursuant to a policy containing a no-voluntary payments provision. 17 The court therefore concludes that the SAC, as currently pled, does not state a claim upon which 18 relief can be granted. 19 20 21 II. ANALYSIS A. The Duty to Defend Under California Law Standard commercial general liability insurance policies require the insurer to defend the 22 insured in any action seeking damages for a covered claim. The duty to defend generally vests the 23 insurer with authority to control the defense of the action. See New Hampshire Ins. Co. v. Ridout 24 Roofing Co., 68 Cal. App. 4th 495, 502 (Cal. Ct. App. 1998). Thus, when an insurer accepts its 25 duty to defend, the insured typically “has no right to interfere” with the insurer’s management of its 26 defense. Safeco Ins. Co. of Am. v. Superior Court, 71 Cal. App. 4th 782, 787 (Cal. Ct App. 1999). 27 Similarly, where an insurance policy contains a no-voluntary payments provision, the insurer is 28 5 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 “not liable for any … payments, expenses, or other obligations assumed by the insured without the 2 insurer’s consent.” Truck Ins. Exch. v. Unigard Ins. Co., 79 Cal. App. 4th 966, 981 (Cal. Ct. App. 3 2000). 4 “On the other hand, if the insurer wrongfully refuses to defend … then the insurer forfeits 5 the right to control settlement and defense.” Safeco Ins. Co., 71 Cal. App. 4th at 787. A no- 6 voluntary payments provision may therefore be unenforceable when the insurer breaches its duty to 7 defend. See Jamestown Builders v. General Star Indem. Co., 77 Cal. App. 4th 341, 347 (Cal. Ct. 8 App. 1999). “In other words, it is only when the insured has requested and been denied a defense 9 by the insurer that the insured may ignore the policy’s provisions forbidding the incurring of United States District Court For the Northern District of California 10 defense costs without the insurer’s prior consent.” Gribaldo v. Agrippina Versicherunges A. G., 3 11 Cal. 3d 434, 449 (Cal. 1970). In addition, “where the insured is … compelled to conduct his own 12 defense, it is uniformly held that he may recover the expenses of litigation, including costs and 13 attorneys’ fees, from the insurer.” Id. (emphasis in original); see also Isaacson v. California Ins. 14 Guarantee Assn., 44 Cal. 3d 775, 791 (Cal. 1980) (where insurer erroneously denies coverage or 15 fails to provide a defense, settlement payment made by insured, if reasonable, creates presumptive 16 evidence of insurer’s liability). 17 Of course, even where an insurer undertakes its duty to defend, it is required to act in good 18 faith in dealing with its insured. See Safeco Ins. Co., 71 Cal. App. 4th at 787. However, if there is 19 “no duty to defend under the terms of the policy, there can be no action for breach of the implied 20 covenant of good faith and fair dealing because the covenant is based on the contractual 21 relationship between the insured and the insurer.” Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 22 1, 36 (Cal. 1995). 23 B. 24 Aerojet-General Corp. v. Transport Indemnity Co. It is against the backdrop of these well-established rules that the California Supreme Court 25 decided Aerojet-General Corp. v. Transport Indemnity Co., 17 Cal. 4th 38 (Cal. 1997). In Aerojet, 26 the insured, a manufacturer of aerospace equipment, discharged hazardous substances at its 27 Sacramento, California plant for decades, causing significant property damage. The insured was 28 6 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 sued by numerous entities, including private plaintiffs, the State of California and the United 2 States. The insured tendered the defense of the actions to its insurers, which either refused to 3 defend or accepted under an “unreasonable” reservation of rights. Id. at 47. Subsequently, the 4 insured, under the guidance of independent counsel, spent approximately $26 million in “site 5 investigation expenses” to examine the extent of the contamination and the viability of cleanup 6 options. Id. at 51. 7 In litigation over recovery of those costs, the California Supreme Court considered whether 8 “site investigation expenses … may constitute defense costs that the insurer must incur in fulfilling 9 its duty to defend.” Id. at 45. The court held that such expenses could be “defense costs”—and United States District Court For the Northern District of California 10 thus recoverable by the insured—if they were: (1) incurred between the tender of the defense and 11 the conclusion of the action; (2) connected to a reasonable and necessary effort to avoid or at least 12 minimize liability; and (3) reasonable and necessary for that purpose. See id. at 60-61. Whether 13 expenses are “reasonable and necessary” must be assessed under an objective standard. Id. As the 14 court explained, “what matters … is whether the site investigation would be conducted against 15 liability by a reasonable insured under the same circumstances.” Id. at 62. 16 The Aerojet court did not limit its holding to situations in which an insurer breached its duty 17 to defend. However, it appears that other California courts have allowed recovery under Aerojet 18 only after first finding that the insurer refused to defend its insured in a covered action. See, e.g., 19 Barratt American, Inc. v. Transcontinental Ins. Co., 102 Cal. App. 4th 848, 855 (Cal. Ct. App. 20 2002) (finding Aerojet applicable where the insurer failed to respond to a tender letter or take any 21 action to defend its insured for more than a year); KLA-Tencor Corp. v. Travelers Indem. Co., No. 22 02-05641 RMW, 2004 U.S. Dist. LEXIS 15376, at *9 (N.D. Cal. Aug. 4, 2004) (applying Aerojet 23 after determining that the insurer breached its duty to defend); State v. Pac. Indem. Co., 63 Cal. 24 App. 4th 1535, 1549 (Cal. Ct. App. 1998) (same); see also Cassady v. Morgan, Lewis & Bockius 25 LLP, 145 Cal. App. 4th 220, 236 (Cal. Ct. App. 2006) (citing Aerojet for the proposition that 26 “when an insurer refuses to defend an action in which a potential for coverage exists, the insured 27 28 7 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 may recover defense costs, including attorney’s fees allocable to the defense of noncovered claims, 2 unless the insurer can prove they were unreasonable or unnecessary.”) (emphasis in original). 3 In light of the insurer’s right to control an action for which it has assumed the defense, such 4 a limitation makes perfect sense. Where an insurer accepts its duty to defend, the adequacy of its 5 performance is typically judged by the result achieved. Thus, in general, “as long as the insurer is 6 providing a defense, the insurer is allowed to proceed through trial to judgment.” Safeco Ins. Co., 7 71 Cal. App. 4th at 789. If the insurer settles the action within policy limits, it is liable for the 8 entire judgment, and the insured receives the benefit of its bargain under the policy. If the insurer’s 9 tactics result in a judgment above policy limits, the insured may be entitled to recover the amount United States District Court For the Northern District of California 10 of the excess judgment by asserting a claim for bad faith. See id at 788; Doser v. Middlesex 11 Mutual Ins. Co., 101 Cal. App. 3d 883, 891 (Cal. Ct. App. 1980). 12 Conversely, where the insurer refuses to defend, the insured may recover both any excess 13 judgment and the “expenses of litigation.” Gribaldo, 3 Cal. 3d at 449; Isaacson, 44 Cal. 3d 791. 14 But an insured’s expenditures cannot be recoverable simply because the insured elected to incur 15 them; otherwise, an insurer could be held liable for expenses that far exceed those necessary to 16 defend an action covered by the policy. Thus, Aerojet and its progeny establish an objective 17 standard, requiring the court to consider “whether the benefits of the [insured’s] strategy are worth 18 the cost.” Barratt American, 102 Cal. App. 4th at 863. Put another way, Aerojet stands for the 19 proposition that where an insurer refuses to defend, it is liable for any costs it would reasonably 20 have incurred had it complied with its contractual obligation in the first place. 21 Accepting plaintiff’s theory would turn Aerojet’s holding on its head. In essence, plaintiff 22 asks the court to find that although defendant accepted the defense of the civil actions and engaged 23 competent counsel to manage those proceedings, it breached its duty to defend by failing to carry 24 out plaintiff’s defense in a reasonable fashion. 4 Yet while Aerojet makes clear that an insurer’s 25 26 27 28 4 Plaintiff does not contend that the proceedings in which it is involved comprise a “mixed” action for which defendant is obligated to provide a defense under Buss v. Superior Court, 16 Cal. 4th 35, 49-50 (Cal. 1997), which held that where a lawsuit includes some claims that are potentially covered by the policy and others that are not, the insurer must defend the action “in its entirety.” In fact, plaintiff argues that “any ruling regarding whether actions taken by the CPUC … 8 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 refusal to defend may later subject it to liability for certain costs incurred by the insured in its own 2 defense, plaintiff cites no authority holding that an insurer breaches its duty to defend by choosing 3 not to assume such costs in the first place. Indeed, though there seems to be no case on point, the 4 California Court of Appeal has suggested in dicta that it would reject such a conclusion. See 5 Safeco Ins. Co., 71 Cal. App. 4th at 789 (“[T]he insurer's right to control the defense cannot be 6 denied simply because the insured disagrees with the insurer's decision not to settle or because the 7 insured believes the defense is being poorly handled.”). The court thus concludes that Aerojet does 8 not impose on an insurer a prophylactic duty to assume expenses alleged by its insured to be 9 “reasonable and necessary” to minimize liability in a covered action. United States District Court For the Northern District of California 10 Moreover, reading Aerojet to allow recovery under these circumstances would contravene 11 the policy’s “no-voluntary payments” provision. “California law enforces … no-voluntary- 12 payments provisions in the absence of economic necessity, insurer breach, or other extraordinary 13 circumstances.” Jamestown Builders, 77 Cal. App. 4th at 346. Such clauses are “designed to 14 ensure that responsible insurers that promptly accept a defense tendered by their insureds thereby 15 gain control over the defense and settlement of the claim.” Id. Here, it is undisputed that 16 defendant accepted the defense of the civil actions. Therefore, enabling plaintiff to recover 17 expenses incurred without defendant’s consent—indeed, expenses that defendant explicitly and 18 repeatedly refused to cover—would strip defendant of its contractual right to decide which costs to 19 incur in discharging its duty to defend. Taken to its logical extreme, such a holding would enable 20 an insured to, for example, depose a witness against its insurer’s will and then seek recovery for the 21 cost of the deposition on the theory that acquiring the witness’ testimony was “reasonable and 22 necessary” to minimize its liability. California law clearly does not permit such a result. 23 24 25 At oral argument, plaintiff contended that if defendant did not assume the costs of the may trigger [defendant’s] duty to indemnify would constitute an advisory opinion [that] the court can and should decline to render,” effectively foreclosing any analysis of whether the “claims” asserted by the CPUC are “potentially covered” or not. Dkt. No. 23 at 12. Accordingly, for the 26 27 28 purposes of this motion, the court limits its analysis to whether plaintiff may recover based on defendant’s duty to defend the civil actions alone. 9 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 CPUC proceeding, defendant would receive a “windfall” because discovery produced at plaintiff’s 2 expense before the CPUC could be used in the civil actions. On a similar note, plaintiff argued that 3 dismissing its claims would diminish the value of its insurance policy vis-à-vis other insureds 4 because it “happens” to operate in a regulated industry in which “litigation” is likely to occur in 5 administrative, rather than judicial proceedings. 6 The court does not find either argument persuasive. The scope of the duty to defend is 7 defined by contract. See, e.g., Foster-Gardner, Inc. v. National Union Fire Ins. Co., 18 Cal. 4th 8 857, 868-69 (Cal. 1998). Although plaintiff knew or should have known it could find itself 9 embroiled in an administrative action, it contracted and paid premiums for the defense of only United States District Court For the Northern District of California 10 “suits” for “damages.” Plaintiff does not claim that the language of the policy is ambiguous or that 11 it reasonably understood at the time the policy was issued that it would cover the defense of 12 administrative proceedings. See id. at 869 (“An insurer has a duty to defend when the policy is 13 ambiguous and the insured would reasonably expect the insurer to defend him or her against the 14 suit based on the nature and kind of risk covered by the policy.”). Thus, if anything, the Wilson 15 Firm’s participation in the CPUC proceeding—which the SAC details in great length—resulted in 16 a windfall for plaintiff. 17 Further, under California law, the fact that a non-covered action may impact an insured’s 18 liability in a covered action does not affect the nature of the insurer’s contractual obligations. In 19 Foster-Gardner, the California Supreme Court considered whether an insurer had a duty to defend 20 an administrative action that arose prior to the filing of a civil complaint under a policy similar to 21 the one at issue here. The insured argued that the action should be considered a “suit” for 22 “damages” because the agency would make “findings of fact and determinations of law which will 23 determine [the insured’s] alleged liability.” Foster-Gardner, 18 Cal. 4th at 882. The insured also 24 contended that a contrary holding would result in a windfall to the insurer because “an insured in 25 the administrative action may be able to limit or even eliminate a carrier's indemnity obligations by 26 vigorously defending against claims of alleged damage.” Id. The court rejected these arguments, 27 reasoning that: 28 10 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM 1 2 3 4 5 6 [A] guilty verdict against [an] insured in [a] criminal proceeding may well affect the insured's ability to meaningfully defend any subsequent civil action. The fact that damaging, perhaps even irrefutable, findings will be made does not mean that a duty to defend arises in the criminal proceeding. Similarly, in an automobile accident, medical reports are written, collision experts consulted, and other information obtained often long before the institution of any lawsuit. The fact that the insured's liability will be affected by such information does not alter the language of the insurance contract which does not require a defense until the lawsuit is filed … [While] insurers have an inherent incentive to participate in those proceedings where the costs are ascertained … [u]nder the language of the policy, … this is a judgment call left solely to the insurer. 7 8 Id. at 883. Foster-Gardner thus teaches that where the duty to defend is expressly 9 limited by contract, such limitations are enforceable even if that results in the insured United States District Court For the Northern District of California 10 11 having the burden of defending related, but non-covered, proceedings. The court concludes that defendant did not breach its duty to defend the civil actions by 12 refusing to cover expenses incurred by plaintiff in the CPUC proceeding. Similarly, because there 13 is no duty to assume such costs under Aerojet, plaintiff cannot maintain a claim for breach of the 14 covenant of good faith and fair dealing. See Waller, 11 Cal. 4th at 10 (“[I]f the insurer is under no 15 obligation to defend or indemnify the third party action, it cannot be found liable for either 16 statutory bad faith or breach of the implied covenant of good faith and fair dealing, for its denial of 17 a defense.”). Plaintiff’s claims for declaratory relief are based on its contract claims, and are 18 therefore also without merit. Accordingly, the court grants defendant’s motion to dismiss in its 19 entirety. Because the court’s previous order may have limited the theories upon which plaintiff 20 chose to proceed, the court will allow one more opportunity for amendment. III. ORDER 21 22 For the foregoing reasons, the court grants defendant’s motion to dismiss without prejudice. 23 Any amended pleading must be filed within thirty days of the date of this order. 24 DATED: July 23, 2012______ ________________________________ RONALD M. WHYTE United States District Judge 25 26 27 28 11 Case No.: 11-CV-05318-RMW ORDER GRANTING DEFENDANT’S MOTION TO DISMISS WITHOUT PREJUDICE EDM
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