Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-02542/USCOURTS-caed-2_06-cv-02542-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition For Removal--Other Contract

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This matter was determined to be suitable for decision without *

oral argument. L.R. 78-230(h).

Defendants’ objection to portions of the Declaration of Mark 1

Norcross, submitted in support of Plaintiff’s opposition, need not be

decided since Mr. Norcross’s declaration is not relied upon herein.

(See Objections to Decl. of Mark Norcross at 1.) 

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

PITT HELICOPTERS, INC., )

) 2:06-cv-2542-GEB-EFB

Plaintiff, )

)

v. ) ORDER*

)

AIG AVIATION, INC.; NATIONAL UNION )

FIRE INSURANCE COMPANY OF )

PITTSBURGH PA; )

Defendants. )

)

Defendants move to dismiss Plaintiff’s Complaint under

Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposes the

motion. For the following reasons, Defendants’ motion is granted in 1

part and denied in part. 

///

///

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BACKGROUND

Plaintiff entered into a written lease agreement under which

the lessee, Mountain EMS, was required to maintain $625,000 in

aircraft hull coverage on Plaintiff’s helicopter until the lease

expired and the helicopter was returned to Plaintiff. (Notice of

Removal, Ex. A, Complaint (“Compl.”) ¶ 7.) Mountain EMS purchased an

insurance policy from Defendants in which Plaintiff was an additional

insured as owner of the helicopter. (Id. ¶ 9.) The lease prohibited

Mountain EMS from making a change to the $625,000 coverage without

Plaintiff’s prior written consent. (Id. ¶ 8.) “The . . . lease [was]

in full force and effect on or about March 21, 2002, when the

helicopter was destroyed in a crash in Lassen County, California.” 

(Id. ¶ 10.) Subsequently, Plaintiff and other insured parties made

demand for payment. In response to the claims, Defendants filed a

complaint in interpleader in the Lassen County Superior Court to

determine “who was owed how much under [the] policy.” (Id. ¶ 11.) 

Plaintiff then filed a complaint in the same court for breach of

contract and the implied covenant of good faith and fair dealing. 

(Notice of Removal ¶ 1, Compl. at 1:12-16.) Defendants removed the

action and subsequently filed this dismissal action. 

Plaintiff alleges that Defendants breached the lease and

that this is evinced by the total sum interpled, $450,000, which the

interpleader asserts results from “a reduction of the policy limit

from $625,000 to $500,000, subject to a $50,000 ‘in-flight’

deductible.” (Id. ¶¶ 11, 12.) Plaintiff “contends that [Defendants]

never [gave it] notice of any . . . reduction of policy limits . . .,

and that therefore the policy limits remained at $625,000, at least as

to [Plaintiff], as of the date of the loss.” (Id. ¶ 13.) Further,

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Plaintiff alleges that Defendants breached the implied covenant of

good faith and fair dealing “by withholding benefits due under the

policy unreasonably and without proper cause.” (Id. ¶ 17.) Plaintiff

alleges that because of this breach it is entitled to compensatory

damages in the amount of $175,000 for unpaid policy benefits and to an

award of punitive damages. (Id. at 4:9-11, 13.) Defendants seek

dismissal of these claims. (Motion to Dismiss (“Mot.”) at 1:24:25.) 

DISCUSSION

Dismissal is appropriate under Rule 12(b)(6) if Plaintiff

failed to (1) present a cognizable legal theory, or (2) plead

sufficient facts to support a cognizable legal theory. Robertson v.

Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). 

When considering a motion to dismiss, all material allegations in the

Complaint must be accepted as true and construed in the light most

favorable to Plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974);

Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). 

Plaintiff is given the benefit of every reasonable inference that can

be drawn from the allegations in the Complaint. Retail Clerks Int’l

Ass’n v. Shermahorn, 373 U.S. 746, 753 n.6 (1963). A motion to

dismiss must be denied “unless it appears beyond doubt that

[Plaintiff] can prove no set of facts in support of [its] claim which

would entitle [it] to relief.” Conley v. Gibson, 355 U.S. 41, 45-46

(1957).

I. Breach of Contract

Defendants argue Plaintiff’s breach of contract claim should

be dismissed because Plaintiff failed “to attach the contract [to the

Complaint] or to sufficiently allege its terms [and this failure]

renders its first cause of action for breach of contract defective.” 

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(Mot. at 3:14-15.) Plaintiff replies that “the only material term of

the policy at issue . . . is the policy limit . . .” and the Complaint

contains sufficient allegations regarding the lease and the breach.

(Opp’n at 5:15-16.) 

[P]leading is governed by Rule 8 of the Federal

Rules of Civil Procedure, not by State procedural

requirements. Under Federal Rules of Civil

Procedure 8(a), a “short and plain statement of

the claim” suffices. The forms appended to the

Federal Rules of Civil Procedure note that

“plaintiff may set forth the contract verbatim in

the complaint or plead it, as indicated, by

exhibit or plead it according to its legal

effect.” 

Securimetrics, Inc. v. Hartford Cas. Ins. Co., 2005 WL 1712008, at *2

(N.D. Cal. July 21, 2005) (internal citations omitted).

Further, “[f]ederal law does not require Plaintiff to recite the

contract terms verbatim or to attach a copy of the contract to the

complaint.” Id. Plaintiff has sufficiently pled its breach of

contract claim. 

II. Breach of Implied Covenant of Good Faith and Fair Dealing 

A. Statute of Limitations

Defendants argue that Plaintiff’s claim for breach of the

implied covenant of good faith and fair dealing (“bad faith claim”) is

“subject to [California’s] two-year statute applicable to tort actions

generally” and thus is barred because Plaintiff failed to commence the

action within this period. (Mot. at 4:6-8.) Plaintiff takes the

position in its opposition brief that it has elected to bring this

claim in contract; therefore, this claim is not barred by California’s

two year statute of limitations. (Opp’n at 6:2-5 (“[P]laintiff may

elect to sue in contract, thus entitling it to the four year statute

of limitations of [California Code of Civil Procedure §] 337(1). 

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Hence, this action, filed within four years of the filing of the

Complaint in Interpleader, is indeed timely.”).) 

B. Punitive Damages

Defendants also contend that Plaintiff’s claim for punitive

damages is improperly pled. (Mot. at 5:23.) Since Plaintiff’s bad

faith claim is only brought in contract, Plaintiff is not entitled to

the punitive damages alleged in its Complaint. See Cal. Civ. Code §

3294(a) (punitive damages are not recoverable in contract actions). 

Therefore, Plaintiff’s punitive damages claim is dismissed. 

C. Bad Faith

Defendants seek dismissal of Plaintiff’s bad faith claim

arguing that “[w]here there is a genuine issue as to the insurer’s

liability under the policy, bad faith liability cannot be imposed” and

“some additional showing of tortious conduct by the insurer is

required.” (Mot. at 3:16, 5:1, 4-5, 13-14.) Plaintiff counters that

“[w]hile [D]efendants are correct that a mere refusal to honor a

contract claim is insufficient in and of itself to constitute ‘bad

faith,’ an unreasonable refusal to pay a just claim is bad faith” and

that the complaint in interpleader was filed “without conducting any

investigation at all.” (Opp’n at 6:7-8, 21-22.) 

“[A]n insurer's responsibility to act fairly and in good

faith in handling an insured's claim ‘is not the requirement mandated

by the terms of the policy itself-to defend, settle, or pay. It is

the obligation . . . under which the insurer must act fairly and in

good faith in discharging its contractual responsibilities.’” Cal.

Shoppers, Inc. v. Royal Globe Ins. Co., 175 Cal. App. 3d 1, 54 (1985)

(quoting Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 573-74 (1973)). 

An insurer acts with bad faith, thereby violating the implied covenant

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of good faith and fair dealing, when it refuses to bestow policy

benefits on an insured without proper cause. Id. (citing Gruenberg, 9

Cal.3d at 574). An insurer’s failure to investigate claims is

evidence of bad faith. Gruenberg, 9 Cal.3d at 576; see also

Progressive West Ins. Co v. Yolo County Superior Court, 135 Cal. App.

4th 263, 277 (2005) (“an insurer must investigate claims thoroughly;

it may not deny coverage based on either unduly restrictive policy

interpretations or standards known to be improper; it may not

unreasonably delay in processing or paying claims.”) (internal

citations omitted). 

Plaintiff alleges in its Complaint that “Defendant[s] []

breached the implied covenant of good faith and fair dealing by

withholding benefits due under the policy unreasonably and without

proper cause.” (Compl. ¶ 17.) Plaintiff also alleges that Defendants

“ha[ve] denied the balance of [P]laintiff’s claim without properly

investigating the claim and without a reasonable basis for such

conduct.” (Id.) “An insurance company may not ignore evidence which

supports coverage. If it does so, it acts unreasonably towards its

insured and breaches the covenant of good faith and fair dealing.” 

Mariscal v. Old Republic Life Ins. Co., 42 Cal. App. 4th 1617, 1624

(1996). 

Defendants rejoin that “[a]s a matter of law, an insurer

filing an interpleader does not support a subsequent claim for ‘bad

faith.’” (Reply at 20-21.) However, Defendants have not shown how

their interpleader action negates Plaintiff’s bad faith claim here

where Plaintiff alleges that the amount interpled is insufficient to

satisfy its claims. Accordingly, Plaintiff’s allegations sufficiently

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state a claim for breach of the implied covenant of good faith and

fair dealing. 

CONCLUSION

For the stated reasons, Defendants’ motion is denied in part

and granted in part.

Dated: March 6, 2007

 

GARLAND E. BURRELL, JR.

United States District Judge

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