Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00801/USCOURTS-caed-2_06-cv-00801-5/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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28 This motion was determined to be suitable for decision without *

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

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

EDYTHE KAGAN, )

) 02:06-cv-0801-GEB-PAN(JFM)

Plaintiff, )

) ORDER*

v. )

)

CONSECO SENIOR HEALTH INSURANCE )

COMPANY, )

)

Defendant. )

)

Defendant moves under Rule 12(b)(6) to dismiss Plaintiff’s

First Amended Complaint (“Amended Complaint”) for failure to state a

claim. Plaintiff opposes the motion.

BACKGROUND

On or about October 1, 1986, AIG Life Insurance Company

issued to Plaintiff an insurance policy for long-term medical care

(the “Policy”). (Am. Compl. ¶ 5.) Defendant subsequently acquired a

line of business from AIG Life Insurance Company, and became

responsible for all benefits under the Policy. (Id.) After suffering

a loss, Plaintiff made a claim for Home Care benefits to Defendant

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under the Policy on September 30, 2005. (Id. ¶¶ 7-8.) Defendant

denied Plaintiff’s claim for benefits on February 23, 2006. (Id. ¶

11.) Based on that denial Plaintiff brought this action against

Defendant for breach of contract and breach of the duty of good faith

and fair dealing.

DISCUSSION

When considering a Rule 12(b)(6) motion to dismiss, all

material allegations in the complaint are accepted as true and are

construed in the light most favorable to the plaintiff. NL Indus.,

Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). Therefore, the

plaintiff is given the benefit of every reasonable inference that can

be drawn from the well-pled allegations of the complaint. Retail

Clerks Int’l Ass’n v. Shermahorn, 373 U.S. 746, 753 n.6 (1963). 

Documents attached to a complaint as exhibits may be considered when

deciding a motion to dismiss. Branch v. Tunnell, 14 F.3d 449, 453

(9th Cir. 1994) rev’d on other grounds by Galbraith v. County of Santa

Clara, 307 F.3d 1119 (9th Cir. 2002). “[A] complaint should not be

dismissed for failure to state a claim 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,

45-46 (1957). “A complaint may be dismissed [under Rule 12(b)(6)] for

two reasons: (1) lack of a cognizable legal theory or (2) insufficient

facts under a cognizable legal theory.” Robertson v. Dean Witter

Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).

Defendant argues that the following provisions in the

Policy, which was appended to Plaintiff’s original Complaint and

referenced as an exhibit in the Amended Complaint, establish Plaintiff

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was not entitled to receive any Home Care benefits, and therefore her

claims fail as a matter of law. 

BENEFITS. We will pay the following benefits should you

incur a covered loss while this Policy is in force. Benefits

will be paid at the daily rate shown in the Schedule

depending on the type of care received. The payment of

benefits for any one Sickness or Injury will be subject to

the Elimination Period shown in the Schedule as well as the

Maximum Confinement Period. In no event will benefits exceed

the Maximum Lifetime Total Benefit as shown in the Schedule.

The payment of benefits is also subject to all stated

conditions and provisions of this Policy.

Part 1. Skilled or Intermediate Nursing Care-We will pay the

daily skilled or intermediate Nursing Care Benefit if:

A. You are confined in either a Skilled, Intermediate or

Custodial Nursing Facility;

B. You are receiving Skilled or Intermediate Nursing Care

due to a covered Sickness or injury;

C. The confinement for such care begins while this Policy is

in force; and within 30 days after a Hospital confinement

due to the same or related Sickness or injury;

D. The hospital confinement lasted for at least 3

consecutive days;

E. The Elimination Period specified in the Schedule is

satisfied.

Part 2. Custodial Nursing Care – We will pay the Custodial

Nursing Care Benefit if:

A. You are confined in either a Skilled Intermediate, or

Custodial Nursing Facility;

B. You are receiving Custodial Nursing Care due to a covered

Sickness or Injury;

C. The confinement for such care begins while this Policy is

in force, and follows a covered confinement of at least 14

consecutive days of Skilled or Intermediate Care for the

same or related condition; and

D. The confinement for Custodial Nursing Care begins within

30 days after the Skilled or Intermediate Nursing Care

confinement for the same or related Sickness or Injury[;]

E. [The] Elimination [P]eriod specified in the Schedule is

satisfied.

Part 3A. Home Care – We will pay the Home Care Benefit shown

in the Schedule if you are receiving Custodial Nursing Care

as defined in this policy at Home due to a covered Sickness

or Injury. The Home Care must begin within 30 days following

a covered confinement of at least 30 consecutive days for

Skilled, Intermediate or Custodial Nursing Care. We will pay

this benefit if:

a. the Home Care begins while this policy is in force;

b. the Home Care is for the same or related Sickness or

Injury; and

c. the Home Care is prescribed by a Physician.

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Specifically, Defendant contends these provisions establish that Home

Care benefits are conditioned on the claimant first having received

thirty consecutive days of covered confinement in Skilled,

Intermediate, or Custodial Nursing Care. Defendant further contends

hospital confinement of three consecutive days is a prerequisite to

covered confinement in Skilled, Intermediate, or Custodial Nursing

Care. Since Plaintiff has not alleged she was confined to the

hospital for three consecutive days, Defendant argues, she cannot

establish she was entitled to Home Care benefits under the Policy, and

Plaintiff’s claims therefore fail as a matter of law. Plaintiff

responds by arguing the provisions relied on by Defendant: (1) make

the Policy an illusory contract, (2) are illegal under California law,

and (3) are ambiguous, and as construed by Defendant, are contrary to

the reasonable expectations of Plaintiff.

“An insurance policy is but a contract; and, like all other

contracts, it must be construed from the language used; when the terms

are plain and unambiguous, it is the duty of courts to hold the

parties to such contract.” Farmers Ins. Exch. v. Harmon, 42 Cal. App.

3d 805, 809 (1974). “The California Supreme Court has established a

three-step process for analyzing insurance contracts with the primary

aim of giving effect to the mutual intent of the parties. The first

step is to examine the ‘clear and explicit’ meanings of the terms as

used in their ‘ordinary and popular sense.’ . . . If (and only if) a

term is found to be ambiguous after undertaking the first step of the

analysis, the court then proceeds to the second step and resolves the

ambiguity ‘by looking to the expectations of a reasonable insured.’” 

In re K F Dairies, Inc. & Affiliates, 224 F.3d 922, 925-26 (9th Cir.

2000). Applying these rules of construction supports Defendant’s

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reading of the Policy and Plaintiff’s ineligibility for Home Care

benefits. 

Under Part 3A of the Policy a claimant may only receive Home

Care benefits if the Home Care follows at least thirty days of

Skilled, Intermediate, or Custodial Nursing Care covered under the

Policy. Under Parts 1 and 2 of the Policy, Skilled, Intermediate, or

Custodial Nursing Care is only covered if preceded by a hospital stay

of more than three days. Accordingly, Home Care benefits are not

available to a claimant who was not confined to the hospital for at

least three days before receiving Home Care. This limitation on

benefits is unambiguous.

Plaintiff also argues the Policy provisions making a

hospital stay a prerequisite to Home Care benefits makes the Policy an

illusory contract, since this requirement “renders it virtually

impossible for any policyholder to qualify for benefits.” (Reply at

1.) “An agreement is illusory and there is no valid contract when one

of the parties assumes no obligation.” Scottsdale Ins. Co. v. Essex

Ins. Co., 98 Cal. App. 4th 86, 95 (2002). Here Defendant assumed the

obligation to pay benefits to Plaintiff, if Plaintiff satisfied

certain conditions for eligibility. The three-day hospital stay

requirement is a condition of eligibility for Home Care benefits. 

This condition does not render the Policy illusory. See id.

(upholding insurance policy against an illusoriness challenge because

it was not impossible to receive benefits under the policy).

Plaintiff also argues the provisions relied on by Defendant

in its motion are illegal under California law. However, the sections

of the Insurance Code on which Plaintiff relies only apply to policies

“delivered or issued on or after January 1, 1990.” Cal. Ins. Code §

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10232.5; and see Cal. Ins. Code § 10232.8 (applying only to policies

“approved or issued” after 1997). Plaintiff’s Complaint states the

policy was issued on or about October 1, 1986. (Am. Compl. ¶ 5.) 

Therefore, Plaintiff has not shown the Insurance Code sections on

which she relies are applicable and render the challenged Policy

provisions illegal under California law. 

CONCLUSION

Since unambiguous provisions of the Policy establish

Plaintiff was not entitled to Home Care benefits, her claim for breach

of contract fails as a matter of law. Further, since Plaintiff’s

breach of contract claim fails as a matter of law, Plaintiff’s claim

for breach of the duty of good faith and fair dealing also fails as a

matter of law. See Guebara v. Allstate Ins. Co., 237 F.3d 987, 992

(9th Cir. 2001) (stating to succeed on a claim for breach of the duty

of good faith and fair dealing the plaintiff must show that benefits

due under the policy were withheld). Accordingly, Defendant’s motion

to dismiss Plaintiff’s First Amended Complaint is granted.

If Plaintiff opines an identified deficiency can be cured,

Plaintiff is granted leave to file a Second Amended Complaint within

fifteen days of the date on which this Order is filed.

IT IS SO ORDERED. 

Dated: August 8, 2006

/s/ Garland E. Burrell, Jr.

GARLAND E. BURRELL, JR.

United States District Judge

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