Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_09-cv-04110/USCOURTS-cand-4_09-cv-04110-1/pdf.json

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

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UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

OAKLAND DIVISION 

HEATHER COLLINS and TYRONE 

COLLINS, 

 Plaintiffs, 

 vs. 

ALLSTATE INDEMNITY COMPANY, and 

DOES 1 through 100, inclusive, 

 Defendants. 

Case No: C 09-4110 SBA 

ORDER GRANTING DEFENDANT’S 

MOTION TO DISMISS

Docket 7 and 14 

Plaintiffs, Heather and Tyrone Collins (collectively “Plaintiffs”), bring the instant “bad 

faith” and breach of contract action against their insurer Allstate Indemnity Company 

(“Allstate”). Their claims arise from Allstate’s allegedly wrongful disclosure of Plaintiffs’ 

policy limits to the arbitrator handling an underlying uninsured motorist arbitration. The 

parties are presently before the Court on (1) Allstate’s Motion to Dismiss for Failure to State a 

Claim (Docket 7) and (2) Allstate’s Special Motion to Strike Plaintiff’s Complaint 

[Cal.Civ.Proc. § 425.16] (Docket 14). Having read and considered the papers filed in 

connection with these matters and being fully informed, the Court hereby GRANTS the motion 

to dismiss and DENIES the motion to strike as moot. The Court, in its discretion, finds this 

matter suitable for resolution without oral argument. See Fed.R.Civ.P. 78(b). 

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I. BACKGROUND 

A. FACTUAL SUMMARY

On December 20, 2001, Allstate issued an automobile insurance policy to Plaintiffs. 

Compl. at 6. The policy included uninsured motorist coverage in the amount of $100,000 per 

person. Id. Ex. A. Though not entirely clear, it appears that Plaintiffs filed a claim with 

Allstate, pursuant to their uninsured motorist coverage, which subsequently was submitted to 

arbitration. Pls.’ Opp’n at 1. Prior to the commencement of the arbitration, Plaintiffs filed a 

motion in limine to exclude evidence of their uninsured motorist policy limits until after the 

arbitrator issued his award. Id. Though acknowledging that the arbitrator could not render an 

award beyond those limits, Plaintiffs believed that the arbitrator’s awareness of their policy 

limits might affect his decision. Id. at 4; Compl. at 4. 

Before the arbitrator ruled on the motion in limine, Allstate allegedly disclosed the 

policy limits to him. Compl. at 4. Plaintiffs allege that such disclosure was made in “bad 

faith” for the purpose of influencing the arbitrator to limit the damage award to an amount 

below their $100,000 policy limits. Id. However, the arbitration did not proceed, and hence, 

no award was issued. Pls.’ Opp’n at 4. Nonetheless, Plaintiffs speculate that had the 

arbitration gone forward, the arbitrator would have rendered an award below their policy limits. 

Id. Plaintiffs also allege that as a result of its conduct, Allstate has “waived any right to 

arbitrate the uninsured motorist case.” Compl. at 7. 

B. PROCEDURAL HISTORY

On August 5, 2009, Plaintiffs filed a Complaint in San Francisco County Superior Court 

against Allstate, alleging causes of action for breach of contract, breach of the implied 

covenant of good faith and fair dealing and declaratory relief. Plaintiffs seek compensatory 

and punitive damages based on Allstate’s allegedly improper disclosure to the arbitrator. On 

September 4, 2009, Allstate removed the action to this Court on the basis of diversity 

jurisdiction, 28 U.S.C. § 1332. Shortly thereafter, Allstate filed a Motion to Dismiss for 

Failure to State a Claim, pursuant to Federal Rule of Civil Procedure 12(b)(6). In their motion, 

Allstate argues that Plaintiffs have failed to allege the necessary elements for breach of contract 

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or breach of the implied covenant of good faith and fair dealing, and that their alleged conduct 

is otherwise subject to the litigation privilege codified in California Civil Code section 47(b). 

Separately, Allstate filed a motion to strike, pursuant to California Code of Civil Procedure 

section 425.16, which is predicated on the argument that the conduct at issue constitutes 

“protected activity” for which it cannot be held liable. Plaintiffs filed an untimely combined 

opposition to the motions on December 25, 2009. Allstate timely filed its reply on December 

29, 2009.1

II. LEGAL STANDARD 

Under Rule 12(b)(6), a district court must dismiss a complaint if it fails to state a claim 

upon which relief can be granted. To survive a motion to dismiss for failure to state a claim, 

the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” 

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The pleadings must “give the 

defendant[s] fair notice of what ... the claim is and the grounds upon which it rests.” Erickson 

v. Pardus, 551 U.S. 89, 93 (2007) (internal quotation marks omitted); Johnson v. Riverside 

Healthcare System, LP, 534 F.3d 1116, 1122 (9th Cir. 2008). A complaint that only raises “the 

mere possibility of misconduct” does not establish that the plaintiff is entitled to relief. 

Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). The plaintiff must show that the allegations 

are pushed “across the line from conceivable to plausible[.]” Id. (quoting Twombly, 550 U.S. 

at 557). 

“In ruling on a 12(b)(6) motion, a court may generally consider only allegations 

contained in the pleadings, exhibits attached to the complaint, and matters properly subject to 

judicial notice.” Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). The allegations of 

 1 Allstate objects to the Court’s consideration of Plaintiffs’ opposition, which was filed 

three days late on December 25, 2009, in violation of Civil Local Rule 7-3(b). The Court’s 

Standing Orders specify that the failure to timely file a response to a motion may be construed 

as a consent to the granting of said motion. Given Plaintiffs’ failure to request and obtain leave 

of Court to file their opposition beyond the date prescribed by the Local Rules, the Court finds 

that Allstate’s objection is well taken. Ghazali v. Moran, 46 F.3d 52, 53-54 (9th Cir. 1995) 

(per curiam). Nonetheless, as will be set forth below, even considering the arguments 

presented in Plaintiffs’ opposition, the Court finds that Allstate’s motion to dismiss should be 

granted on the merits. 

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the complaint “are accepted as true and construed in the light most favorable to the plaintiff.” 

Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). However, a court need not 

accept as true unreasonable inferences or conclusory legal allegations cast in the form of 

factual allegations. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). In 

the event dismissal is warranted, it is generally without prejudice, unless it is clear the 

complaint cannot be saved by any amendment. See Sparling v. Daou, 411 F.3d 1006, 1013 

(9th Cir. 2005); Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002). 

III. DISCUSSION 

A. BREACH OF CONTRACT

“A cause of action for damages for breach of contract is comprised of the following 

elements: (1) the contract, (2) plaintiff’s performance or excuse for nonperformance, 

(3) defendant’s breach, and (4) the resulting damages to plaintiff.” Careau & Co. v. Sec. Pac.

Bus. Credit, Inc., 222 Cal.App.3d 1371, 1388 (1990). Here, the Complaint alleges simply that 

Allstate “breached the terms of the attached contract[.]” Compl. at 6.2

 However, Plaintiffs fail 

to allege which provision of the insurance policy Allstate is alleged to have breached. The 

absence of such allegations fails to comport with Twombly, which requires that the complaint 

“give the defendant fair notice of what the claim is and the grounds upon which it rests.” 550 

U.S. at 555. 

To the extent that Plaintiffs are claiming that Allstate was contractually prohibited from 

disclosing the amount of their policy limits, such a claim fails as a matter of law, as no such 

proscription exists in the policy. See Frances T. v. Vill. Green Owners Ass’n, 42 Cal.3d 490, 

512-13 (1986) (breach of contract claim failed where no provision of the alleged contract 

imposed an obligation on the defendant). The Court has reviewed the copy of the policy 

 2 A copy of what Plaintiffs purport to be the insurance policy at issue is attached to the 

Complaint. “A copy of a written instrument that is an exhibit to a pleading is a part of the 

pleading for all purposes.” Fed.R.Civ.P. 10(c). Allstate claims that the attachment is not the 

complete policy, but is merely the declaration renewal pages of the policy. Def.’s Mot. at 6 

n.2. Since the Court is adjudicating a Rule 12(b)(6) motion, however, the Court will accept the 

representation that the attachment represents the insurance policy that Allstate allegedly 

breached. 

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attached to the Complaint and found no provision that precludes Allstate from disclosing the 

amount of Plaintiffs’ policy limits to an arbitrator in an uninsured motorist arbitration (or any 

other proceeding). If anything, the policy confirms that such disclosure was permissible, since 

the policy limits provide the maximum amount that an arbitrator may award. See Compl. Ex. 

A at 7 (“[i]f arbitration is used, any arbitration award will be binding up to your policy 

limits. . .”) (emphasis added). Tellingly, Plaintiffs concede as much in their Complaint. Id. Ex. 

A at 4 (“Plaintiffs never disputed that the arbitrator was precluded from issuing a final award in 

excess of policy limits.”). 

Plaintiffs’ breach of contract claim also fails because the allegations of the Complaint 

fail to demonstrate that Plaintiffs suffered any damages as a result of Allstate’s conduct. 

Under California law, “[n]o damages can be recovered for a breach of contract which are not 

clearly ascertainable in both their nature and origin.” Cal.Civ.Code § 3301. In the instant case, 

Plaintiffs contend that Allstate disclosed the policy limits in order to “influence” the 

arbitrator’s decision with respect to the amount of damages to award. Compl. at 4. Yet, there 

are no allegations that such disclosure, in fact, had any negative impact on the arbitrator’s 

decision. Indeed, it is inconceivable how Allstate’s disclosure could have harmed Plaintiffs, 

given their acknowledgement that the arbitrator could not award an amount above the policy 

limits. Cothron v. Interins. Exch., 103 Cal.App.3d 853, 860 (1980) (“An arbitrator in an 

uninsured motorist proceeding may not award an amount in excess of the policy limits.”).

Moreover, it is readily apparent that Plaintiffs cannot allege damages with the requisite 

certainty. See Piscetelli v. Friedenberg, 87 Cal.App.4th 953, 989 (2001) (recognizing that 

damages that are remote or speculative cannot serve as a basis for recovery). In their 

opposition, Plaintiffs assert that Allstate disclosed the limits of Plaintiffs’ policy “before the 

arbitration commenced” in an effort to obtain an award below the $100,000 policy limits. Pls.’ 

Opp’n at 1-2. While acknowledging that the arbitration never went forward, Plaintiffs 

speculate that had they proceeded, they would have prevailed and that the award would have 

been below $100,000. Id. at 5. In that event, Plaintiffs posit that they would have had to spend 

time and resources in seeking to have the arbitration award set aside. Id. These logical 

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deductions underscore the speculative nature of Plaintiff’s damages. Plaintiffs impermissibly 

assume that they would have obtained an award in the first instance, that such award would 

have been below their policy limits, and that the amount of the award would have been 

attributable to Allstate’s disclosure. Since the arbitration did not proceed, however, Plaintiffs 

cannot show, with the requisite certainty, that Allstate’s disclosure harmed them. 

B. BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

It has long been the rule in California that every insurance policy contains an implied 

covenant of good faith and fair dealing that neither party will do anything to injure the other 

party’s right to receive the benefits of the agreement. Comunale v. Traders & Gen. Ins. Co., 50 

Cal.2d 654, 658 (1958). “The implied covenant of good faith and fair dealing rests upon the 

existence of some specific contractual obligation.” Racine & Laramie, Ltd. v. Dep. of Parks & 

Rec., 11 Cal.App.4th 1026, 1031 (1993). The covenant “is read into contracts in order to 

protect the express [terms] or promises of the contract, not to protect some general public 

policy interest not directly tied to the contract’s purpose.” Foley v. Interactive Data Corp., 7 

Cal.3d 654, 690 (1988). As discussed, Plaintiffs have failed to identify (and the Court has been 

unable to locate) any provision of the insurance policy that Allstate purportedly breached by 

disclosing their policy limits to the arbitrator. Likewise, Plaintiffs have not alleged nor can 

they show any damages resulting from such disclosure. See PPG Indus., Inc. v. Transam. Ins. 

Co., 20 Cal.4th 310, 318 (1999) (bad faith claim requires showing of damages). Thus, 

Plaintiffs’ bad faith cause of action must fail as well. 

Independently, Plaintiffs’ bad faith claim fails to state a claim because it is predicated 

on conduct that is subject to the litigation privilege set forth in California Civil Code section 

47(b). Under California law, a communication made in a “judicial proceeding” is “privileged.” 

Cal. Civ.Code § 47(b). “‘The usual formulation is that the privilege applies to any 

communication: (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other 

participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have 

some connection or logical relation to the action.’” Rodriguez v. Panayiotou, 314 F.3d 979, 

998 (9th Cir. 2002) (quoting Silberg v. Anderson, 50 Cal.3d 205, 212 (1990)). The litigation 

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privilege applies in private contractual arbitration, Moore v. Conliffe, 7 Cal.4th 634, 643-644 

(1994) as well as in judicial arbitration, Jeffrey H. v. Imai, Tadlock & Keeney, 85 Cal.App.4th 

345, 355-356 (2001). 

Plaintiffs do not dispute Allstate’s contention that each of the aforementioned elements 

is satisfied in this case, but instead contend that the litigation privilege does not immunize the 

“bad faith” conduct by a party or its counsel. However, a party’s motivation is not germane in 

a section 47(b) analysis. “The litigation privilege is absolute, which means it applies regardless 

of the existence of malice or intent to harm.” Wise v. Thrifty Payless, Inc., 83 Cal.App.4th 

1296, 1302 (2000); Wilton v. Mountain Wood Homeowners Ass’n, 18 Cal.App.4th 565, 571 

(1993). Accepting as true Plaintiffs’ allegation that Allstate improperly disclosed their 

uninsured motorist policy limits in an attempt to “influence” the arbitrator’s award, the Court 

finds that such conduct is within the scope of the litigation privilege. 

The sole authority cited by Plaintiffs’ in support of their challenge to the application of 

the litigation privilege in this case is Komavara v. National Credit Acceptance, Inc., 175 

Cal.App.4th 324 (2009), which has no application here. In Komavara, a debt collection agency 

persisted in attempting to collect on a consumer debt, even after having been made aware that 

the plaintiff was not the debtor. Plaintiff sued the collection agency under California’s 

Robbins-Rosenthal Fair Debt Collection Practice Act (“Rosenthal Act”), Cal.Civ.Code § 1788, 

et seq., which proscribes the types of practices at issue in that case. On appeal, the appellate 

court rejected the collection agency’s contention that its conduct was shielded by the litigation 

privilege. Id. at 337. In reaching its decision, the court explained that application of the 

litigation privilege would “effectively immunize” the collection agency from liability for the 

specific conduct that the Rosenthal Act was intended to prohibit, thus rendering the statute 

“significantly or wholly inoperable.” Id. at 338-340. 

Unlike Komavara, there is no statutory scheme that is implicated by Allstate’s alleged 

conduct. The premise of this action is Plaintiff’s contract and Allstate’s disclosure of 

Plaintiffs’ uninsured motorist policy limits to the arbitrator. However, the Court has been 

presented with no statutory, contractual or other authority which establishes that Allstate did so 

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improperly. To the contrary, the policy endorsement provides that “[i]f arbitration is used, any 

arbitration award will be binding up to your policy limits . . . .” Compl. Ex. A at 7 (emphasis 

added). As such, it is evident that the amount of Plaintiffs’ policy limits is an integral part of 

the arbitration, since, as Plaintiffs concede, the arbitrator’s award was subject to those limits. 

Because application of the litigation privilege to the circumstances presented does not render 

any statutory, contractual or other protections “inoperable,” the Court is unpersuaded by 

Plaintiffs’ contention that an exception to the privilege should be applied in this instance. 

Finally, Plaintiffs contend that Section 47(b) is inapplicable on the ground that a claim 

for bad faith sounds in contract, not tort. See Pls.’ Opp’n at 3-4. While that rule might hold 

true in the non-insurance context, it does not apply, where, as here, the bad faith claim is based 

on an insurance policy. See Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 574-75 (1973) 

(insurance bad faith claims sounds in tort). In addition, Plaintiffs’ contention that their claim is 

contractual in nature is undermined by the allegations of the Complaint, which aver that 

Allstate’s conduct was “tortuous.” Compl. at 2.3

C. LEAVE TO AMEND

Finally, Plaintiffs request leave to amend in the event the Court is inclined to grant 

Allstate’s motion to dismiss. Ordinarily, leave to amend should be granted unless further 

amendment would be futile. See Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en 

banc); Gompper, 298 F.3d at 898. In this case, the deficiencies in the pleadings cannot be 

cured. As discussed, the policy does not proscribe disclosure of the insured’s policy limits in 

connection with a uninsured motorist arbitration. To the contrary, the policy limits are directly 

relevant to such a proceeding because it sets a cap on the amount of damages that the arbitrator 

may award. In addition, even if Allstate’s disclosure were improper, Plaintiffs cannot allege 

any damages with the requisite certainty because the arbitration never materialized. Plaintiffs’ 

contention that the arbitrator would have rendered an award in their favor is speculative; as is 

their assertion that such an award would have been below their policy limits; as is the 

 3 Plaintiffs’ claim for declaratory relief is predicated on their contract and bad faith claims. 

Because the underlying claims fail as a matter of law, the declaratory relief claim fails as well. 

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deduction that the amount that would have been awarded would have been attributable to 

Allstate’s disclosure. Additionally, Plaintiffs cannot seek to impose any tort liability on 

Allstate because its conduct is privileged under Civil Code section 47(b). Because the 

deficiencies in Plaintiffs’ Complaint cannot be cured by amendment, the Court dismisses the 

action without leave to amend. 

IV. CONCLUSION 

For the reasons stated above, 

IT IS HEREBY ORDERED THAT Allstate’s Motion to Dismiss for Failure to State a 

Claim (Docket 7) is GRANTED, and Allstate’s Special Motion to Strike Plaintiff’s Complaint 

(Docket 14) is DENIED as moot. 

 IT IS SO ORDERED. 

Dated: January 11, 2010 _______________________________ 

SAUNDRA BROWN ARMSTRONG 

United States District Judge 

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