Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-cv-00173/USCOURTS-casd-3_08-cv-00173-2/pdf.json

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

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- 1 - 08cv173 WQH (JMA)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

CATLIN UNDERWRITING AGENCIES

LIMITED,

Plaintiff,

CASE NO. 08cv173 WQH (JMA)

ORDER

vs.

SAN DIEGO REFRIGERATED

SERVICES, INC., et al.,

Defendants.

HAYES, Judge:

The matter before the Court is Plaintiff’s Amended Motion to Dismiss Defendant’s

Second Counterclaim. (Doc. # 81).

BACKGROUND

This action arises out of an insurance coverage dispute regarding coverage under an

insurance policy issued by Plaintiff to Defendants San Diego Refrigerated Services, Inc. and

Pla-Art International (collectively the “Insured Defendants”), which are engaged in the

business of operating cold storage warehouse facilities. On January 29, 2008, Plaintiff

initiated this action by filing its complaint. (Doc. # 1). The complaint sought a judicial

determination that Plaintiff did not have a duty to indemnify or to defend the Insured

Defendants in a lawsuit relating to the Insured Defendants’ release and sale of goods belonging

to a third party. Id. On April 13, 2008, the Insured Defendants filed an answer and

counterclaim which sought a declaration that Plaintiff did have a duty to indemnify and defend

Case 3:08-cv-00173-WQH-JMA Document 83 Filed 04/02/10 Page 1 of 4
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1

 The duty to indemnify claim was moot because in the underlying litigation, the

California Court of Appeal affirmed summary judgment for the Insured Defendants. Id. at 10-

11.

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the Insured Defendants and alleged a claim for breach of the covenant of good faith and fair

dealing. (Doc. # 13). Plaintiff filed an answer denying the allegations of the counterclaim.

(Doc. # 15). The parties filed cross-motions for summary judgment in early 2009. On March

16, 2009, the Court heard oral argument on the cross-motions for summary judgment. On May

12, 2009, the Court ruled on the parties’ cross-motions. (Doc. # 54). The Court granted

Plaintiff’s motion for summary judgment as to the duty to defend and dismissed Plaintiff’s

claim for a judicial determination that there was no duty to indemnify as moot.1

 Id. at 10-11.

The Court denied the Insured Defendants’ motion for summary judgment. Id. at 10. On May

14, 2009, a judgment was entered. (Doc. # 55). On June 8, 2009, the Insured Defendants filed

a notice of appeal. (Doc. # 58).

On September 14, 2009, the United States Court of Appeals for the Ninth Circuit

entered an order dismissing the appeal. (Doc. # 70). The order states: “Appellee’s motion to

dismiss this appeal for lack of jurisdiction is granted because the district court’s order

challenged in this appeal did not dispose of the action as to all claims and all parties. See Fed.

R. Civ. P. 54(b); Chancon v. Babcock, 640 F.3d 221 (9th Cir. 1981).” Id. at 1. The mandate

of the Court of Appeals was issued on October 6, 2009. (Doc. # 71). 

On October 7, 2009, this Court issued an order spreading the mandate and ordering each

party to “file a status report within fifteen days of the date of this order identifying the claims

and parties remaining in the case.” (Doc. # 72). The order also vacated the judgment. Id.

On October 22, 2009, Plaintiff filed a status report which states that the only remaining

claim is the Insured Defendants’ second counterclaim for breach of the covenant of good faith

and fair dealing. (Doc. # 74). On October 22, 2009, the Insured Defendants filed a status

report which also states that the only remaining claim is the Insured Defendants’ second

counterclaim for breach of the covenant of good faith and fair dealing. (Doc. # 75). On

February 9, 2010, Plaintiff filed its Amended Motion to Dismiss Defendant’s Second

Counterclaim. (Doc. # 81).

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CONTENTIONS OF THE PARTIES

Plaintiff contends that “where there is no insurance coverage in the first instance, an

insured cannot maintain a claim against the insurer for breach of the covenant of good faith and

fair dealing” for refusing to defend or to indemnify the insured. (Doc. # 81-1 at 8). Plaintiff

contends that the Court’s ruling that there was no coverage for the incident at issue in the

underlying litigation necessarily means the Insured Defendants’ second counterclaim should

be dismissed. Id. Plaintiff contends that the dismissal should be with prejudice. Id.

The Insured Defendants concede that the Court’s summary judgment ruling renders

their claim for breach of the covenant of good faith moot. (Doc. # 82 at 3). The Insured

Defendants agree that the Court’s ruling that Plaintiff was not required to defend the Insured

Defendants in the underlying litigation logically requires the dismissal of the Insured

Defendants’ counterclaim for breach of the covenant of good faith and fair dealing. Id.

However, the Insured Defendants contend they “cannot join in plaintiff’s motion to dismiss

the Second Counterclaim” because they “do not agree with the conclusion that there is ‘no

coverage’ in this matter.” Id. The Insured Defendants contend that the second counterclaim

should be dismissed without prejudice. Id.

ORDER

Where there is no duty to defend, an insurance company’s failure to defend an insured

cannot, as a matter of California law, constitute a breach of the covenant of good faith and fair

dealing. See, e.g., Waller v. Truck Ins. Exchange, 11 Cal. 4th 1, 36 (1995). “It is clear that

if there is no potential for coverage and, hence, no duty to defend under the terms of the policy,

there can be no action for breach of the implied covenant of good faith and fair dealing because

the covenant is based on the contractual relationship between the insured and the insurer.” Id.

Because this Court previously ruled at summary judgment that Plaintiff had no duty to defend

the Insured Defendants, the Insured Defendants’ second counterclaim for breach of the

covenant of good faith and fair dealing is dismissed. Since the Court’s previous ruling that

there was no duty to defend was a decision on the merits, the Insured Defendant’s second

counterclaim for breach of the covenant of good faith and fair dealing is dismissed with

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prejudice.

IT IS HEREBY ORDERED THAT:

(1) Plaintiff’s Amended Motion to Dismiss (Doc. # 81) is GRANTED. The Insured

Defendants’ second counterclaim for breach of the covenant of good faith and

fair dealing is DISMISSED WITH PREJUDICE.

(2) The Conclusion of the Court’s May 11, 2009 Order (Doc. # 54) at page 11 line

24 through page 12 line 3 is vacated and replaced as follows: 

IT IS HEREBY ORDERED THAT the Motion for Partial Summary Judgment

as to Liability on its First Counterclaim Against Caitlin Underwriting Agencies

(Doc. # 42) filed by Defendant Pla-Art International is DENIED. The Amended

Motion for Summary Judgment filed by Plaintiff (Doc. # 47) is GRANTED as

to Counts 1, 2, and 4 on the grounds that Plaintiff had no duty to defend.

Defendants’ first counterclaim for breach of the duty to defend is therefore

DISMISSED WITH PREJUDICE. Plaintiff’s Count 3 for failure to notify is

DISMISSED AS MOOT. Plaintiff’s claims relating to the Duty to Indemnify

are DISMISSED AS MOOT because Defendants were not found liable in the

underlying action. 

(3) The Clerk of the Court shall enter JUDGMENT in favor of Plaintiff and against

Defendants.

DATED: April 2, 2010

WILLIAM Q. HAYES

United States District Judge

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