Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00874/USCOURTS-caed-1_05-cv-00874-2/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 12:635 Breach of Insurance Contract

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

HARRY M. REYNOLDS, et al., )

)

)

)

Plaintiff, )

)

vs. )

)

)

ALLSTATE LIFE INSURANCE )

COMPANY, et al., )

)

)

Defendant. )

)

)

No. CV-F-05-874 REC/SMS

ORDER GRANTING DEFENDANT

ALLSTATES' MOTION TO DISMISS

AND DIRECTING PLAINTIFFS TO

FILE FIRST AMENDED COMPLAINT 

Defendant Allstate Insurance Company moves the court to

dismiss the Complaint filed by plaintiffs Harry M. Reynolds and

Rebecca J. Reynolds for failure to state a claim upon which

relief can be granted pursuant to Rule 12(b)(6), Federal Rules of

Civil Procedure.

The Complaint alleges that a life insurance policy was

issued to Harry M. Reynolds on January 28, 1988 “in consideration

for the payment of premiums on a monthly basis.” The First Cause

of Action for breach of contract alleges in pertinent part:

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12. On or about March 12, 2003, Plaintiff

Rebecca J. Reynolds received a telephone call

from John Joseph Corr ..., a Life Agent for

Allstate, stating that a payment of $1,322.80

was due on said policy in order to keep it in

force.

13. On or about March 24, 2003, Plaintiff

Harry M. Reynolds paid the sum of $1,322.80

by check No. 2097 as demanded by Allstate by

personal delivery to Corr ....

14. On or about March 24, 203, Defendants

Allstate and Does 1 through 100, inclusive,

unconditionally accepted Plaintiff’s payment.

15. On or about April 18, 2003, Defendant

Allstate cashed Plaintiff’s check by

depositing it in Allstate Bank Account No.

85069946.

16. On or about June 11, 2003, Allstate

cancelled the policy and refunded the sum of

$1,322.80 to Plaintiff Harry M. Reynolds ....

17. Plaintiff Harry M. Reynolds has duly

performed each and every condition and

obligation of the policy issued by Defendants

required to be performed by Plaintiff.

18. Defendants ... failed and refused to

perform their obligations under the life

insurance policy in that they canceled

Plaintiff Harry M. Reynolds coverage by

fraudulently claiming that the check had been

accepted subject to conditions.

19. As a direct and proximate result of the

breach by Defendants ... of their contractual

duties, Plaintiffs have been damaged in that

the policy insuring the life of Plaintiff

Harry M. Reynolds was terminated in violation

of the terms of the insurance contract. ....

The Second Cause of Action is for fraud, re-alleges all preceding

allegations and further alleges:

21. On March 24, 2003 and prior to the time

that Plaintiff Harry M. Reynolds paid the

premium as demanded, Defendant Allstate, and

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Does 1 through 100 ... by and through its

agent, Corr, made false representations that

the life insurance policy would continue in

force if Plaintiff Harry M. Reynolds paid the

sum of $1,322.80 to Defendant Allstate. The

false representations were made orally and in

person to Plaintiff Rebecca J. Reynolds.

22. At the time of making said false

representation, Defendants ... knew those

facts to be false and that they had no basis

upon which to make such representations. 

Said false representation was made with the

intent that Plaintiffs would rely upon the

false representations and pay the premium

demanded by Allstate, and Does 1 through 100

....

23. Plaintiffs justifiably and reasonably

relied upon these false representations by

Defendants ... and due to such reliance

immediately paid the premium demanded to

Allstate, and Does 1 through 100 ...

Plaintiffs’ reliance upon the representations

by Defendants ... was justified in that Corr

held himself out as an expert in insurance

coverage and in particular as an expert with

respect to the life insurance policy sold to

Plaintiff Harry M. Reynolds, and because

Plaintiff has no expertise in insurance

coverage and had no knowledge as to the truth

or falsity of the representation made by

Corr.

24. Had Plaintiff Harry M. Reynolds known of

the untruthfulness of the representations of

Defendants ..., he would not have paid the

premium in reliance on continued coverage

under the life insurance policy. Thus,

plaintiff was induced to and did pay the

premium due to fraudulent representations by

Corr, the agent of Allstate.

25. As a result of the misrepresentations by

Defendants ..., Plaintiff Harry M. Reynolds

paid premiums on a life insurance policy

which provided no benefit whatsoever to

Plaintiff Harry M. Reynolds, or the

beneficiary under the policy.

26. Defendant’s actions were willful and

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malicious in that Defendants ... knew or

should have known that Plaintiff Harry M.

Reynolds would not have the coverage he

needed under the policy but made the

misrepresentations in conscious disregard of

the needs and financial security of

Plaintiffs, and thus, Defendants ... are

liable to pay punitive damages to Plaintiffs,

pursuant to CCP § 3294 ....

The Third Cause of Action is for breach of the implied covenant

of good faith and fair dealing. After re-alleging the preceding

allegations, the Third Cause of Action alleges in pertinent part:

29. Implicit in the duty of Defendants’

obligations was to act fairly and in good

faith with Plaintiffs, to make reasonable

coverage decisions, and not cancel a

policyholder’s life insurance coverage after

receiving and accepting payment for the

premiums due under the policy, and by not

fraudulently claiming that the payment was

accepted subject to conditions.

30. Defendants Allstate and Does 1 through

100 ... breached the duty to act fairly and

in good faith toward Plaintiff by:

A. accepting payment and 

depositing the payment into their business

account and returning the premium almost

three months later;

B. making contrived and 

false allegations regarding non-existent

conditions;

C. canceling the life 

insurance policy without a legal

justification;

D. denying Plaintiffs the 

coverage and benefits owing under the policy

without regard to the provisions of the

policy and the obligations imposed upon

Defendants.

E. basing its decision on 

coverage upon a desire to reduce its

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potential liability and to avoid its

obligations to Plaintiffs under the policy;

F. denying Plaintiff Harry M.

Reynolds coverage with the intention of

coercing Plaintiffs to forgo the benefits due

under the policy; and

G. by not contacting 

Plaintiff Harry M. Reynolds directly and

discussing their legal theory with him.

31. As a direct and proximate result of

Defendants’ breach, Plaintiffs have suffered

damages consisting of a loss of life

insurance coverage. Additionally, Plaintiffs

will incur the attorney fees and costs

necessary to obtain the benefits and rights

to which it [sic] is entitled under the

policy but which Defendants refused and

failed to provide. ....

32. As a further direct and proximate result

of Defendants’ breach, Plaintiffs have

suffered and will continue to suffer,

emotional and mental distress ....

33. In committing the alleged acts,

Defendants acted with oppression, fraud and

malice. All of the alleged acts were

performed or ratified by Defendants’

managerial employees, who acted with certain

knowledge that Defendants’ conduct would

cause Plaintiffs’ harm. Plaintiffs are

therefore entitled to recover punitive

damages ....

The Fourth Cause of Action is for declaratory relief.

A. Governing Standards.

In ruling on a motion to dismiss under Rule 12(b)(6), all

allegations of material fact are taken as true and construed in

the light most favorable to the plaintiffs. However, conclusory

allegations of law and unwarranted inferences are insufficient to

defeat a motion to dismiss for failure to state a claim. Epstein

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v. Washington Energy Co., 83 F.3d 1136, 1140 (9 Cir. 1996). In th

addition, “in apprising the sufficiency of the complaint we

follow ... the accepted rule that 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). 

As a general rule, “a district court may not consider any

material beyond the pleadings in ruling on a Rule 12(b)(6)

motion.” Branch v. Tunnell, 14 F.3d 449, 453 (9 Cir.), cert. th

denied, 512 U.S. 1219 (1994), overruled on other grounds,

Galbraith v. County of Santa Clara, 307 F.3d 1119 (9 Cir. th

2002). Rule 12(b)(6) expressly provides that when:

matters outside the pleading are presented to

and not excluded by the court, the motion

shall be treated as one for summary judgment

and disposed of as provided in Rule 56, and

all parties shall be given reasonable

opportunity to present all materials made

pertinent to such a motion by Rule 56.

However, there are two exceptions to the requirement that

consideration of extrinsic evidence converts a Rule 12(b)(6)

motion to a motion for summary judgment:

First, a court may consider ‘material which

is properly submitted as part of the

complaint’ on a motion to dismiss without

converting the motion to dismiss into a

motion for summary judgment ... If the

documents are not physically attached to the

complaint, they may be considered if the

documents’ ‘authenticity ... is not

questioned’ and ‘the plaintiff’s complaint

necessarily relies’ on them ... Second, under

Fed.R.Evid. 201, a court may take judicial

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notice of ‘matters of public record.’ ....

Lee v. City of Los Angeles, 250 F.3d 668, 688-689 (9 Cir. th

2002).

In seeking dismissal of the Complaint, Allstate relies on

various provisions in the policy at issue. Because the policy is

attached to the Complaint, the court refers to and relies on

these provisions without converting the motion to one for summary

judgment.

In plaintiffs’ opposition to the motion to dismiss,

plaintiffs make factual assertions that are not included in the

allegations of the Complaint, see discussion infra, and also

submit as an exhibit to their opposition, a letter dated August

29, 1989 to Harry Reynolds from Mary Ellen Demos. The court will

not consider this letter in resolving the motion to dismiss

because to do so will require converting the motion to one for

summary judgment because the letter and its contents are nowhere

referenced in the Complaint. 

B. First Cause of Action for Breach of Contract.

In moving to dismiss the First Cause of Action for breach of

contract, Allstate refers the court to various provisions of the

policy. The policy date is January 28, 1988. The policy

provides that “[b]enefits expire at the end of the policy year in

the year shown.” The application to the policy provides: “Only

an officer of Allstate may change the Application or waive a

right or requirement. No agent may do this.” The policy itself

also provides: “Only our officers may change this contract or

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waive a right or requirement. No agent may do this.” The policy

further provides in pertinent part:

Grace Period - If you do not make the premium

payment by its due date, we will allow a

grace period of 31 days. This contract will

be in force during the grace period. If you

do not make your premium payment by the end

of the grace period, this contract will stop

unless there is a paid-up benefit as defined

in the section called CASH VALUES AND PAID UP

BENEFITS.

...

Reinstatement - We may reinstate this

contract up to 5 years past the due date of

the first payment not made by the end of the

grace period. You may not use this right if

you stopped this contract by asking us to pay

you the cash value. We will reinstate the

contract if you:

1. Give us the proof we require

that the insured is still insurable

....

Allstate argues that plaintiff cannot prevail on the First

Cause of Action for breach of contract because the allegations of

the Complaint do not establish the required element of the

existence of a contract. Allstate notes that the premium payment

at issue was not made by plaintiffs until after the 31 day grace

period set forth in the policy. Therefore, Allstate argues, the

policy by its terms terminated and plaintiffs have not alleged

that they satisfied any of the conditions for reinstatement of

the policy. 

In responding to this aspect of the motion to dismiss,

plaintiffs contend that “[c]learly, a contract existed” and that

there is a question “under the facts of this case [whether]

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Allstate had a legal right to declare the Life Insurance Contract

terminated for non-payment of premium.” In so arguing,

plaintiffs rely on factual representations that are not made in

the Complaint:

In August, 1989, Allstate sought and received

an authorization from Reynolds to make

automatic payment deductions from the bank

account of Reynolds ... This authorization

was never withdrawn by Reynolds.

Allstate did not follow any consistent

practice in making deductions from Reynolds

account. Some months Allstate sent statement

[sic] and some months they did not send a

statement. Whenever Allstate sent

statements, Reynolds paid the amount demanded

in the statement. Reynolds did not pay any

particular attention to whether or not a

statement was received because he knew

Allstate had an alternative means of

obtaining payment, namely, by automatic

withdrawal from his account. Reynolds has no

record of having received statements in late

2002 or early 2003, and this was not

inconsistent with the prior conduct of

Allstate.

The fact that no statements had been received

went unnoticed until on or about March, 2003.

The first time Reynolds realized that there

was a problem was on or about March 24, 2003,

when a telephone call was received from John

Corr, a Life Agent for Allstate ... Corr was

not the original agent who sold the policy to

Reynolds but was a successor in interest to

the original agent.

Prior to this time, Reynolds did not receive

any notice that payment was due, or

concerning the fact that the policy had or

would lapse for nonpayment of premium.

No demands for payment or delinquency notices

were received by Reynolds.

Plaintiffs then refer to the allegations in the Complaint that

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Corr told them that it was necessary to pay the past due premium

to keep the policy in force, that Reynolds paid the past due

premium by check, which check was cashed by Allstate. Plaintiffs

then contend:

At no time did Corr or Allstate state to

Reynolds that the payment was being accepted

conditionally, or that it was necessary for

Reynolds to comply with certain reinstatement

procedures prior to acceptance of the

payment.

After receiving payment, Allstate did not

communicate to Reynolds orally or in writing

that there were any conditions or requirement

for further actions by Reynolds.

However, as noted, most of the facts asserted by plaintiffs

in their opposition are not alleged in the Complaint. The

allegations of the Complaint, when compared to the terms of the

policy, establish that the policy was not in force at the time

plaintiffs paid the past due premium and, therefore, the

Complaint does not state a claim for breach of contract as

presently pleaded.

Plaintiffs further oppose this aspect of the motion to

dismiss by referring to the allegations in the Complaint that

Corr, an agent of Allstate, told them to make the premium payment

in order to keep the policy in force. Plaintiffs refer the court

to various legal principals concerning the law of agency,

including cases in which the principal is estopped by the actions

of an agent, ratification of an agent’s representations by

silence, etc. Plaintiffs argue:

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Here, there is clear and convincing evidence

that Allstate took no actions to repudiate

Corr’s actions as soon as they learned of

them. From the beginning, Allstate knew that

Corr has accepted payment from Reynolds to

reinstate his policy and this was apparently

acceptable to Allstate. It was obviously

Allstate that supplied Corr with the amount

required for reinstatement.

Instead of returning the check to Reynolds if

it were not their intent to reinstate the

policy, Allstate deposited the check into

their bank account, an unequivocal acceptance

of the payment and a ratification of Corr’s

actions. Therefore, the actions and failure

to act on the part of Allstate is totally

inconsistent with their claims that Corr did

not have the authority to accept the check

from Reynolds. It is also inconsistent with

the law in this area.

However, the Complaint does not allege that Corr told

plaintiffs that payment of the past due premium would cause the

policy to be reinstated. The Complaint alleges that Corr told

the plaintiffs to make the past due premium to keep the policy in

force. Furthermore, plaintiffs’ arguments concerning agency and

estoppel by acts of an agent ignores the policy’s provision:

“Only our officers may change this contract or waive a right or

requirement. No agent may do this.” Finally, acceptance by

Allstate of plaintiffs’ check cannot of itself constitute

reinstatement under the terms of the policy because the policy’s

provisions allow Allstate to reinstate a lapsed policy under the

conditions set forth in the policy. 

Plaintiffs further argue that their failure to comply with

the conditions for reinstatement of the policy do not negate the

claim for breach of contract because Allstate did not inform

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In granting leave to amend, the court is expressing no 1

opinion whether those representations will suffice to state a claim

upon which relief can be granted. 

12

plaintiffs that there were any requirements for reinstatement of

the policy. However, the conditions for reinstatement are set

forth in the policy itself. Plaintiffs must be presumed to have

read the policy and been aware of its terms. 

Consequently, the court dismisses the First Cause of Action. 

However, dismissal of this cause of action is with leave to amend

given the representations made by plaintiffs in their opposition

to this motion to dismiss which were not alleged in the

Complaint.1

C. Second Cause of Action for Fraud.

In moving to dismiss this cause of action, Allstate notes

that the elements of a claim for fraud are (1) Allstate made a

representation as to a past or existing fact; (2) such

representation was false when made; (3) Allstate knew that the

representation was false when made, or made it recklessly without

knowing whether it was true or false; (4) Allstate made the

representation with the intent to defraud plaintiffs; (5)

plaintiffs were not aware of the falsity of the representation,

acted in reliance upon the truth of the representations, and were

justified in doing so; and (6) as a result of such reliance,

plaintiffs sustained legally cognizable damage. See Judicial

Council “Official Form Cause of Action for Fraud”. Allstate

contends that the allegations of the Complaint demonstrate that

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If plaintiffs attempt to amend their cause of action for 2

fraud, plaintiffs are advised that they must comply with the

specificity requirement of Rule 9(b), Federal Rules of Civil

Procedure.

13

plaintiffs cannot state a claim for fraud:

... Plaintiffs knew that, pursuant to the

terms of the Policy and the application, no

agent could modify the terms of the Policy. 

Plaintiffs also knew that they had not

complied with the requirements under the

Policy for reinstatement, and that no

Allstate officer had approved the

reinstatement. Even assuming that Corr

represented to Plaintiffs that their Policy

would remain in force, Corr’s statement is

not a representation as to a past or existing

fact; it is a representation as to a future

fact. Further, Plaintiffs cannot show that

they justifiably relied on such statement

because they had knowledge of the

requirements under the Policy to make timely

premium payments, that Allstate needed to

approve reinstatement, and that they had not

met the Policy requirements for

reinstatement.

Plaintiffs oppose this aspect of the motion to dismiss by

contending that there is a “difference between an allegation and

proof” and that the “allegations are sufficient to support a

fraud count”.

However, the court agrees with Allstate’s contentions that

the allegations of the Complaint do not support a cause of action

for fraud.

Consequently, the Second Cause of Action is dismissed with

leave to amend.2

D. Third Cause of Action for Breach of the Implied Covenant

of Good Faith and Fair Dealing.

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Allstate moves the court to dismiss this cause of action on

the ground that, because the allegations of the Complaint

demonstrate that no contract between the parties existed at the

time plaintiffs paid the past due premium, plaintiffs cannot

state a claim for breach of the implied covenant. See discussion

supra. Allstate argues that the allegations of the Complaint

demonstrate that plaintiffs’ failure to make the premium payment

within the grace period caused the policy to lapse by its terms

before plaintiffs made the past due premium payment. 

Furthermore, Allstate notes, “[i]t is now settled law in

California that an insurer denying or delaying the payment of

policy benefits due to the existence of a genuine dispute as to

the existence of coverage liability or the amount of the

insured’s coverage claim is not liable in bad faith even though

it might be liable for breach of contract.” Chateau Chamberay

Homeowners Association v. Associated International Insurance

Company, 90 Cal.App.4th 335, 347 (2001).

Plaintiffs oppose this aspect of the motion to dismiss,

arguing that Allstate intended to terminate the policy in order

to save money for Allstate and that Allstate acted in bad faith

because Allstate took no steps to “communicate to Reynolds if

there was a procedure required to reinstate” the policy:

Allstate knew that Reynolds would be without

coverage if they terminated the insurance

contract, however, this apparently did not

matter to Allstate. Since Allstate made no

effort whatsoever to communicate with

Reynolds regarding his policy including the

need for, or the procedure for reinstatement,

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this would appear to be a conscious disregard

of their contractual duties of good faith and

fair dealing.

Allstate made no effort whatsoever to

communicate with Reynolds in any fashion

including the fact that his policy was going

to lapse.

However, as alleged in the Complaint, the policy had already

lapsed by its terms when plaintiffs made the past due premium

payment. The policy provides that a lapsed policy may be

reinstated if the conditions for reinstatement are satisfied. 

There is no allegation in the Complaint that plaintiffs made any

effort to satisfy the conditions for reinstatement. Plaintiffs’

complaint that Allstate did not communicate with them before the

policy lapsed is not a breach of the implied covenant because

plaintiffs must be presumed to know the terms of the policy.

Consequently, the Third Cause of Action is dismissed with

leave to amend. 

D. Fourth Cause of Action for Declaratory Relief.

Allstate moves to dismiss this cause of action on the ground

that the allegations of the Complaint demonstrate that there is

no genuine dispute between the parties as to the existence of a

contract between the parties. 

Given the present allegations of the Complaint and the terms

of the policy, Allstate is entitled to dismissal of this cause of

action.

ACCORDINGLY:

1. Defendant Allstate Life Insurance Company’s motion to

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dismiss is granted.

2. Plaintiffs shall file a First Amended Complaint within

30 days of the filing date of this Order.

IT IS SO ORDERED.

668554Dated: August 29, 2005 /s/ Robert E. Coyle 

UNITED STATES DISTRICT JUDGE

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