Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_05-cv-00917/USCOURTS-cand-4_05-cv-00917-5/pdf.json

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

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SECURIMETRICS, INC.,

Plaintiff,

v.

HARTFORD CASUALTY INSURANCE COMPANY,

Defendant.

 /

No. C 05-00917 CW

ORDER DENYING 

PLAINTIFF'S

MOTION TO DISMISS

AND GRANTING IN

PART AND DENYING

IN PART

PLAINTIFF'S

MOTION TO STRIKE

Plaintiff moves to dismiss two of Defendant's claims for

declaratory relief and to strike over half of Defendant's

affirmative defenses. Defendant opposes portions of this motion. 

The matter was heard on September 30, 2005. Having considered all

of the papers filed by the parties and oral argument on the motion,

the Court denies Plaintiff's motion to dismiss and grants in part

Plaintiff's motion to strike and denies it in part.

BACKGROUND

Plaintiff SecuriMetrics, Inc. filed this lawsuit against

Defendant Hartford Casualty Insurance Company alleging that

Defendant failed to provide insurance coverage in breach of

contract and in bad faith. Plaintiff’s complaint alleges the

following. Defendant issued Plaintiff a written insurance policy,

Policy No. 57 SBA AT8252 (the Policy), for the period February 28,

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2003 to February 28, 2004. Complaint ¶ 2. The Policy covered

damages Plaintiff might incur for offenses that caused “personal or

advertising injury” arising out of Plaintiff’s business in the

United States during the policy period. The Policy also required

Defendant to defend Plaintiff in any suit seeking damages for

“personal and advertising injury.” Complaint ¶ 6. Plaintiff paid

the Policy premium and satisfied all other requirements of the

Policy. Complaint ¶ 5. 

In or about October, 2003, Iridian Technologies, Inc.

(Iridian) filed a false counterclaim against Plaintiff, alleging

that Plaintiff was liable for damages because of a “personal and

advertising injury” caused by Plaintiff’s offenses in the United

States during the Policy period. Iridian’s claim was covered by

the Policy. Plaintiff made a timely demand on Defendant to defend

it against Iridian’s counterclaim, but Defendant refused. 

Complaint ¶ 7. At the time of Defendant’s refusal, it knew that it

was obliged to defend Plaintiff, and that it was violating its duty

of good faith and fair dealing in refusing to do so. Complaint 

¶ 15. 

Defendant filed a motion to dismiss and strike, which was

denied. Then Defendant filed an answer asserting twenty-five

affirmative defenses. Also included in the answer were four

counterclaims for declaratory relief. The two counterclaims at

issue are the second claim for declaratory relief -- regarding

reimbursement -- and the fourth claim for declaratory relief --

regarding indemnity. 

LEGAL STANDARD

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I. Dismissal Under Rule 12(b)(6)

A motion to dismiss for failure to state a claim will be

denied unless it is “clear that no relief could be granted under

any set of facts that could be proved consistent with the

allegations.” Falkowski v. Imation Corp., 309 F.3d 1123, 1132 (9th

Cir. 2002), citing Swierkiewicz v. Sorema N.A., 534 U.S. 506

(2002). All material allegations in the complaint will be taken as

true and construed in the light most favorable to the plaintiff. 

See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

A complaint must contain a “short and plain statement of the claim

showing that the pleader is entitled to relief.” Fed. R. Civ.

P. 8(a). “Each averment of a pleading shall be simple, concise,

and direct. No technical forms of pleading or motions are

required.” Fed. R. Civ. P. 8(e). These rules “do not require a

claimant to set out in detail the facts upon which he bases his

claim. To the contrary, all the Rules require is ‘a short and

plain statement of the claim’ that will give the defendant fair

notice of what the plaintiff’s claim is and the grounds on which it

rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957).

II. Motion to Strike Under Rule 12(f)

Pursuant to Federal Rule of Civil Procedure 12(f), the Court

may strike from a pleading “any insufficient defense or any

redundant, immaterial, impertinent or scandalous matter.” The

purpose of a Rule 12(f) motion is to avoid spending time and money

litigating spurious issues. See Fantasy, Inc. v. Fogerty, 984 F.2d

1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517

(1994). A defense is insufficient if it fails to give the

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plaintiff fair notice of the nature of the defense. See Wyshak v.

City Nat’l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Matter is

immaterial if it has no essential or important relationship to the

claim for relief pleaded. See Fogerty, 984 F.2d at 1527. Matter

is impertinent if it does not pertain and is not necessary to the

issues in question in the case. See id. 

Courts generally disfavor use of the Rule 12(f) motion and

have held that it should only be granted if the asserted defense is

clearly insufficient as a matter of law under any set of facts the

defendant might allege. As the Second Circuit has explained:

A motion to strike an affirmative defense . . . for legal

insufficiency is not favored and will not be granted

"unless it appears to a certainty that plaintiffs would

succeed despite any state of the facts which could be

proved in support of the defense." Moreover, even when

the facts are not disputed, several courts have noted

that a "motion to strike for insufficiency was never

intended to furnish an opportunity for the determination

of disputed and substantial questions of law."

"[E]ven when the defense presents a purely legal

question, the courts are very reluctant to determine

disputed or substantial issues of law on a motion to

strike; these questions quite properly are viewed as

determinable only after discovery and a hearing on the

merits." 

William Z. Salcer, Panfeld, Edelman v. Envicon Equities Corp., 744

F.2d 935, 939 (2d Cir. 1984), vacated on other grounds and

remanded, 478 U.S. 1015 (1986)(citations omitted); accord Augustus

v. Board of Public Instruction, 306 F.2d 862, 868 (5th Cir.

1962)(court should grant motion to strike only if the pleading has

no possible relation to the controversy); see also Moore's Federal

Practice 3d, § 12.37[1], [4] (Rule 12(f) motions are generally

disfavored and motions to strike defenses should be denied if

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sufficiency of defense depends on disputed issues of fact or

questions of law). 

 DISCUSSION

I. Motion to Dismiss

A. Second Claim for Declaratory Relief -- Reimbursement

Defendant seeks a declaration that it is entitled to

reimbursement of all or a portion of the amount it pays to defend

Plaintiff against non-covered claims asserted by Iridian. 

Plaintiff argues that Defendant's reimbursement claim is not ripe

because under California law there is no right to reimbursement

until after the underlying litigation is resolved. Plaintiff

asserts that because Defendant has no present right to

reimbursement, the Court should dismiss the reimbursement request

for failure to state a claim upon which relief can be granted,

under Rule 12(b)(6), or because the Court lacks subject matter

jurisdiction over the claim, under Rule 12(b)(1), in that the claim

is unripe.

Plaintiff, however, reads too much into Buss v. Superior, 16

Cal. 4th 35 (1997). In Buss, the California Supreme Court held,

among other things, that an insurer can seek reimbursement from the

insured for costs associated with defending claims that are not

even potentially covered by the insurance policy. Id. at 50. The

court noted that "the insurer will presumably take the safer course

of defending the entire 'mixed' action and then seeking

reimbursement for defense costs that can be allocated solely to the

claims that are not even potentially covered." Id. at 59. But it

did not, as Plaintiff asserts, hold that the insurer could seek

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reimbursement only after the underlying litigation is resolved. 

Plaintiff's argument that Defendant's reimbursement claim must

be dismissed because Defendant currently has paid nothing in

Plaintiff's defense is also unconvincing. Plaintiff ignores Ninth

Circuit case law and 28 U.S.C. § 2201, which provides that "any

court of the United States, upon the filing of an appropriate

pleading, may declare the rights and other legal relations of any

interested party seeking such declaration, whether or not further

relief is or could be sought." There is no requirement, as

Plaintiff purports, that Defendant must first pay defense costs

before there can be a justiciable controversy. 

Instead, to determine whether there is a justiciable

controversy, the Court must examine "whether the facts alleged,

under all the circumstances, show that there is a substantial

controversy, between parties having adverse legal interests, of

sufficient immediacy and reality to warrant the issuance of a

declaratory judgment." Societe de Conditionnement en Aluminium v.

Hunter Engineering Co., Inc., 655 F.2d 938, 942 (9th Cir. 1981)

(quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S.

270, 273 (1941)) (holding in a patent case that a case or

controversy sufficient to grant declaratory relief exists where a

plaintiff has a real and reasonable apprehension that it will be

subject to liability if it continues to manufacture the product). 

Here, there is a substantial controversy; the parties are in the

midst of litigation and Defendant has a real and reasonable

apprehension that it will have to pay for Plaintiff's defense,

including costs associated with defending not even potentially

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covered claims. The Court finds that Defendant's request for

declaratory relief at this time is appropriate and denies

Plaintiff's motion to dismiss the second counterclaim.

B. Fourth Claim for Declaratory Relief -- Indemnity

Defendant requests that the Court determine that neither

SecuriMetrics nor Iridian are entitled to indemnity coverage from

Hartford. Plaintiff argues that the indemnity claim -- like the

reimbursement claim -- is not ripe because California law permits

determination of indemnity only after the underlying litigation is

over. Plaintiff asserts that because Defendant has no present

right to indemnity the Court should dismiss the indemnity request

for failure to state a claim upon which relief can be granted,

under Rule 12(b)(6), or because the Court lacks subject matter

jurisdiction over the claim, under Rule 12(b)(1), in that the claim

is unripe.

As noted by Defendant, however, a party may seek declaratory

relief that it is not obliged to defend or to indemnify its insured

against the third party claim in question, even while the

underlying suit is pending in a different case in State court. 

American States Ins. Co. v. Kearns, 15 F.3d 142, 144-45 (9th Cir.

1994). In response, Plaintiff argues that American States was

decided before Montrose Chemical Corp. v. Amidral Insurance Co., 10

Cal. 4th 645 (1995), and thus the Court is not bound by American

States. Plaintiff contends that the Montrose court recognized, as

a matter of California insurance law, that the duty to indemnify

does not arise until the insured's underlying liability can be

established. But, as Plaintiff recognizes, the duty to indemnify

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was not before the court in Montrose. The Montrose court stated

that the "duty to defend Montrose is all that is directly at issue

in this proceeding." Id. at 659 n.9. While distinguishing the

duty to defend from the duty to indemnify, the court noted that the

"obligation to indemnify, on the other hand, arises when the

insured's underlying liability is established." Id. That footnote

concerning the obligation to indemnify, however, does not support

Plaintiff's argument that this Court cannot consider Defendant's

request for a declaratory judgment that it has no duty to indemnify

until after there has been a liability determination. American

States is binding upon this Court.

Plaintiff correctly notes, however, that American States 

holds that a district court has discretion to consider declaratory

relief in insurance dispute claims; it does not hold that a court

must do so. To determine whether it should exercise its discretion

to consider or grant declaratory relief, "the district court 'must

balance concerns of judicial administration, comity, and fairness

to the litigants.'" American States, 15 F.3d at 144 (quoting

Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367 (9th Cir.

1991)). Plaintiff contends that efficiency considerations require

that indemnity issues be deferred until liability has been

established because if liability is not established, the Court will

have wasted judicial resources in determining indemnity issues. 

Defendant contends that the duty to indemnify and the duty to

defend are both dependant on coverage and that judicial economy

warrants that the Court not dismiss its counterclaims. Defendant

points out that Plaintiff sued it, requesting a declaration of the

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parties' rights and obligations. It would be unjust and wasteful

to preclude Defendant from seeking similar relief and to force

Defendant to bring multiple actions for declaratory relief. 

Balancing the concerns of judicial administration, comity, and

fairness to the litigants, the Court finds that Defendant's request

for declaratory relief at this time is appropriate and denies

Plaintiff's motion to dismiss the fourth counterclaim.

II. Motion to Strike

Citing out-of-circuit precedent from the Northern District of

Illinois, Plaintiff asserts that an affirmative defense must plead

allegations supporting all material elements of the asserted

defense. See Weber Shandwick Worldwide v. Reid, 2005 U.S. Dist.

LEXIS 14482, *14 (N.D. Ill. 2005). But that is not the standard

that this Court must follow. Rather, as noted by Defendant, the

Ninth Circuit has instructed that the "key to determining the

sufficiency of pleading an affirmative defense is whether it gives

plaintiff fair notice of the defense." Wyshak, 607 F.2d at 827. 

Furthermore, if the Court strikes an affirmative defense, leave to

amend should be freely given so long as there is no prejudice to

the opposing party. Id. at 826.

A. First, Second, Sixteenth and Seventeenth Affirmative

Defenses

Defendant does not oppose striking the first (failure to state

a claim for relief), second (acts consistent with applicable law),

sixteenth (failure to state a claim for punitive damages), and

seventeenth (reasonable and lawful conduct) affirmative defenses. 

But Defendant requests that the defenses be stricken without

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prejudice, so that there can be no doubt as to Defendant's right to

challenge Plaintiff's proof of its affirmative claims by way of

motion or trial. Because Defendant recognizes that the second and

seventeenth affirmative defenses are surplusage, the Court strikes

those defenses without leave to amend. Because the Court

recognizes Defendant's right to challenge Plaintiff's claims for

relief and punitive damages either by way of motion or at trial,

the Court strikes the first and sixteenth affirmative defenses

without leave to amend.

B. Fourteenth, Nineteenth and Twenty-Fifth Affirmative

Defenses

Defendant also does not oppose striking the fourteenth (no

damage) and twenty-fifth (right to raise additional defenses)

affirmative defenses. Defendant does not oppose striking a portion

of the nineteenth (expected or intended injury) affirmative

defense.

Defendant did not address the fourteenth affirmative defense, 

that Plaintiff has not suffered any damage as a result of

Defendant's conduct, in its opposition. During oral argument,

Defendant stated that it did not oppose striking the fourteenth

affirmative defense. The Court strikes the fourteenth affirmative

defense without leave to amend. 

The nineteenth affirmative defense asserts that Plaintiff's

purported losses are excluded from coverage because they arise out

of either property damage or personal and advertising injury that

Plaintiff intended or caused. Defendant does not object to

striking the portion of the affirmative defense regarding property

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damage. As noted by Plaintiff, there are no allegations of

property damage in the Iridian litigation. Defendant, however,

requests that the language be stricken with leave to amend, in case

property damage becomes an issue in the Iridian litigation. The

Court strikes the portion of the defense regarding property damage

without prejudice; the Court will not strike the portion of the

defense regarding personal and advertising injury. 

Defendant does not oppose striking its twenty-fifth

affirmative defense, recognizing that if it has a right to raise

additional defenses, the Court will rule at the appropriate time. 

The Court strikes the twenty-fifth affirmative defense without

leave to amend.

C. Fourth, Fifth and Sixth Affirmative Defenses

Plaintiff contends that the Court should strike the fourth

(estoppel), fifth (waiver) and sixth (laches) affirmative defenses

because Defendant provides no facts to support those defenses. 

Defendant, however, argues that the defenses comply with Federal

Rule of Civil Procedure 8 and provide Plaintiff with fair notice. 

The Court finds that, when read in conjunction with the

factual allegations contained in Defendant's counterclaims filed

simultaneously with the answer, the defenses provide Plaintiff with

fair notice. The Court will not strike these three defenses.

D. Seventh Affirmative Defense

Defendant's seventh affirmative defense states that "by the

virtue of the unlawful, negligent, fraudulent and/or other wrongful

conduct of Plaintiff . . . failing to cooperate with Hartford in

the investigation . . . described in the complaint, Plaintiff is

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barred from recovery as against Hartford by its own unclean hands."

Plaintiffs argue that the Court should strike this affirmative

defense because it contains allegations of fraud and Federal Rule

of Civil Procedure 9 requires that in all averments of fraud, the

circumstances constituting fraud must be stated with particularity. 

Defendant correctly notes that there is a difference between a

fraud defense and an unclean hands defense. But Defendant's

seventh affirmative defense includes fraud and thus is subject to

fraud's pleading requirement, which it does not fulfill. Thus, the

Court strikes the reference to fraudulent conduct without

prejudice, but does not strike the entire affirmative defense.

E. Eighth and Ninth Affirmative Defenses

Plaintiff argues that Defendant's eighth (comparative/

contributory fault) and ninth (superseding/intervening cause)

affirmative defenses should be stricken because they are

boilerplate defenses and do not fit the facts of the case. 

Defendant disagrees. It notes that the complaint alleges a tort

and that Plaintiff does not establish that a third party's acts or

omission could not possibly have contributed to Plaintiff's alleged

losses. Plaintiff has not met the high standard required on a

motion to strike. These two affirmative defenses are not clearly

insufficient as a matter of law under the facts Defendant might

allege. The Court will not strike the eighth and ninth affirmative

defenses. 

F. Eleventh and Twelfth Affirmative Defenses

Plaintiff again contends that Defendant asserted the eleventh

(policy provisions and exclusions) and twelfth (Plaintiff's breach

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of duties) affirmative defenses without consideration of the facts

of this case. Plaintiff notes that Defendant makes no attempt to

identify any particular provision, exclusion, or alleged breach of

duty. Defendant responds that, in other affirmative defenses, it

cites particular contractual breaches and specific policy

provisions, but because it has not completed discovery, it cannot

be more specific. These catch-all defenses, however, do not give

Plaintiff the required fair notice. The Court strikes the eleventh

and twelfth affirmative defenses without prejudice.

G. Fifteenth and Twenty-second Affirmative Defenses

Plaintiff argues that the fifteenth (late notice) affirmative

defense should be stricken because Defendant does not allege facts

demonstrating that it has been prejudiced by the alleged late

notice as it must under Clemmer v. Hartford Ins. Co., 22 Cal. 3d

865 (1978). But, as correctly noted by Defendant, Plaintiff has

fair notice of this defense, which is what is required under

federal pleading standards. The Court cannot strike the defense

unless it is clearly insufficient as a matter of law under any set

of facts Defendant might allege, which it is not. The Court will

not strike the fifteenth affirmative defense.

The twenty-second affirmative defense states that Plaintiff's

alleged losses were excluded from coverage "because such

allegations arise out of property damage or personal and

advertising injury due to the rendering of or failure to render any

professional service." Plaintiff argues that the twenty-second

(professional services) affirmative defense must be stricken

because it is boilerplate asserted without regard to the facts of

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the case, noting that there are no allegations of property damage

in the Iridian litigation. Defendant's response is cursory; it

asserts that Plaintiff has fair notice and does not acknowledge

that it earlier agreed that defense based on property damage could

be stricken without prejudice. Regardless, Plaintiff has not met

the high standard required on a motion to strike and the Court will

not strike the twenty-second affirmative defense.

CONCLUSION

For the foregoing reasons, Plaintiff's motion to dismiss and

to strike numerous affirmative defenses (Docket No. 27) is GRANTED

in part and DENIED in part. The Court DENIES Plaintiff's motion to

dismiss Defendant's second and fourth counterclaims. The Court

will not strike the fourth, fifth, sixth, eighth, ninth, fifteenth

and twenty-second affirmative defenses. The Court strikes the

first, second, fourteenth, sixteenth, seventeenth and twenty-fifth

affirmative defenses without leave to amend. The Court strikes the

reference to fraud in the seventh affirmative defense, the

reference to property damages in the nineteenth affirmative defense

and the eleventh and twelfth affirmative defenses without

prejudice. 

IT IS SO ORDERED.

Dated: 10/4/04

 

CLAUDIA WILKEN

United States District Judge

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