Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00874/USCOURTS-caed-1_05-cv-00874-6/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 and ) 

REBECCA J. REYNOLDS, )

 )

Plaintiffs, )

)

vs. )

)

ALLSTATE LIFE INSURANCE )

COMPANY and DOES 1 THROUGH )

100, INCLUSIVE, )

 )

Defendants. )

)

) 

No. CV-F-05-0874 REC SMS

ORDER DENYING DEFENDANT’S

MOTION TO DISMISS

PLAINTIFFS’ FIRST AMENDED

COMPLAINT.

(Doc. 37) 

On Monday, March 13, 2006, the Court heard Defendant’s

Motion to Dismiss Plaintiffs’ First Amended Complaint (the

“Motion”). Upon due consideration of the written and oral

arguments of the parties and the record herein, the Court DENIES

the Motion as set forth herein.

I. Background

The facts, as set forth in the First Amended Complaint

(“FAC”) are as follows. On January 28, 1988, Plaintiff Harry M.

Reynolds (“Mr. Reynolds”) obtained a life insurance policy

bearing policy number 786 447 846 (the “Policy”) from Defendant

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The Policy provides, on page 8: 1

Grace Period — If you do not make your premium

payment by its due date, we will allow a grace

period of 31 days. This contract will be

inforce [sic] 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.

FAC Ex. A.

2

Allstate Life Insurance Company (“Allstate”). Mr. Reynolds is

the named insured under the Policy. Plaintiff Rebecca J.

Reynolds (“Ms. Reynolds”) is the beneficiary under the policy. 

On August 28, 1989, an amendment increased the face amount of the

policy.

In August 1989, Mr. Reynolds authorized Allstate to make

automatic payment deductions from his bank account. On August

29, 1989, Allstate sent Mr. Reynolds a letter indicating that, as

a result of processing difficulties, it would stop drafting from

Mr. Reynolds’s account. Thereafter, from time to time, Allstate

sent Mr. Reynolds a statement directing him to pay certain

premiums. Mr. Reynolds mailed payments in response to these

statements. Mr. Reynolds has no record of receiving statements

in late 2002 and 2003. He did not notice that he had stopped

receiving statements until March 2003.

Mr. Reynolds’s premium payment was due January 28, 2003. 

The Policy provided for a thirty-day grace period in which

Plaintiffs could make a late payment and allow the Policy to

remain in force. The grace period expired February 28, 2003. 1

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Mr. Reynolds, who is an attorney, is representing himself and 2

his wife in this action.

3

On March 24, 2003, John Corr, a Life Agent for Allstate,

spoke to Ms. Reynolds on the telephone. He stated that it was

necessary that Mr. Reynolds pay $1,322.80 to reinstate the

Policy. Shortly thereafter, Mr. Reynolds delivered a check for

$1,322.80 to Mr. Corr. FAC Ex. D. Mr. Corr accepted the check. 

Mr. Reynolds believed that he forwarded it to Allstate. On April

18, 2003, Allstate deposited the check in to its bank account. 

FAC Ex. E. On June 11, 2003, Allstate refunded $1,322.80 to Mr.

Reynolds on the grounds that coverage had terminated. FAC Ex. F.

On June 7, 2005, Plaintiffs Mr. Reynolds and Ms. Reynolds

(collectively “Plaintiffs”) filed a Complaint in the Kern County

Superior Court against Allstate. The Complaint was removed to 2

this court. 

Allstate previously filed a motion to dismiss for failure

to state a claim, which the Court granted with leave to amend on

August 30, 2005. On December 12, 2005, Plaintiffs filed the FAC. 

On February 6, 2006, Allstate filed this Motion. Plaintiffs have

not filed an opposition brief. On March 6, 2006, Allstate filed

a reply brief.

II. Discussion

A. Legal Standard

Dismissal of a complaint pursuant to Rule 12(b)(6) is

proper if “it appears beyond doubt that the plaintiff can prove

no set of facts in support of his claim which would entitle him

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to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99,

2 L. Ed. 2d 80 (1957). In testing the sufficiency of a complaint

against a Rule 12(b)(6) challenge, a court must “accept all

material allegations in the complaint as true and construe them

in the light most favorable to the plaintiff.” N. Star Int’l v.

Ariz. Corp. Comm’n, 720 F.2d 578, 580 (9th Cir. 1983). The Court

need not, however, “accept legal conclusions cast in the form of

factual allegations if those conclusions cannot reasonably be

drawn from the facts alleged.” Clegg v. Cult Awareness Network,

18 F.3d 752, 754-55 (9th Cir. 1994). 

A complaint may be dismissed as a matter of law if there

is a lack of a cognizable legal theory or if there are

insufficient facts alleged under a cognizable legal theory. 

Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.

1990). The Court must determine whether or not it appears to a

certainty under existing law that no relief can be granted under

any set of facts that might be proved in support of a plaintiff’s

claims. De La Crux v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978),

cert. denied, 441 U.S. 965, 99 S. Ct. 2416, 60 L. Ed. 2d 1072

(1979). The Court may consider the complaint itself along with

any material properly considered as part of the complaint. 

Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542,

1555 n. 19 (9th Cir. 1989). Where the complaint fails to state a

claim on which relief can be granted, leave to amend “shall be

freely given when justice so requires.” Fed. R. Civ. P. 15(a);

Allen v. Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990). 

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B. First Cause of Action for Breach of Contract

Allstate argues that dismissal of the breach of contract

claim is appropriate because the FAC does not establish the

existence of a contract. “To state a cause of action for breach

of contract, a party must plead the existence of a contract, his

or her performance of the contract or excuse for nonperformance,

the defendant’s breach and resulting damage.” Harris v. Rudin,

Richman & Appel, 74 Cal. App. 4th 299, 307 (1999). California

courts construe insurance contracts, like contracts generally, to

give effect to the mutual intentions of the parties. Boghos v.

Certain Underwriters at Lloyds of London, 36 Cal. 4th 495, 501

(2005). Contractual language governs where it is “clear and

explicit.” Id. (quoting Bank of the W. v. Super. Ct., 2 Cal. 4th

1254, 1264 (1992)). Ambiguous terms are interpreted to protect

the “‘objectively reasonable expectations of the insured.’” Bank

of the W., 2 Cal. 4th at 1265 (quoting AIU Ins. Co. v. Super.

Ct., 51 Cal. 3d 807, 822 (1990)). Where a federal court

considers contractual documents beyond the face of the complaint

in the context of a motion to dismiss for failure to state a

claim, it should “strive to resolve any contractual ambiguities

in [the nonmoving party’s] favor.” Int’l Audiotext Network, Inc.

v. AT&T, 62 F.3d 69, 72 (2d Cir. 1995). “[T]he construction of

ambiguous contract provisions is a factual determination that

precludes dismissal on a motion for failure to state a claim.” 

Martin Marietta Corp. v. Int’l Telecomms. Satellite Org., 991

F.2d 94, 97 (4th Cir. 1992). 

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Allstate contends that the Policy terminated when the

grace period lapsed on February 28, 2003, after Plaintiffs failed

to pay the premium due January 28, 2003. Plaintiffs do not

allege that they paid the premium before the grace period ended. 

Rather, they claim that they made a payment of $1,322.80 to Mr.

Corr on March 24, 2003, almost a month after the end of the grace

period. FAC ¶ 17. Allstate deposited the check into its bank

account. FAC ¶ 25. 

It appears that Plaintiffs are contending that the late

payment entitled them to reinstatement of the Policy. Page 8 of

the Policy provides: 

Reinstatement — You 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;

2. Pay all due payments not

yet made with compound

interest from the due date of

each premium payment; and

3. Pay or ask us to reinstate

any loan with compound

interest from the due date of

the first payment not yet

made.

FAC Ex. A.

Allstate contends that Plaintiffs are not entitled to

reinstatement because they have not alleged that they have met,

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or attempted to meet, the first requirement. The first

requirement provides that Allstate will reinstate the contract if

Plaintiffs “[g]ive us the proof we require that the insured is

still insurable; . . .” FAC Ex. A. Allstate contends that this

language puts the onus on Plaintiffs to take some affirmative

step to provide certain “proof [Allstate] requires.” 

The word “require” can mean “[t]o have as a requisite,”

which could refer to compulsion under an existing predefined

obligation. Webster’s II: New Riverside University Dictionary

999 (1988). On the other hand, it can also have the meaning

“[t]o call for as appropriate: DEMAND” or “[t]o command,”

definitions which imply the act of asking or ordering something

of someone. Id. 999. Under the latter category of meanings, a

plausible reading of the first requirement for reinstatement is

that Plaintiffs must give Allstate whatever proof of insurability

that Allstate requests of them.

From the face of the FAC and the exhibits that Plaintiffs

have attached thereto, however, the Court cannot locate any

language that defines what proof, if any, Allstate requires of a

party seeking reinstatement. Such language, if present, would

indicate that “proof we require” refers to specific preexisting

obligations. From the face of the FAC, however, it does not

appear that the “proof we require” language imposes an obligation

to produce proof beyond what Allstate demands. Even in its

briefs supporting the Motion, Allstate does not point to any

existing requirement that Plaintiffs submit any particular proof

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The Court finds that Plaintiffs have stated a claim that they 3

met the requirements for reinstatement of the Policy under its

present terms. Therefore, the Court need not decide whether Mr.

Corr’s statements modified the terms of reinstatement or whether

reinstatement is appropriate under an estoppel theory. 

8

that Mr. Reynolds was still insurable. Nor do the FAC and the

attached documents indicate that Allstate has demanded any proof

from Plaintiffs.

Plaintiffs allege that Mr. Reynolds “has duly performed

each and every condition and obligation of the policy issued by

[Allstate] required to be performed by Plaintiff except for those

which have been excused . . . .” FAC ¶ 28. In the context of a

motion to dismiss for failure to state a claim, the Court will

not rule out a plausible reading of the Policy that supports

Plaintiffs’ claim. See Int’l Audiotext Network, 62 F.3d at 72. 

The Court finds that under a conceivable set of facts, Allstate

did not require Plaintiffs to submit any proof that Mr. Reynolds

was insurable. Under those facts, the allegations in the FAC

establish that Plaintiffs fulfilled all the requirements for

reinstatement. Thus, by alleging that Allstate refused to

reinstate the Policy, Plaintiffs have stated a claim for breach

of contract.3

Therefore, Allstate’s motion to dismiss this cause of

action is DENIED.

C. Second Cause of Action for Fraud

“The elements of fraud, which give rise to the tort

action for deceit, are (a) misrepresentation (false

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representation, concealment or nondisclosure); (b) knowledge of

falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce

reliance; (d) justifiable reliance; and (e) resulting damage.”

Agosta v. Astor, 120 Cal. App. 4th 596, 603 (2004).

Allstate contends that this claim fails because

Plaintiffs attribute a different statement to Mr. Corr in the FAC

from what they alleged in the Complaint. In the Complaint,

Plaintiffs alleged, “On or about March 24, 2003, Plaintiff

Rebecca J. Reynolds received a telephone call from John Joseph

Corr . . . stating that a payment of $1,322.80 was due on said

policy in order to keep it in force.” Compl. ¶ 12. In the FAC,

the allegation states, 

March 24, 2003 and prior to the time

that Plaintiff Harry M. Reynolds paid

the premium as demanded, Defendant

Allstate . . . made false

representations that the life insurance

policy would be reinstated if Plaintiff

Harry M. Reynolds paid the sum of $1,322

to Defendant Allstate. The false

representations were made orally and in

person to Plaintiff Rebecca J. Reynolds.

FAC ¶ 32. Allstate contends that the alleged promise that the

“policy would be reinstated” (FAC ¶ 32) is inconsistent with the

promise that the payment would “keep it in force” (Compl. ¶ 12),

and so the latest claim should be disregarded.

The Court does not agree that the FAC contradicts the

Complaint. The fact that Mr. Corr made a certain representation

on or around March 24, 2004, does not logically foreclose that he

made a separate similar statement. In other words, Mr. Corr

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might have promised that payment would cause the Policy to “be

reinstated” and gone on to also say that reinstatement would have

the result of keeping it “in force.” While one of these

statements might have been technically false, Mr. Corr may

nevertheless have made both. Furthermore, it would not

necessarily be an outright falsehood, though it might be slightly

inaccurate, for Plaintiffs to have characterized an offer to

reinstate the Policy as an offer to keep the Policy “in force.” 

The Court accepts as true Plaintiffs’ allegation that Mr. Corr

stated that Allstate would reinstate the Policy upon payment of

the premium. See N. Star Int’l, 720 F.2d at 580.

Allstate contends that Plaintiffs’ fraud claim is not

actionable because they do not allege a misrepresentation of a

past or existing fact, but rather a future fact. Representations

about future events are deemed to be opinions and generally are

not actionable. Neu-Visions Sports v. Soren, 86 Cal. App. 4th

303, 309-10 (2000). A promise to perform in the future, however,

implies the present intention to perform. Agosta, 120 Cal. App.

4th at 603 (citing Lazar v. Super. Ct., 12 Cal. 4th 631, 638

(1996)). Courts view a false promise of future performance as an

implied misrepresentation of fact that can be actionable fraud. 

Id. (citing Lazar, 12 Cal. 4th at 638). 

Mr. Corr’s alleged statement that Allstate would

reinstate the Policy upon payment of the premium was the

statement of an existing fact: that Allstate at that time

intended to perform the action of reinstating the policy. See

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Lazar, 12 Cal. 4th at 639 (holding that false representation to

prospective employee that his job would be “permanent and secure”

and that he would receive “significant increases in salary”

supported recovery in tort on a misrepresentation theory); 

Agosta, 120 Cal. App. 4th at 607 (holding that defendant’s

promise of a compensation package that he never intended to

provide plaintiff was an actionable misrepresentation). The

Court finds that Plaintiffs have alleged that Allstate made a

misrepresentation of an existing fact under a promissory fraud

theory.

Allstate also argues that Plaintiffs could not

justifiably rely on Mr. Corr’s assertion inasmuch as it was

inconsistent with the policy. Allstate argues that Plaintiffs

knew that (1) no agent could modify the terms of the Policy; (2)

that they had not complied with the requirements for

reinstatement under the Policy; and (3) that no Allstate officer

had approved the reinstatement. As the Court held above,

however, under a conceivable set of facts, Plaintiffs have met

the Policy’s requirements for reinstatement. If they met those

requirements, then they would have no reason to be aware that Mr.

Corr’s statement that Allstate would reinstate the Policy was

false, and they would be justified in relying on his assertion.

Allstate also contends that Plaintiffs have failed to

meet the heightened pleading requirements for allegations of

fraud. To satisfy Rule 9(b) of the Federal Rules of Civil

Procedure, a complaint for fraud must “‘state the time, place,

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and specific content of the false representations as well as the

identities of the parties to the misrepresentation.’” Edwards v.

Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004). This

requirement is read in conjunction with Rule 8, which requires a

“short and plain statement of the claim,” and calls for “simple,

concise, and direct” allegations. Fed. R. Civ. P. 8; see

Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679

(6th Cir. 1988). 

Plaintiffs allege that on or about March 24, 2003, Mr.

Corr called Ms. Reynolds. FAC ¶ 15, 32. At that time, Mr. Corr

told her that it was necessary to pay $1,322.80 to reinstate the

Policy. FAC ¶ 16. The Court finds that these allegations

sufficiently set forth the time, place, and content of and

parties to the misrepresentation.

Accordingly, Allstate’s motion to dismiss the fraud claim

is DENIED.

D. Third Cause of Action for Declaratory Relief

Allstate again moves to dismiss this cause of action on

the ground that Plaintiffs have failed to allege facts that

demonstrate that the Policy remained in effect or that Plaintiffs

met the requirements for reinstatement. For the reasons

mentioned above, Plaintiffs have alleged facts sufficient to

support a claim that they were entitled to reinstatement of the

Policy. Accordingly, Allstate’s motion to dismiss this cause of

action is DENIED.

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E. Punitive Damages

Though a breach of contract claim cannot support a claim

for punitive damages, a court may award such damages on a fraud

claim that plaintiff brings in the same proceeding as a claim

for breach of contract. Walker v. Signal Cos., 84 Cal. App. 3d

982, 996 (1978). Under California Civil Code section 3294,

punitive damages, termed “exemplary damages,” are available based

on “clear and convincing evidence that the defendant has been

guilty of oppression, fraud, or malice, . . . .” Cal. Civ. Code

§ 3294(a) (emphasis added). Under that section, “‘[f]raud means

an intentional misrepresentation, deceit, or concealment of a

material fact known to the defendant with the intention on the

part of the defendant of thereby depriving a person of property

or legal rights or otherwise causing injury.” Cal. Civ. Code

§ 3294(c)(3).

Plaintiffs have alleged that Allstate purposefully

misrepresented its intention to reinstate the Policy. The

alleged intent of Allstate was to induce Plaintiffs to “pay the

premium demanded.” FAC ¶ 34. Thus, Allstate’s alleged intent

was to “depriv[e] a person of property,” specifically, to deprive

the Plaintiffs’ of their premium payment. See Cal. Civ. Code

§ 3294(c)(3). The Court finds that Plaintiffs have stated a

claim for punitive damages. 

ACCORDINGLY, Allstate’s Motion to Dismiss Plaintiffs’

First Amended Complaint is DENIED.

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IT IS SO ORDERED.

Dated: March 16, 2006 /s/ Robert E. Coyle 

810ha4 UNITED STATES DISTRICT JUDGE

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