Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-02610/USCOURTS-cand-3_14-cv-02610-7/pdf.json

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

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

AIG COMMERCIAL COMPANY OF 

CANADA,

Plaintiff,

v.

AMERICAN GUARANTEE & LIABILITY 

INSURANCE COMPANY, et al.,

Defendants.

Case No. 14-cv-02610-SI 

ORDER GRANTING IN PART AND

DENYING IN PART THIRD-PARTY 

DEFENDANTS’ MOTION TO DISMISS

THIRD-PARTY PLAINTIFF’S FIRST 

AMENDED COMPLAINT

AIG COMMERCIAL INSURANCE 

COMPANY OF CANADA,

Third-Party Plaintiff,

v.

MILLENNIUM PARTNERS CALIFORNIA 

PROPERTY MANAGEMENT LLP;

765 MARKET STREET RESIDENTIAL 

OWNER'S ASSOCIATION; and DOES 

through 10, inclusive,

Third-Party Defendants.

AND RELATED COUNTER-CLAIMS AND 

THIRD PARTY CLAIMS

Third-party defendants Millennium Partners California Property Management LLP and 

765 Market Street Residential Owner's Association have moved to dismiss the first amended 

complaint by third-party plaintiff AIG Commercial Insurance Company of Canada. Docket No.

67. This motion is set for hearing on April 24, 2015. Pursuant to Civil Local Rule 7–1(b), the 

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 1 of 9
2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Court determines that this matter is appropriate for resolution without oral argument, and 

VACATES the hearing. For the reasons set forth below, the third-party defendants' motion to 

dismiss is GRANTED in part and DENIED in part.

BACKGROUND

The Millennium Market Street Center (“the property") is a mixed use condominium 

development located at 765 Market Street in San Francisco, California. AIG Canada's first 

amended third-party complaint (“FAC”) ¶ 6. On October 1, 2001, Four Seasons Hotels Limited 

(“Four Seasons”) entered into a Condominium and Property Sub-Management and Hotel Services 

Agreement (“Sub-Management Agreement”) with Millennium Partners (“Millennium”), the 765 

Market Street Residential Association (“the Residential Association”), the Millennium Market 

Street Center Association (“the Center Association”), and the owner of the Property. Id. ¶7. Also 

on October 1, 2001, the Center Association and Millennium entered into a Center Management 

Agreement. Id. ¶ 8. The Residential Association and Millennium also entered into a Residential 

Condominium Management Agreement ("the Residential Management Agreement") on October 1, 

2001. Id. ¶ 9. 

The Sub-Management Agreement details the services to be provided by Four Seasons as 

the Sub-Manager for the Property. These include hiring, training, supervising and discharging 

maintenance staff to respond to any maintenance or repair requests in areas for which Millennium 

is responsible. Id. ¶ 12. The Sub-Management Agreement gave Four Seasons the option to 

employ personnel to carry out these services either as its own employees “or in the name of an 

Affiliate (an 'Employment Affiliate').” Id. ¶ 13. Four Seasons created Four Seasons San 

Francisco Employees (“FSSFE”) as an Employment Affiliate, within the meaning of Section 

5.1(e) of the Sub-Management Agreement. Id. ¶ 14. 

On May 14, 2009, while FSSFE employees were performing repair work on the 

property's hot water system, a valve was left open resulting in the flooding of a private residential 

unit. Id. ¶ 24. Fireman's Fund Insurance Company, the insurer of the owner of the unit, paid for 

the flood loss and then sued Four Seasons and FSSFE in a subrogation action (“Fireman's Fund 

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 2 of 9
3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Action”), alleging that the Four Seasons defendants were negligent in failing to close or for 

leaving open a vent or valve on equipment that was part of the building's hot water system. Id. ¶¶

24-25. The Fireman's Fund Action settled in October 2013 for payment of $7,500,000 by three

insurers on behalf of Four Seasons and FSSFE. Id. ¶ 27. 

The insurance contributions were as follows:

--Federal Policy: Millennium obtained liability insurance for the Property, through a 

commercial general liability policy issued by Federal Insurance Company for the policy period 

June 28, 2008 to June 28, 2010 (“Federal Policy”). Id. ¶ 28. The Federal Policy did not identify 

Four Seasons as an insured, id., but it did provide: “Persons (other than your employees) or 

organizations acting as your real estate managers are insureds; but they are insureds only with 

respect to their duties as your real estate managers.” Id. Federal Insurance accepted defense of 

Four Seasons and FSSFE in the Fireman's Fund Action. Id. ¶ 30. Federal Insurance paid a total of 

$2 million toward the settlement of the Fireman's Fund Action. Id. ¶ 31. 

--American Guarantee Policy: Another insurer, American Guarantee & Liability 

Insurance Company (“American Guarantee”), issued a Commercial Umbrella Policy to Integrated 

Risk Facilities, Inc., a Risk Purchasing Group, for the policy period October 1, 2008 to October 1, 

2009 (“American Guarantee Policy”). Id. ¶ 32. The American Guarantee Policy included 

Millennium and the Residential Association as named insureds. Id. ¶ 33. The American 

Guarantee Policy did not identify Four Seasons as a named insured, id., but it did include as an 

insured any person or organization qualifying as an insured on the Federal Policy. Id. 

--AIG Canada: AIG Canada issued a comprehensive general liability policy and a 

commercial umbrella liability policy to Four Seasons for the policy period November 1, 2008 to 

November 1, 2009. Id. ¶ 34. AIG Canada paid a total of $3.5 million toward the settlement of the 

Fireman's Fund Action. Id.

On or about June 6, 2014, AIG Canada filed a lawsuit against American Guarantee 

seeking subrogation to recover the $3.5 million AIG Canada paid toward the Fireman’s Fund 

Action. Id. ¶ 35. On October 7, 2014, AIG Canada filed its third-party complaint against 

Millennium and Association alleging Millennium agreed in the Sub-Management Agreement to 

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 3 of 9
4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

provide both insurance and indemnity to Four Seasons and FSSFE for their work performed under 

the Agreement, and that Millennium breached both those agreements and negligently failed to 

obtain insurance according to the agreement. Docket No. 27. Millennium and the Residential 

Association (together, “Millennium”) moved to dismiss the complaint, which the Court did by 

order dated January 29, 2015. Docket No. 56. The Court also granted AIG Canada leave to 

amend its third-party complaint. Id. 

AIG Canada filed its first amended third-party complaint on February 17, 2015. Docket 

No. 65. Millennium again moves to dismiss AIG Canada’s complaint pursuant to Federal Rule of 

Civil Procedure 12(b)(6). Docket No. 67. 

LEGAL STANDARD

Under Federal Rule of Civil Procedure 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 Rule 12(b)(6) motion to 

dismiss, 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). This “facial plausibility” standard 

requires the plaintiff to allege facts that add up to “more than a sheer possibility that a defendant 

has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While courts do not require 

“heightened fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a right to 

relief above the speculative level.” Twombly, 550 U.S. at 544, 555.

In deciding whether the plaintiff has stated a claim upon which relief can be granted, the 

court must assume that the plaintiff's allegations are true and must draw all reasonable inferences 

in the plaintiff's favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). 

However, the court is not required to accept as true “allegations that are merely conclusory, 

unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 

F.3d 1049, 1055 (9th Cir. 2008).

If the Court dismisses the complaint, it must then decide whether to grant leave to amend. 

The Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no 

request to amend the pleading was made, unless it determines that the pleading could not possibly 

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 4 of 9
5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) 

(citations and internal quotation marks omitted).

DISCUSSION

In its first amended third-party complaint, AIG Canada alleges claims for breach of 

contract, express indemnity, and negligence. Millennium moves to dismiss all three claims. 

I. Breach of Contract

The first claim of AIG Canada’s amended complaint is for breach of contract against 

Millennium. FAC ¶ 42. AIG Canada alleges that because of its contribution of $3.5 million 

toward the settlement of the Fireman’s Fund Action against the Four Seasons entities, it is

subrogated to Four Seasons’ and FSSFE’s rights against any party legally responsible for the loss. 

Id. ¶ 43. It then asserts that the Four Seasons entities had a contractual right to have Millennium 

obtain insurance naming FSSFE as an insured; that Millennium did not do so; and that some or all 

of AIG Canada's $3.5 million payment was caused by the breach. Millennium moves to dismiss 

AIG Canada’s breach of contract claim. 

The elements of a cause of action for breach of contract in California are “(1) the existence 

of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, 

and (4) the resulting damages to the plaintiff.” Oasis W. Realty v. Goldman, 51 Cal. 4th 811, 821 

(2011).

AIG Canada cites Section 2(g) of the Residential Management Agreement (between the 

Residential Association and Millennium) and Section 5.1(d) [sic - 5.1(i)] of the Sub-Management 

Agreement (between Four Seasons and Millennium) as the relevant contract terms. Specifically, 

AIG Canada alleges Millennium was obligated by the terms of the Residential Management 

Agreement to obtain comprehensive general liability insurance; and that the Sub-Management 

Agreement required that Four Seasons — the sub-manager — be named as insured in all liability 

policies. FAC ¶ 45. In fact, the Four Seasons entities were not named as insureds on any of the 

insurance Millennium obtained. This, AIG Canada argues, amounts to the breach of contract. 

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 5 of 9
6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Millennium argues that AIG Canada has failed to state a claim for breach of contract to 

obtain insurance because Millennium had no obligation to obtain insurance for Four Seasons or 

FSSFE. Millennium argues that the Sub-Management Agreement required Four Seasons as submanager to assume obligations of Millennium, as manager, to procure liability insurance to protect 

the interests of the Residential Association, the Center Association, the manager and itself as submanager. Motion at 6. The Court agrees.

Full copies of the relevant agreements were not attached to the original third party 

complaint, but the Sub-Management Agreement, Residential Management Agreement, and Center 

Management Agreement are appended as Exhibit 1 to AIG Canada’s amended complaint and are 

referenced and quoted throughout. Docket No. 65-1, Ex. 1. The Court will consider not only the 

allegations contained in the amended complaint but also the exhibits attached to the complaint. 

See Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007) (“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.”). 

Section 5.1(i) of the Sub-Management Agreement1states that the sub-manager (Four 

Seasons) will provide certain services, the performance of which are delegated to the sub-manager 

by the manager (Millennium):

Insurance. On behalf of and at the expense of the applicable Managed 

Condominium Association . . . Sub-Manager shall cause to be maintained . . . 

property insurance, insuring against all-risk of direct physical damage, including 

earthquake (if reasonably available and affordable), public liability, elevator 

liability, boiler, worker’s compensation, and such other insurance as each 

Managed Condominium Association, Manager and Sub-Manager shall deem 

necessary for the protection of the interests of the Managed Condominium 

Associations, Manager and Sub-Manager; and Sub-Manager, Manager, and 

Owner shall be named as insured parties in all liability policies.

Docket No. 65-1, Ex. 1 Sub-Management Agreement § 5.1(i) (emphasis added).

2

 

 

1AIG Canada cites Section 5.1(d) of the Sub-Management Agreement, which pertains to 

“Budgets.” It appears that AIG Canada intends to cite Section 5.1(i) which addresses “Insurance.” 

Docket No. 65-1, Ex. 1 at 15. 

2

Paragraph 44 of the FAC alleges that Millennium's duties included getting liability insurance, 

and further alleges: "Section 5.1(d) [sic - 5.1(i)] of the Sub-management Agreement requires that 

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 6 of 9
7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Millennium contends that this contractual term makes clear that Four Seasons as sub-manager was 

obligated to procure liability insurance. Motion at 6. 

AIG Canada argues that Section 2 of the Residential Management Agreement required 

Millennium to obtain comprehensive general liability insurance, and this duty could not have 

possibly been delegated to Four Seasons as sub-manager. Opp. at 9-10. Section 2(g) of the 

Residential Management Agreement states that the Manager (Millennium) will:

On behalf of and at the expense of the Residential Association cause to be 

effected and maintained . . . public liability . . . and such other insurance as the 

Residential Association and Manager shall deem necessary for the protection of 

the interests of the Residential Association and Manager; and the Manager shall 

be named as an insured party in all liability policies . . . .

Docket No. 65-2. 

Taken together, the terms of the Agreements do not support AIG Canada’s assertion that 

the Sub-Management agreement obligated Millennium to obtain liability insurance that named 

Four Seasons and FSSFE as insureds. The allegation in Paragraph 44 of the FAC, to the effect 

that the Sub-Management Agreement requires the Sub-Manager be named as insured in all 

liability policies, neglects to note that the same agreement requires the Sub-Manager -- not 

Millennium -- to "cause to be maintained” the liability insurance. 

The contract terms do not support AIG Canada’s breach of contract claim. The Court must 

therefore GRANT Millennium’s motion as to this claim. 

II. Express Indemnity

AIG Canada alleges a claim against Millennium for express indemnity. FAC ¶ 56. “An 

indemnitee seeking to recover on an agreement for indemnification must allege the parties’ 

contractual relationship, the indemnitee’s performance of that portion of the contract which gives 

rise to the indemnification claim, the facts showing a loss within the meaning of the parties’ 

indemnification agreement, and the amount of damages sustained.” Four Star Electric, Inc. v. F & 

 

"Sub-Manager . . . shall be named as insured parties in all liability policies." The FAC omits the 

portion of Section 5.l(i) which provides that "Sub-Manager" -- ie, the Four Seasons entities -- 

shall obtain the insurance.

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 7 of 9
8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

H Construction, 7 Cal. App. 4th 1375, 1380 (Cal. App. 1992). AIG Canada’s claim for express 

indemnity is premised upon Millennium’s alleged contractual obligations, and is therefore 

contingent on the breach of contract claim. Because AIG Canada has failed to state a claim 

against Millennium for breach of contract, the express indemnity claim similarly fails. 

Accordingly, Millennium’s motion as to this claim is GRANTED. 

III. Negligence

AIG Canada also alleges that in procuring liability insurance for the property, "Millennium

and the Residential Association assumed a duty of care to Four Seasons and FSSFE to ensure that 

they were named as insured parties for the protection of their interests." FAC ¶ 51. The complaint 

alleges that Millennium had a duty to use reasonable care to ensure that insurance obtained 

adequately and properly protected the interests of Four Seasons and FSSFE against losses like the 

flood incident and subrogation action. Id. Millennium moves to dismiss this claim, arguing that it 

owed no such duty.

“The elements of a cause of action for negligence are (1) a legal duty to use reasonable 

care, (2) breach of that duty, and (3) proximate cause between the breach and (4) the plaintiff’s 

injury.” Mendoza v. City of Los Angeles, 66 Cal. App. 4th 1333, 1339 (1998). In its opposition, 

AIG Canada suggests that Millennium voluntarily undertook an obligation to procure insurance, 

thereby creating a duty of care outside its alleged contractual obligation to insure Four Seasons 

and FSSFE. Opp. at 13. The Court finds that AIG Canada has stated a claim for negligence.3 

Whether AIG Canada will be able to provide factual evidence to prove its claim is not yet known, 

and at this pleading stage the Court cannot say that AIG Canada’s claim fails. Accordingly, the 

motion to dismiss this claim is DENIED. 

 

3 Millennium has also argued that AIG Canada cannot meet the requirements for subrogation, as a 

matter of law. In particular, Millennium contends AIG Canada has failed to plead that Millennium 

is primarily liable for the loss and that AIG Canada’s equities are superior to those of Millennium. 

Reply at 7. Millennium, as the moving party, has the burden to show that AIG Canada cannot 

establish superior equities as a matter of law. See Interstate Fire, 182 Cal. App. 4th at 37. The 

Court finds that as to its negligence claim, AIG Canada has alleged that that Millennium is 

responsible for the loss suffered and that its equities are superior to Millenniums. See FAC ¶¶ 20, 

21, 50-55. 

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 8 of 9
9

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

CONCLUSION

For the reasons stated above, the Court GRANTS Millennium’s motion to dismiss AIG 

Canada’s claims for breach of contract and express indemnity with prejudice. The Court DENIES 

the motion as to AIG Canada’s claim for negligence. 

IT IS SO ORDERED.

Dated: April 22, 2015

________________________

SUSAN ILLSTON

United States District Judge

Case 3:14-cv-02610-SI Document 77 Filed 04/22/15 Page 9 of 9