Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-02618/USCOURTS-caed-2_09-cv-02618-1/pdf.json

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

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28 This matter is deemed to be suitable for decision without oral *

argument. E.D. Cal. R. 230(g).

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

LINDA ENGER, individually and on )

behalf of all others similarly )

situated, )

)

Plaintiff, ) 2:09-cv-02618-GEB-EFB

)

v. ) ORDER GRANTING DEFENDANTS’

) MOTION TO DISMISS*

ALLSTATE INSURANCE COMPANY, an )

Illinois Corporation, and ALLSTATE )

PROPERTY AND CASUALTY COMPANY, an )

Illinois Corporation, )

)

Defendants. )

)

On October 15, 2009, Defendants Allstate Insurance Company

(“Allstate”) and Allstate Property and Casualty Company filed a motion

under Federal Rule of Civil Procedure 12(b)(6) in which they seek an

order dismissing Plaintiff’s complaint, or alternatively, an order

compelling appraisal and staying this action pending completion of the

appraisal process. (Docket No. 16). At issue in this motion is

whether Plaintiff must complete the appraisal process in her insurance

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28 Defendants make other arguments in their motion which are not 1

addressed since the motion will be decided on this ground.

2

policy before her claims may be heard by a court. For the reasons 1

stated below, Defendants’ motion to dismiss is GRANTED.

I. Legal Standard

“In deciding . . . a [Federal Rule of Civil Procedure 12(b)(6)

dismissal] motion, all material allegations of the complaint are

accepted as true, as well as all reasonable inferences to be drawn

from them. Dismissal is proper only where there is no cognizable

legal theory or an absence of sufficient facts alleged to support a

cognizable legal theory.” Navarro v. Block, 250 F.3d 729, 732 (9th

Cir. 2001). To avoid dismissal, plaintiff must allege “enough facts

to state a claim to relief that is plausible on its face.” Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 127 (2007). 

Defendants request that judicial notice be taken of the insurance

policy referenced in Plaintiff’s complaint as well as a letter sent by

Allstate to Plaintiff. (Request for Judicial Notice, Ex. A and B.) 

Plaintiff does not dispute the authenticity of either document. 

“[T]he incorporation by reference doctrine [applies] to situations in

which the plaintiff’s claim depends on the contents of a document, the

defendant attaches the document to its motion to dismiss, and the

parties do not dispute the authenticity of the document, even though

the plaintiff does not explicitly allege the contents of that document

in the complaint.” Kneivel v. ESPN, 393 F.3d 1068, 1076 (9th Cir.

2005)(citations and quotations omitted). This doctrine applies to the

referenced insurance policy and letter. Therefore, the court “take[s]

into account” the insurance policy and letter as though they were

incorporated into the complaint. Id. “In doing so, [the court]

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deviate[s] from the general rule that courts, when ruling on a motion

to dismiss, must disregard facts that are not alleged on the face of

the complaint or contained in documents attached to the complaint.”

Id. 

II. Background

Plaintiff’s home and “the personal property therein” was damaged

by a fire on May 15, 2007. (Compl. ¶ 21.) At the time of the fire,

Plaintiff was insured under a Deluxe Plus Homeowner’s Policy issued by

Allstate. After the fire, Allstate and Plaintiff were unable to agree

on the value of Plaintiff’s damaged or destroyed personal property,

allegedly due to Allstate’s method of calculating depreciation. 

(Compl. ¶¶ 24-37.)

 Plaintiff filed a complaint in the Superior Court for the State

of California in the County of Sacramento on August 12, 2009, alleging

claims for breach of contract, breach of the covenant of good-faith

and fair dealing and violation of California Business and Professions

Code Section 17200 et seq. and California Civil Code Section 1770 et

seq. Plaintiff seeks declaratory and injunctive relief, and actual

and punitive damages. (Compl. ¶¶ 48-53, Prayer for Relief.)

Defendants removed the case to this federal district court on

September 18, 2009. 

Plaintiff’s claims relate to her allegation that Allstate’s use

of standardized depreciation schedules to calculate the depreciation

of damaged or destroyed personal property violates both the parties’

contract and applicable California law. (Id. ¶ 13.) Specifically,

Plaintiff alleges that “instead of considering the actual condition of

the lost or destroyed items of personal property, Allstate uses a

standard Contents Estimating System (“CES”) that depreciates all items

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based on standardized depreciation tables built into its computer

systems . . . . Through use of its CES, Allstate is [allegedly] able

to substantially reduce the amount of money it pays its insureds by

assuming high levels of depreciation irrespective of the actual

physical condition of the lost property.” (Id. ¶¶ 12-13.) Plaintiff

alleges that as a result of Allstate’s improper method of calculating

depreciation, “Allstate failed to pay [her] approximately $23,300 in

lost value [for her personal property] that it should have paid under

[her insurance] policy and applicable law.” (Id. ¶ 39.) 

Plaintiff also seeks to bring her claims against Defendants as a

class action, through which she would represent a class defined as

“[a]ll California residents insured under an Allstate homeowners

insurance policy who received a first party settlement, or offer for

settlement, of a personal property claim for less than the applicable

policy limits between July 27, 2005 and the time of trial of this

action.” (Compl. ¶ 2.) 

Allstate contends that under California law and Plaintiff’s

insurance policy, Plaintiff is obligated to follow the appraisal

procedure applicable to the parties disagreement. Allstate “invok[ed]

the appraisal clause” of the parties’ insurance policy in a letter to

Plaintiff dated September 29, 2009. (Request for Judicial Notice, Ex.

B.)

III. Discussion

Defendants argue Plaintiff’s complaint should be dismissed

because “Plaintiff is obligated [under her insurance policy with

Allstate] to complete the appraisal process before bringing suit 

. . . .” (Mot. to Dismiss 6:16-17.) Plaintiff counters her claims

“are prerequisites to the appraisal process” since a court “must first

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determine the proper standard” to be applied. (Opp’n. 5:14-18.) 

Plaintiff also argues she may not be compelled to go through the

appraisal process since an appraiser would have no authority to

consider her claims. (Opp’n. 5.) 

California “Insurance Code sections 2070 and 2071 mandate a

standard form of fire insurance policy, which under section 2071, must

contain, among other things, a standard appraisal clause which

provides if the insured and the company disagree as to the actual cash

value of a loss, then each shall select a competent and disinterested

appraiser and the two selected appraisers then choose a third such

appraiser.” Figi v. New Hampshire Ins. Co., 108 Cal.App.3d 772, 776

(1980). Plaintiff’s homeowner’s insurance policy includes the

following standard form appraisal provision:

In case the insured and [Allstate] shall fail to agree as to

the actual cash value or the amount of loss, then, on the

written request of either, each shall select a competent and

disinterested appraiser and notify the other of the

appraiser selected within 20 days of the request. Where the

request is accepted, the appraisers shall first select a

competent and disinterested umpire; and failing for 15 days

to agree upon the umpire, then, on request of the insured or

[Allstate], the umpire shall be selected by a judge of a

court of record in the state in which the property covered

is located . . . . The appraisers shall then appraise the

loss, stating separately actual cash value and loss to each

item; and, failing to agree, shall submit their differences,

only, to the umpire. An award in writing, so itemized, of

any two when filed with [Allstate] shall determine the

amount of actual cash loss. Each appraiser shall be paid by

the party selecting him or her and the expenses of appraisal

and umpire shall be paid by the parties equally. . . .

(Request for Judicial Notice, Ex. A-10)(emphasis added). Plaintiff’s

insurance policy also provides that “[n]o suit or action may be

brought against [Allstate] unless there has been full compliance with

all policy terms.” (Request for Judicial Notice, Ex. A-2.) 

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“It is well settled [under California law] that an agreement to

conduct an appraisal contained in a policy of insurance . . . is

considered to be” an agreement to arbitrate “subject to the statutory

contractual arbitration law.” Lambert v. Carneghi, 158 Cal.App.4th

1120, 1129 (2008)(citations and quotations omitted). “[T]he appraisal

process set forth in section 2071 [and included in Plaintiff’s

insurance policy] is [therefore] akin to [an] arbitration

[provision].” Id. at 1130 (quotations and citations omitted). 

“[W]here a contract contains an arbitration clause, there is a

presumption of arbitrability. An order to arbitrate the particular

grievance should not be denied unless it may be said with positive

assurance that the arbitration clause is not susceptible of an

interpretation that covers the asserted dispute. Doubts should be

resolved in favor of [arbitration].” Comedy Club, Inc. v. Improv West

Associates, 553 F.3d 1277, 1284-85 (9th Cir. 2009)(citations and

quotations omitted). “Thus, the appraisal provision in Plaintiff’s

[insurance] policy is [presumptively] valid and should be given a

liberal interpretation.” Garner v. State Farm Mutual Automobile Ins.

Co., 2008 WL 2620900, No. C 08-1365, at *6 (N.D. Cal. June 30, 2008).

Defendant argues under Community Assisting Recovery, Inc. v.

Aegis Security Ins. Co., 92 Cal.App.4th 886 (2001), Plaintiff’s

complaint must be dismissed for failure to exhaust the appraisal

process provided for in the insurance policy. (Mot. to Dismiss 6.) 

Plaintiff disagrees, contending this “argument . . . is based on a

misreading of dicta [from Community Assisting Recovery].” (Opp’n. 5.)

In Community Assisting Recovery, the plaintiff brought suit

against 194 insurance companies under California Business and

Professions Code section 17204, alleging that, in violation of

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California Insurance Code sections 2070 and 2071, the defendants were

improperly adjusting property loss claims on the basis of replacement

cost less depreciation rather than on the basis of fair market value. 

Community Assisting Recovery, 92 Cal.App.4th at 890. The court

concluded that the plaintiff had failed to state a claim, in part,

because it had failed to utilize the “appraisal process provided by

the Legislature within Insurance Code section 2071"; the court also

found that the practice of using the replacement cost less

depreciation method of valuation was not an unfair business practice. 

Id. at 892-93. The court in Community Assisting Recovery, however,

noted that “Insurance Code section 2071 requires appraisal for

resolution of contested claims . . . . Thus, notwithstanding how the

insurer approaches valuation of the damaged property during adjustment

of the claim, the Legislature has provided the remedy to which the

parties must resort for determination of the amount of the loss.” Id.

at 893.

Community Assisting Recovery has been interpreted as holding that

the appraisal process must be exhausted before suit may be brought. 

See Goldberg v. State Farm Fire and Casualty Co., No. CV 01-11193 LGB

(EX), 2002 WL 768893, at *2-3 (C.D. Cal. Apr. 5, 2002). In Goldberg,

the plaintiff alleged that the defendant “failed to pay the full

amount of actual cash value required under the [insurance policy] by

deducting depreciation from the payment to [the] [p]laintiff.” Id. at

*1. The Goldberg court held that Community Assisting Recovery barred

the plaintiff’s claims since the plaintiff had not exhausted the

appraisal process prior to bringing suit. Id. at *2. The Goldberg

court therefore concluded that the “appraiser [is to have] the first

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opportunity to address the valuation issue, and only if the appraiser

errs should the issue be brought before a court.” Id. at *3. 

Further, the district court in Garner v. State Farm Mutual

Automobile Ins. Co. similarly granted the defendant’s motion to

dismiss since the plaintiff had failed to comply with the appraisal

process provided in her insurance policy. 2008 WL 2620900, at *7-8. 

The plaintiff in Garner alleged that the defendant insurance company’s

method of claim valuation violated California insurance law and the

scope of the appraisal clause in her insurance policy did not extend

to the issues she sought to litigate. Id. at *2-3. However, the

Garner court rejected the plaintiff’s arguments, holding that “because

[the plaintiff] did not comply with the policy’s [appraisal

provision], she failed to satisfy the contractual condition precedent

to bringing [her lawsuit.]” Id. The Garner court found that “it

[was] immaterial that the disagreement [between the parties was] based

upon [the] [p]laintiff’s objection to [the] [d]efendant’s valuation

method” since “the dispute, is at its core, about the value of [the]

[p]laintiff’s [property].” Id. at *7.

As in Garner, Plaintiff’s dispute with Allstate, is “at its core,

about the value of Plaintiff’s [personal property]. She claims that,

by using an improper method of [calculating depreciation], [Allstate]

offered to pay her less than her [personal property] was worth. She

therefore literally disagrees with [Allstate] . . . [that the sum

offered] represents the actual cash value of her [personal property]. 

For purposes of interpreting the contractual language, it is

immaterial that this disagreement is based on Plaintiff’s objections

to Defendant’s . . . method [of calculating depreciation].” Garner,

2008 WL 2620900, at *7. Since “there is a disagreement between the

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parties as to the actual cash value of Plaintiff’s [personal

property], . . . the appraisal clause is triggered.” Id. at 8. 

“Although the present case . . . is much more than a simple

disagreement over the value of Plaintiff’s [personal property], this

does not change the fact that there is such a disagreement . . . . 

Pursuant to the terms of the contract, [completion of the appraisal

process is] a precondition to Plaintiff’s filing a lawsuit.” Id. at

*7 (emphasis in original). Therefore, Plaintiff’s claims against

Allstate are not ripe for judicial determination.

IV. Conclusion

Since Plaintiff has failed to exhaust the appraisal process as

required under her insurance policy and California Insurance Code

section 2071, Defendants’ motion to dismiss is GRANTED and Plaintiff’s

complaint is DISMISSED. This action shall be closed.

Dated: December 8, 2009

 

GARLAND E. BURRELL, JR.

United States District Judge

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