Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_14-cv-00451/USCOURTS-caed-1_14-cv-00451-0/pdf.json

Parties Involved:
Centex Homes
Counter Claimant
Centex Real Estate Corporation
Counter Claimant
Travelers Indemnity Company of Connecticut
Counter Defendant
Travelers Property Casualty Company of America
Counter Defendant

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

TRAVELERS INDEMNITY COMPANY OF 

CONNECTICUT AND TRAVELERS 

PROPERTY CASUALTY COMPANY OF 

AMERICA,

 Plaintiffs, 

 v. 

CENTEX HOMES, et al.,

 Defendants.

1:14-CV-451-LJO-GSA

MEMORANDUM DECISION AND 

ORDER RE DEFENDANT’S MOTION 

TO DISMISS (DOC. 8)

This case concerns a dispute between the parties concerning their rights and duties in an 

underlying action currently pending in Kings County Superior Court. Defendants Centex Homes and 

Centex Real Estate Corporation (“Centex”) construct residential homes throughout California. Plaintiffs 

are insurance providers and provided insurance to one of Centex’s subcontractors, with Centex named as 

an additional insured under the policy (“the insurance policy”). 

Centex has been the defendant in a number of cases currently pending in this Court and 

elsewhere concerning lawsuits over alleged construction defects in the homes Centex has been involved 

in building and the insurance policies insuring the construction of those homes. Plaintiffs previously 

brought suit against Centex in this Court for Centex’s alleged breach of one of those insurance policies. 

Centex moved to dismiss Travelers’s complaint, which this Court denied on May 15, 2014. See

Travelers v. Centex, No. 14-CV-217, 2014 WL 2002320 (E.D. Cal. May 15, 2014) (“the Travelers I

Order”). Plaintiffs brought this essentially identical suit due to Centex’s alleged breach of another 

insurance policy. See Doc. 2 at 7.

Centex has also moved to dismiss Plaintiffs’ complaint in its entirety. The Court has reviewed 

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the record and the parties’ submissions in their entirety and finds that the materials facts of the Travelers

I case and the arguments Centex made in support of its motion to dismiss that case are essentially 

identical to those involved in this case. That is, the Court finds that the Order denying Centex’s motion 

to dismiss in the Travelers I Order is applicable to Centex’s motion to dismiss here.

In addition to arguments made in the Travelers I case, Centex argues that the Travelers I Order 

erred in finding that Plaintiffs had stated a cause of action for breach of contract, and therefore should 

not be followed here. The thrust of Centex’s argument is that Plaintiffs’ allegation that Centex breached 

the insurance policy’s cooperation clause cannot, as a matter of law, form the basis for a cause of action 

for breach of contract. Centex provides three primary reasons in support.

First, Centex argues that the Travelers I Order failed to “address—or distinguish—the 

controlling Ninth Circuit authority.” Doc. 8 at 4. (citing Ins. Co. State of Pa. v. The Roman Catholic 

Archbishop of Los Angeles, 227 F. App’x 643, 644 (9th Cir. 2007)). In that case, the Ninth Circuit stated 

that “California courts have long characterized the insured’s duty to cooperate as a condition precedent 

to coverage, not as a basis on which to assert an independent cause of action.” Archbishop of Los 

Angeles, 227 F. App’x at 644 (emphasis in original). 

Second, Centex argues the Travelers I Order failed to “grapple with any of the rebuttal 

authorities set forth in [Centex’s] reply brief.” Doc. 8 at 11. Centex cites three cases it cited in its reply 

brief, all from Texas courts. See id.

Third, Centex argues that the Travelers I Order erred in finding that “a similar—but 

distinguishable—case Travelers Property Casualty Co. of America, et al. v. Centex Homes, C 10-2757 

CRB, 2011 WL 1225982 (N.D. Cal. Apr. 1, 2011) [“the Northern District Travelers case”], is 

controlling.” Id. at 12. Centex argues that the Northern District Travelers case is inapplicable here 

because it “did not involve a cause of action for monetary damages on a breach of contract claim, but 

this case does,” and “that case involved a claim for declaratory relief about the application of an 

affirmative defense.” Id.

The Court finds these arguments unpersuasive. First, the Ninth Circuit case Archbishop of Los 

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Angeles is unpublished and is therefore not binding precedent. 227 Fed. App’x 643. Moreover, as the 

Ninth Circuit indicated in that case, whether an alleged breach of a cooperation clause can constitute a 

viable cause of action is a matter of state law. See id. at 644. Centex misconstrues the Ninth Circuit’s 

holding, arguing that the court “held that the insurers [in that case] could only ‘present their theories as 

to how the Archbishop breached its duty to cooperate as a defense to liability under the policies.’” Doc. 

8 at 14 (quoting Archbishop of Los Angeles, 227 Fed. App’x at 644) (emphasis added). However, the 

full sentence from which Centex selectively quoted reads: “For these reasons, we believe that the 

California Supreme Court would require plaintiffs to present their theories as to how the Archbishop 

breached his duty to cooperate as a defense to liability under the policies.” Id. Because the Ninth Circuit

resolved the case on other grounds, see id., the court did not conclude whether the plaintiffs could have 

stated a cause of action for breach of contract on the ground the defendant breached a cooperation clause 

in the parties’ insurance policy. Id. Rather, the court only speculated that the California Supreme Court 

would not have so allowed. Id.

Although Centex has cited a number of cases recognizing an insured’s breach of a cooperation 

clause as a valid affirmative defense for an insurer opposing an insured’s action, Centex has not cited

(and the Court is unaware of) any binding California precedent holding that an insured’s breach of a 

cooperation clause cannot, as a matter of law, form the basis of an insurer’s breach of contract claim. 

The authorities Centex cites that so hold applied Texas law, not California law, and are therefore not 

binding on this Court.

The Court did not find the Northern District Travelers case to be controlling in the Travelers I

Order, as Centex asserts. Rather, the Court found that case to be factually similar and its analysis 

persuasive. Although the plaintiffs in the Northern District Travelers case did not allege a separate cause 

of action for breach of contract,1 they sought declaratory relief that they no longer owed Centex a duty 

to defend because Centex had breached the cooperation cause. 2011 WL 1225982, at *1. 

 

1 In the Travelers I Order, the Court erred in stating that Centex was “incorrect” for asserting that “the plaintiffs in [the 

Northern District Travelers] case did not sue for breach of contract.” Travelers I Order at 8, n. 1. 

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Plaintiffs’ breach of contract cause of action alleges that Centex breached the cooperation clause, 

a contractual provision of the insurance policy. The Court finds no compelling reason why this 

allegation cannot, as a matter of law, form the basis for both an affirmative defense (if, for example, 

Centex brought suit or counterclaimed against Plaintiffs) and an independent cause of action against 

Centex for breach of contract, as Centex asserts. Other federal courts applying California law have 

found that a plaintiff-insurer’s allegation that its insured breached a cooperation clause can constitute a 

cause of action for breach of contract. See, e.g., Great Am. Ins. Co. v. Chang, No. 10-833-SC, 2012 WL

3660005, at *2 (N.D. Cal. Aug. 24, 2012); see also Travelers Property Cas. Co. of America v. Centex 

Homes, No. 11-3638-SC, 2013 WL 1411135, at *4-5 (N.D. Cal. Apr. 8, 2013). 

For example, in Sierra Pac. Indust. v. American States Ins. Co., 883 F. Supp. 2d 967, 976-77 

(E.D. Cal. Aug. 1, 2012), the plaintiff-insured filed suit against the defendant-insurer. Id. at 967. The 

defendant-insurer filed counterclaims for, among others, breach of contract based on the plaintiffinsured’s alleged breach of the cooperation clause found in the parties’ insurance policy. Id. at 970. The 

plaintiff-insured hired independent counsel to defend itself in a case and refused to relinquish control of 

its defense to the defendant-insurer. Id. at 970-72. The plaintiff-insured filed suit due to the defendantinsurer’s alleged breach of its contractual duty to defend the plaintiff-insured in the underlying litigation. 

Id. at 970. The defendant-insurer filed a counterclaim for the plaintiff-insured’s alleged “breach of the 

duty to cooperate and/or breach of contract, in which [the defendant-insurer] contends that by refusing to 

relinquish control over the lawsuit and refused to accept panel counsel rates, [the plaintiff-insured]

breached its duty to cooperate or otherwise breached the contract with [the defendant-insurer].” Id. at 

972. The plaintiff-insurer moved to dismiss the claim on the ground that “as an insurer, [the defendantinsurer] cannot maintain a cause of action against its insured for a breach of the cooperation clause.” Id.

at 973. The court denied the motion, reasoning that “[a]t [that] stage of the litigation, the Court [could] 

not find, as a matter of law, that [the defendant-insurer] cannot state a cause of action for breach of 

contract.” Id. at 976-77; see also Centex Homes v. Lexington Ins. Co., No. 3:13-CV-719, 2014 WL 

1225501, at *17 (N.D. Tex. Mar. 25, 2014) (“While an insured’s breach of a cooperation clause can act 

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as a defense to its breach of contract claim . . . California courts also recognize an affirmative cause of 

action, sounding in breach of contract, for the causes of action asserted by Defendant”) (citing id.).

In Lexington, Centex brought suit against its insurer due to the parties’ dispute over Centex’s 

defense in underlying litigation.2 Id. at 1-2. As in this case, Centex refused to accept the representation 

that the defendant-insurer asserted it was entitled to choose under the parties’ insurance policy. Id. at 2. 

The defendant-insurer asserted a counterclaim in which it alleged that Centex’s “refusal to acknowledge 

that Defendant has the right to control the defense and select counsel and its insistence that Defendant 

continue to pay the fees and costs of the law firm selected by [Centex] was a breach of [Centex’s] duty 

to cooperate under the relevant policies.” Id. at *14.

Notably, the court in Lexington explicitly rejected the arguments counsel has put forth here. 

Counsel for Centex moved to dismiss, arguing that “‘the only applicable case law treats cooperation 

clauses as conditions precedent, relieving an insurer of liability rather than creating an affirmative cause 

of action against its insured.’” Id. at *17 (quoting Centex’s motion to dismiss). The court noted that 

“Texas does not recognize an affirmative cause of action for a breach of cooperation clause or breach of 

good faith,” but held that it differed from California law, which recognizes such a cause of action. Id. at 

17-18 (“California courts also recognize an affirmative cause of action, sounding in breach of contract, 

for the causes of action asserted by Defendant”). Finding that California law applied to the defendant’s 

counterclaim, the court denied Centex’s motion to dismiss and rejected its argument that the defendant 

could not “proceed on its breach of duty to cooperate and breach of duty of good faith and fair dealing 

claims as a matter of law.” Id. at 19.

Absent controlling authority holding otherwise, the Court rejects Centex’s argument that 

Plaintiffs cannot, as a matter of law, state a claim for breach of contract on the basis of Centex’s alleged 

breach of the cooperation clause.

 

2 The Court notes that Lexington was brought by Centex with the same law firm (albeit with different attorneys at different 

firm offices), see 2014 WL 1225501, yet counsel here did not cite to this case in its pleadings, even though it was decided 

less than three months ago. The Court ADMONISHES Centex’s counsel to respect the limited time and resources of this 

Court by discontinuing litigation of arguments that it knows (or should have known) are unavailing.

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Centex argues that, even if Plaintiffs could state a cause of action for breach of contract, such a 

claim would be premature because it “hinges on the Court’s adjudication of a dispute about whether 

Centex is entitled to independent counsel [in the underlying action].” Doc. 8 at 16. Centex maintains that 

“[u]ntil the independent counsel issue is resolve, Plaintiffs cannot allege any lack of cooperation by 

Centex.” Id. Centex further argues that “even if the Court were to adjudicate the independent counsel 

question against Centex, Plaintiffs still could not state a claim unless Centex continued to refuse panel 

counsel after the Court resolves the issue.” Id. Further, Centex asserts that Plaintiffs’ declaratory relief 

claim fails because must allege they were prejudiced by Centex’s refusal of Plaintiffs’ counsel, but they 

failed to do so.

Finally, Centex asserts that Travelers cannot, as a matter of law, premise a breach of contract 

claim on Centex’s alleged breach of the cooperation clause because “it cannot result in any monetary 

damages to Travelers.” Doc. 11 at 7. Centex claims this is so because any breach of the cooperation 

clause by Centex could result in Centex losing policy benefits, but “cannot result in any monetary 

damages to Travelers.” Id.

The Court finds these arguments are without merit. Although Plaintiffs’ breach of contract claim 

appears contingent on a finding that Plaintiffs are entitled to choose Centex’s counsel in the underlying 

action, this does not render the claim premature. Centex does not dispute that it has already refused to 

permit Plaintiffs to appoint counsel of their choosing, and Plaintiffs allege that refusal breached the 

insurance policy’s cooperation clause and prejudiced Plaintiffs’ ability to provide Centex with a defense. 

The Court finds these facts alone provide a basis for Plaintiffs to state a claim for breach of contract and 

for declaratory relief. Plaintiffs need not demonstrate substantial prejudice, as Centex asserts. A showing 

of substantial prejudice would only be necessary for Plaintiffs to prove they are excused from their 

duties to defend Centex due to its breach of the cooperation clause. See Truck Ins. Exch. v. Unigard Ins. 

Co., 79 Cal. App. 4th 966, 976 (2000). At this stage in the litigation, the Court cannot make such 

findings of fact. The Court notes, however, that other courts have found that Centex’s refusal of counsel

in similar litigation substantially prejudiced its insurer as a matter of law. See, e.g., Travelers Property v. 

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Centex Homes, No. 10-2757, 2011 WL 1225982, at *7, *10 (Apr. 1, 2011). 

Likewise, the Court rejects Centex’s argument that Plaintiffs have failed to allege they have 

suffered damages as a result of Centex’s alleged breach of the cooperation clause. Plaintiffs allege that, 

as a result of Centex’s alleged breach, Centex insists Plaintiffs pay the fees and costs of Centex’s

independent counsel, which has impeded Plaintiffs’ ability to provide Centex with a defense in the 

underlying litigation and “a loss of policy benefits.” Centex asserts Plaintiffs cannot assert a breach of 

contract claim based on this alleged breach because it “cannot result in any monetary damages.” At this 

stage in the litigation, the Court cannot make such a factual determination. 

Thus, for the foregoing reasons and those more thoroughly discussed in the Travelers I Order, 

Centex’s motion to dismiss is GRANTED IN PART and DENIED IN PART. Specifically, the Court 

DENIES Centex’s motion to dismiss Plaintiffs’ first and second causes of action and GRANTS Centex’s 

motion to dismiss Plaintiffs’ third cause of action. Plaintiffs shall file any amended complaint within 20 

days of electronic service of this order, but will be given only one chance to do so if it wishes. This 

Court is not, and should not be, a service for writing pleadings for parties by having to rule on pleading 

decisions more than once. 

SO ORDERED

Dated: June 18, 2014

 /s/ Lawrence J. O’Neill

United States District Judge

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