FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

RAYMOND MANZAREK; DOORS 

TOURING, INC., a California

corporation, No. 06-55936 Plaintiffs-Appellants,

D.C. No.

v.  CV-06-02082-R

ST. PAUL FIRE & MARINE OPINION INSURANCE COMPANY, a Minnesota

corporation,

Defendant-Appellee. 

Appeal from the United States District Court

for the Central District of California

Manuel L. Real, District Judge, Presiding

Argued and Submitted

February 11, 2008—Pasadena, California

Filed March 25, 2008

Before: Alfred T. Goodwin, Betty B. Fletcher, and

N. Randy Smith, Circuit Judges.

Opinion by Judge N.R. Smith

2971
COUNSEL

Kirk A. Pasich, Esq., Dickstein Shapiro LLP, Los Angeles,

California, for the plaintiffs-appellants. 

Andrew R. McCloskey, Esq., Riedl, McCloskey & Waring

LLP, San Diego, California, for the defendant-appellee. 

OPINION

N.R. Smith, Circuit Judge: 

We hold that the district court erred by dismissing Raymond Manzarek’s and Doors Touring, Inc.’s (“DTI”)

amended complaint because the underlying complaints raised

at least the potential for coverage under the operative insurance policies. We further hold that the district court abused its

discretion by not giving Manzarek and DTI an opportunity to

amend their complaint. We have jurisdiction under 28 U.S.C.

§ 1291. We reverse and remand for further proceedings.

I. Background

A. Underlying Lawsuits 

This insurance coverage and bad faith lawsuit arose out of

two lawsuits (“Underlying Lawsuits”) filed in California state

court against Manzarek (a founding member of the classic

rock group The Doors), DTI, and the other members of Manzarek’s band at the time of the filing of the lawsuits. John

Densmore (the former drummer for The Doors) filed one of

the Underlying Lawsuits (“Densmore Lawsuit”). The parents

of Jim Morrison (the former vocalist for The Doors) and the

parents of Pamela Courson (Morrison’s late wife) together

filed the other underlying lawsuit (“Courson Lawsuit”). Both

Underlying Lawsuits alleged that Manzarek and members of

MANZAREK v. ST. PAUL FIRE & MARINE INS. 2975
his band were liable for infringing on The Doors name, trademark, and logo in conjunction with their planned national and

international tours. Both Underlying Lawsuits included allegations against Manzarek and DTI for the improper use of

The Doors logo in conjunction with the marketing of products

and merchandise. Additionally, the Densmore Lawsuit alleged

that the breaches by Manzarek and his band caused Densmore

to suffer economic damages as well as damage to his “reputation and stature by causing people to believe that he was not,

and is not, an integral and respected part of The Doors band,

or is one member who easily can be replaced by another

drummer.” 

The state trial court consolidated the Underlying Lawsuits

for trial but reserved some equitable claims for determination

by the court. At trial, the jury found Manzarek and the other

defendants liable on some claims but awarded no damages.

The record before us is not clear what result the state trial

court reached on the equitable claims that it removed from the

jury’s consideration. Manzarek’s and DTI’s defense fees and

costs in the Underlying Lawsuits exceeded $3 million. 

B. The Policies 

From May 24, 2002 to May 24, 2003, St. Paul Fire &

Marine Insurance Company (“St. Paul”) insured Manzarek

only under a commercial general liability policy (“Manzarek

Policy”). The Manzarek Policy was effective beginning on

May 24, 2002 but St. Paul did not issue it until October 3,

2002. From December 30, 2002 to December 30, 2003, St.

Paul insured Manzarek, DTI, and Robert Krieger1 under

another commercial general liability policy (“DTI Policy”).

The DTI Policy was effective beginning on December 30,

2002, but St. Paul did not issue it until February 19, 2003. It

1The policy lists “Robbie Creeder” as an insured. This appears to be a

typographical error as Robert Krieger is a founding member of The Doors

and was part of Manzarek’s new band. 

2976 MANZAREK v. ST. PAUL FIRE & MARINE INS.
is not clear from our review of the record when St. Paul actually delivered copies of the Manzarek Policy or the DTI Policy to its insureds, though the complaint in this action alleges

that St. Paul did not deliver the DTI Policy until sometime

after February 28, 2003. 

Among other things, both of the commercial general liability policies (“Policies”) insured against the occurrence of

“bodily injury,” “property damage,” “personal injury,” and

“advertising injury.” Manzarek and DTI argue, and St. Paul

concedes, that some of the alleged conduct falls within the

“advertising injury” portion of the Policies. That portion of

the Policies contains the following provisions: 

Advertising injury liability. We’ll pay amounts any

protected person is legally required to pay as damages for covered advertising injury that: 

• results from the advertising of your products,

your work, or your completed work; and

• is caused by an advertising injury offense committed while this agreement is in effect.

Advertising injury offense means any of the following offenses: 

• Libel, or slander, in or with covered material.

• Making known to any person or organization

covered material that disparages the business,

premises, products, services, work, or completed

work of others.

• Making known to any person or organization

covered material that violates a person’s right of

privacy.

MANZAREK v. ST. PAUL FIRE & MARINE INS. 2977
• Unauthorized use of any advertising idea or

advertising material, or any slogan or title, of others in your advertising. 

Advertising means attracting the attention of others

by any means for the purpose of: 

• seeking customers or supporters; or

• increasing sales or business. 

Advertising idea means a manner or style of advertising that others use and intend to attract attention

in their advertising. 

But we won’t consider information used to identify

or record customers or supporters, such as a list of

customers or supporters, to be an advertising idea.

Advertising material means any covered material

that: 

• is subject to copyright law; and

• others use and intend to attract attention in their

advertising. 

Both Policies also contain a Field of Entertainment Limitation Endorsement (“FELE”) which “changes [the insured’s]

Commercial General Liability Protection” and “reduces coverage.” In relevant part, the FELE “reduces coverage” as follows: 

Field of Entertainment. We won’t cover personal

injury or advertising injury that results from the content of, or the advertising or publicizing for, any

Properties or Programs which are within your Field

of Entertainment Business. 

2978 MANZAREK v. ST. PAUL FIRE & MARINE INS.
Properties or Programs means any of your properties, products, programs, materials or other matter. 

Field of Entertainment Business includes the following; 

• The creation, production, publication, distribution, exploitation, exhibition, advertising and

publicizing of product or material in any and all

media such as motion pictures of any kind and

character, television programs, commercials or

industrial or educational or training films, phonograph records, audio or video tapes, CDs or CD

ROMs, computer on-line services or internet or

Web site pages, cassettes or discs, electrical transcriptions, music in sheet or other form, live performance, books or other publications. 

• The ownership, operation, maintenance or use of

radio and television broadcasting stations. CATV

systems, cinemas, stage productions with living

actors, and any similar exhibition or broadcast

media.

• The ownership, operation maintenance or use of

merchandising programs, advertising or publicity

material, characters or ideas: whether or not on

your premises or in your possession at the time of

the alleged offense. 

As referenced above, both Policies also insured against the

occurrence of “bodily injury.” The Policies define “bodily

injury” to mean “any physical harm, including sickness or disease, to the physical health of other persons.” The Policies

include mental anguish, injury, or illness, and emotional distress in the definition of covered “bodily injuries.” 

MANZAREK v. ST. PAUL FIRE & MARINE INS. 2979
C. The Instant Action

On February 5, 2003, Manzarek and DTI notified St. Paul

of the Densmore Lawsuit. St. Paul responded by letter on February 18, 2003. That letter notified Manzarek and DTI that,

although St. Paul was still investigating coverage issues, its

preliminarily determination was that the Policies did not cover

the Densmore Lawsuit. According to the complaint, St. Paul

delivered this letter before it issued the DTI Policy or delivered a copy of it to its insureds. St. Paul did not issue the DTI

Policy until February 19, 2003—nearly two weeks after Manzarek and DTI tendered a copy of the Densmore Lawsuit to

St. Paul. The complaint also alleges that St. Paul preliminarily

denied coverage before it considered the language contained

in either of the Policies. 

On March 5, 2003, St. Paul notified Manzarek and DTI that

both Policies contained the FELE. St. Paul denied coverage

and refused to defend the Densmore Lawsuit on that basis. On

March 19, 2003, St. Paul reiterated the applicability of the

FELE and notified Manzarek and DTI that the Policies did not

obligate it to defend or indemnify the Densmore Lawsuit. 

Thereafter, Manzarek and DTI tendered the Courson Lawsuit to St. Paul. On May 6, 2003, St. Paul advised its insureds

that the Policies did not provide coverage for the Courson

Lawsuit. St. Paul therefore denied coverage and declined to

defend the Courson Lawsuit based on its interpretation of the

FELE. In the months that followed, Manzarek and DTI continued to demand a defense under the Policies and St. Paul

persisted in its refusal to defend or indemnify its insureds. 

Manzarek and DTI filed this coverage and bad faith lawsuit

against St. Paul in Los Angeles Superior Court approximately

two years later. On April 5, 2006, Manzarek and DTI voluntarily amended their complaint. The amended complaint contained claims against St. Paul for (1) breach of contract; (2)

2980 MANZAREK v. ST. PAUL FIRE & MARINE INS.
breach of the implied covenant of good faith and fair dealing;

and (3) declaratory relief. 

St. Paul removed the action to the United States District

Court on April 6, 2006. On April 11, 2006, St. Paul filed a

motion to dismiss the first amended complaint pursuant to

Rule 12(b)(6) of the Federal Rules of Civil Procedure. The

district court heard argument on St. Paul’s motion to dismiss

on May 15, 2006 and entered a two-line docket entry granting

the motion to dismiss that same day. The docket entry by the

district court states that “[t]he court GRANTS the motion.

Defendants shall submit a proposed order.” On May 18, 2006,

St. Paul provided the district court with a proposed order

granting the motion to dismiss with prejudice. 

The district court signed St. Paul’s proposed order on May

19, 2006. The clerk entered the order on May 22, 2006. That

order dismissed with prejudice Manzarek’s and DTI’s claims

for breach of contract and breach of the implied covenant of

good faith and fair dealing, holding that the FELE was conspicuous, plain, clear, and unambiguous. Consequently, the

district court held that St. Paul owed Manzarek and DTI no

duty to defend or indemnify against the claims in the Underlying Lawsuits. Additionally, the district court found that

“[a]mendment of Plaintiffs’ First Amended Complaint would

be futile because plaintiffs would be unable to allege facts that

would alter these strictly legal determinations.” 

Manzarek and DTI appeal the district court’s order granting

the motion to dismiss. Manzarek and DTI contend that the

district court erred by (1) holding that no duty to defend

existed under the Policies; (2) dismissing their claim for

breach of contract; and (3) dismissing their claim for breach

of the implied covenant of good faith and fair dealing. Alternatively, Manzarek and DTI argue that the district court

should have allowed them the opportunity to amend their

complaint to state a viable claim for relief against St. Paul.

MANZAREK v. ST. PAUL FIRE & MARINE INS. 2981
Manzarek and DTI argue that the district court abused its discretion by not giving them a chance to amend. 

II. Standard of Review

We review de novo the district court’s decision to grant St.

Paul’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). See Outdoor Media Group, Inc. v. City of

Beaumont, 506 F.3d 895, 899 (9th Cir. 2007) (internal citation

omitted). “When ruling on a motion to dismiss, we may ‘generally consider only allegations contained in the pleadings,

exhibits attached to the complaint, and matters properly subject to judicial notice.’ ” Id. at 899-900 (quoting Swartz v.

KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007)). We accept

factual allegations in the complaint as true and construe the

pleadings in the light most favorable to the nonmoving party.

Id. at 900. We need not accept as true conclusory allegations

that are contradicted by documents referred to in the complaint. Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136,

1139 (9th Cir. 2003) (internal citation omitted). 

“Denial of leave to amend is reviewed for an abuse of discretion.” Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir.

2002). “ ‘Dismissal without leave to amend is improper unless

it is clear, upon de novo review, that the complaint could not

be saved by any amendment.’ ” Id. (quoting Polich v. Burlington N., Inc., 942 F.2d 1467, 1472 (9th Cir. 1991)). 

III. Discussion

In this diversity case, we must apply California law when

interpreting the Policies. See Aetna Cas. & Sur. Co., Inc. v.

Centennial Ins. Co., 838 F.2d 346, 350 (9th Cir. 1988). Interpretation of insurance contracts under California law requires

us to employ general principles of contract interpretation.

MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1212 (Cal.

2003); Safeco Ins. Co. of Am. v. Robert S., 28 P.3d 889, 893

(Cal. 2001). Under California law, we are to give effect to the

2982 MANZAREK v. ST. PAUL FIRE & MARINE INS.
“mutual intention of the parties at the time the contract is

formed.” MacKinnon, 73 P.3d at 1213; see Cal. Civ. Code

§ 1636. 

Clear, explicit, and unambiguous contractual language governs. See Boghos v. Certain Underwriters at Lloyd’s of London, 115 P.3d 68, 71 (Cal. 2005); Cal. Civ. Code § 1638. In

the event of an ambiguity, we must interpret contractual terms

to “protect the objectively reasonable expectations of the

insured.” Boghos, 115 P.3d at 71 (internal quotation marks

and citations omitted). “Only if these rules do not resolve a

claimed ambiguity do we resort to the rule that ambiguities

are to be resolved against the insurer.” Id. 

A. Breach of Contract

Manzarek and DTI assert that the district court erred by dismissing their claim for breach of contract with prejudice

because the allegations in the Underlying Lawsuits triggered

a contractual duty to defend. For the reasons set forth below,

we agree. 

1. Applicable Law

a. Scope of Duty to Defend

[1] Under California law, an insurer must defend its insured

“if the underlying complaint alleges the insured’s liability for

damages potentially covered under the policy, or if the complaint might be amended to give rise to a liability that would

be covered under the policy.” Montrose Chem. Corp. v. Superior Court, 861 P.2d 1153, 1160 (Cal. 1993) (citation omitted). The duty to defend is broader than the duty to indemnify.

Id. at 1157. Even if no damages are awarded, the duty to

defend may still exist. Id. “ ‘The determination whether the

insurer owes a duty to defend usually is made in the first

instance by comparing the allegations of the complaint with

the terms of the policy.’ ” Id. (quoting Horace Mann Ins. Co.

MANZAREK v. ST. PAUL FIRE & MARINE INS. 2983
v. Barbara B., 846 P.2d 792, 795 (Cal. 1993)). “Any doubt as

to whether the facts establish the existence of the defense duty

must be resolved in the insured’s favor.” Montrose Chem.

Corp., 861 P.2d at 1160. If any of the claims in the underlying

complaint are covered, the insurer has a duty to defend the

entire action. Horace Mann Ins. Co., 846 P.2d at 797-98. The

court may consider facts outside the complaint “ ‘when they

reveal a possibility that the claim may be covered by the policy.’ ” Id. at 795.

b. Enforceability of Coverage Limitations 

[2] “[I]nsurance coverage is interpreted broadly so as to

afford the greatest possible protection to the insured,

[whereas] exclusionary clauses are interpreted narrowly

against the insurer.” MacKinnon, 73 P.3d at 1213 (internal

quotation marks and citation omitted) (bracketed text in original); see Mariscal v. Old Republic Life Ins. Co., 50 Cal. Rptr.

2d 224, 227 (Cal. Ct. App. 1996) (recognizing that “exclusions are strictly interpreted against the insurer”). An “exclusionary clause must be conspicuous, plain and clear.”

Mackinnon, 73 P.3d at 1213 (internal quotation marks and

citation omitted). “This rule applies with particular force

when the coverage portion of the insurance policy would lead

an insured to reasonably expect coverage for the claim purportedly excluded.” Id. “The burden is on the insured to establish that the claim is within the basic scope of coverage and

on the insurer to establish that the claim is specifically excluded.” Id. “Coverage may be limited by a valid endorsement

and, if a conflict exists between the main body of the policy

and an endorsement, the endorsement prevails.” Haynes v.

Farmers Ins. Exch., 89 P.3d 381, 385 (Cal. 2004).

2. Analysis

The district court signed and entered St. Paul’s proposed

order granting St. Paul’s motion to dismiss the claim for

breach of contract. The order states that “[t]he FELE was suf2984 MANZAREK v. ST. PAUL FIRE & MARINE INS.
ficiently conspicuous” and notes that “[i]n addition to being

conspicuously referenced in the policy declarations and

attached as a separate endorsement, the language of the FELE

[was] plain and clear.” The district court then concluded that

based on the plain and clear language of the FELE, it was reasonable for St. Paul to believe its insureds understood the limiting effect of the FELE on advertising injury coverage under

the Policies. Based on that conclusion, the district court dismissed the breach of contract claim with prejudice. 

[3] The fundamental problem with the district court’s decision is that it fails to apply the language of the FELE to the

factual allegations contained in the complaints filed in the

Underlying Lawsuits. The FELE excludes coverage for the

“advertising or publicizing for, any Properties or Programs

which are within your Field of Entertainment Business.” Contrary to the interpretation adopted by the district court, the

definition of Field of Entertainment Business is not broad

enough to cover the entirety of the allegations in the Underlying Lawsuits. In relevant part, the Policies define “Field of

Entertainment Business” as follows:

The creation, production, publication, distribution,

exploitation, exhibition, advertising and publicizing

of product or material in any and all media such as

motion pictures of any kind and character, television

programs, commercials or industrial or educational

or training films, phonograph records, audio or video

tapes, CDs or CD ROMs, computer on-line services

or internet or Web site pages, cassettes or discs, electrical transcriptions, music in sheet or other form,

live performance, books or other publications. 

(Emphasis added). 

[4] California law requires us to adopt a narrow construction of the FELE. With such narrow construction, the FELE

would not exclude advertising injury coverage if, for example,

MANZAREK v. ST. PAUL FIRE & MARINE INS. 2985
Manzarek and DTI began distributing “The Door’s Own” line

of salad dressing.2 Advertising injury coverage for such a

product would still exist because Manzarek and DTI would

not necessarily publicize, distribute, exploit, exhibit, or advertise in media such as motion pictures, etc. For similar reasons,

the FELE would not completely exclude advertising injury

coverage if Manzarek and DTI began marketing a line of tshirts or electric guitars with The Doors logo or Morrison’s

likeness on them. Although marketing these products would

undoubtedly expose Manzarek and DTI to a claim for advertising injury, Manzarek and DTI would still enjoy advertising

injury coverage under the Policies. 

[5] In this case, the Underlying Lawsuits allege that Manzarek and DTI marketed products and merchandise at their

concerts and on The Doors official website. The Underlying

Lawsuits, however, are silent about what type of products and

merchandise that Manzarek and DTI produced and marketed.

For all St. Paul knew when it denied coverage, the products

marketed by Manzarek and DTI included guitars, t-shirts, and

perhaps (although we realize it is not likely) salad dressing

bottles with The Doors logo and/or Morrison’s likeness

affixed to them. These allegations raised a potential for coverage under the Policies and, for that reason, the district court

erred by summarily dismissing Manzarek’s and DTI’s breach

of contract claim. 

[6] Additionally, the district court erred by dismissing the

breach of contract claim because the Underlying Lawsuits

raised a potential for coverage under the “bodily injury” portion of the Policies. The Densmore Lawsuit contained an allegation that Manzarek’s and DTI’s actions caused damage to

Densmore’s “reputation and stature by causing people to

believe that he was not, and is not, an integral and respected

2St. Paul uses “The Doors Own” salad dressing as an example of a product that Manzarek and DTI could market and still enjoy advertising injury

coverage under the Policies. 

2986 MANZAREK v. ST. PAUL FIRE & MARINE INS.
part of The Doors band, or is one member who easily can be

replaced by another drummer.” This allegation was sufficient

to raise the potential of an award of mental anguish or emotional distress damages. For that additional reason, the district

court erred by dismissing the breach of contract claim. 

[7] Finally, the district court held that dismissal was appropriate because “[s]ince the FELE was conspicuous, plain and

clear, it was reasonable for St. Paul to believe the insured

understood it.” We also find this problematic, because we

must take the allegations in the complaint as true. The complaint makes clear that St. Paul had not yet delivered or issued

the DTI Policy to Manzarek and/or DTI when Manzarek and

DTI demanded coverage under the Policies. The record is

silent about when St. Paul delivered the Manzarek Policy. It

should go without saying that an insured cannot be deemed to

reasonably understand the terms of a policy he or she has not

seen or fully comprehend the exclusionary language of a policy that has not yet been issued. In light of those facts, again

under the deferential standard of review applicable to a

motion to dismiss, it is far from clear that “it was reasonable

for St. Paul to believe the insured understood” the impact of

the FELE on advertising and personal injury coverage. Thus,

it was error for the district court to adopt St. Paul’s proposed

order and dismiss the breach of contract claim. 

B. Breach of the Implied Covenant of Good Faith and

Fair Dealing 

The entirety of the district court’s analysis regarding its

decision to dismiss Manzarek’s and DTI’s claim for breach of

the implied covenant of good faith and fair dealing is encapsulated in the following sentence: “St. Paul did not breach the

covenant of good faith and fair dealing in denying coverage

or in declining to defend the Underlying Actions as a matter

of law.” This holding was in error. 

[8] California law is clear, that without a breach of the

insurance contract, there can be no breach of the implied covMANZAREK v. ST. PAUL FIRE & MARINE INS. 2987
enant of good faith and fair dealing. Waller v. Truck Ins.

Exch., Inc., 900 P.2d 619, 638-39 (Cal. 1995). In Waller, the

California Supreme Court stated that:

It is clear that if there is no potential for coverage

and, hence, no duty to defend under the terms of the

policy, there can be no action for breach of the

implied covenant of good faith and fair dealing

because the covenant is based on the contractual

relationship between the insured and the insurer. 

Id. at 639; see also Am. Med. Int’l, Inc. v. Nat’l Union Fire

Ins. Co. of Pittsburgh, 244 F.3d 715, 720 (9th Cir. 2001)

(“Without a right to coverage, the Waller court concluded,

there is no obligation the insurer may frustrate.”). 

[9] As discussed above, the district court erred by dismissing the claim for breach of contract. In light of our holding

regarding the viability of that claim, the district court also

erred by summarily dismissing the claim for breach of the

implied covenant of good faith and fair dealing.

C. Leave to Amend 

[10] The district court also abused its discretion by failing

to allow Manzarek and DTI an opportunity to amend. “Dismissal without leave to amend is improper unless it is clear,

upon de novo review, that the complaint could not be saved

by any amendment.” Steckman v. Hart Brewing, Inc., 143

F.3d 1293, 1296 (9th Cir. 1998) (internal quotation marks,

brackets, and citation omitted). “The decision of whether to

grant leave to amend nevertheless remains within the discretion of the district court, which may deny leave to amend due

to ‘undue delay, bad faith or dilatory motive on the part of the

movant, repeated failure to cure deficiencies by amendments

previously allowed, undue prejudice to the opposing party by

virtue of allowance of the amendment, [and] futility of

amendment.’ ” Leadsinger, Inc. v. BMG Music Publ’g., 512

2988 MANZAREK v. ST. PAUL FIRE & MARINE INS.
F.3d 522, 532 (9th Cir. 2008) (quoting Foman v. Davis, 371

U.S. 178, 182 (1962)). “An outright refusal to grant leave to

amend without a justifying reason is, however, an abuse of

discretion.” Id. (internal citation omitted). 

[11] Here, the district court abused its discretion, because

Manzarek and DTI only learned that the district court would

not allow them an opportunity to remedy any perceived

defects in the complaint after St. Paul submitted its proposed

order, and the district court summarily signed and entered it.

The district court never explained at a hearing that it intended

to dismiss the complaint with prejudice. The district court’s

docket entry (granting the motion to dismiss) also did not

reflect that the dismissal would be without leave to amend. 

Though the district court signed an order, stating that

“[a]mendment of Plaintiffs’ First Amended Complaint would

be futile because plaintiffs would be unable to allege facts that

would alter these strictly legal determinations,” it never

allowed Manzarek and DTI a chance to explain how they

could amend the complaint if allowed to do so. Indeed,

according to the record before us on appeal, it appears that the

district court did not even consider the viability of any potential amendments to the complaint before dismissing the complaint with prejudice. 

At the appellate hearing, Manzarek’s and DTI’s counsel

suggested that Manzarek and DTI could have made several

factual amendments and clarifications to undermine St. Paul’s

argument that the FELE excluded all potential for coverage

under the Policies. Manzarek and DTI argued that they might

have amended the complaint (1) to identify the products that

they marketed to make clear that the FELE did not exclude

advertising injury coverage for those products; (2) to allege

that they were not told of the applicability of the FELE at the

time they purchased the Policies; (3) to allege that St. Paul

misrepresented the terms of the Policies at the time they purchased the Policies; or (4) to allege that the FELE makes the

MANZAREK v. ST. PAUL FIRE & MARINE INS. 2989
Policies unconscionable. We express no view on the viability

of these potential amendments or whether the complaint can

stand without amendment. The district court should have the

opportunity to reconsider its ruling on the original complaint

and to consider the proposed amendments in the first instance.

[12] This record does not evidence any other reason to deny

leave to amend. There was no indication of undue delay, bad

faith, or dilatory motive on the part of Manzarek or DTI. See

Leadsinger, Inc., 512 F.3d at 532. There was also no showing

of prejudice to St. Paul by allowing an amendment. Id.

Instead, the opposite was true. The action had been in federal

court for less than two months when the district court dismissed the claims with prejudice. Trial was not fast approaching. In summary, nothing in the record justified the district

court’s decision to enter dismissal with prejudice. The district

court summarily signed and entered a written order proposed

by St. Paul including such relief. The district court therefore

abused its discretion by refusing to allow Manzarek and DTI

an opportunity to amend their complaint before entering final

judgment against them. 

IV. Conclusion

We therefore reverse and remand the district court’s order

granting St. Paul’s motion to dismiss. Taking the allegations

in the complaint as true, Manzarek and DTI stated a viable

claim for breach of contract against St. Paul. As a result, the

district court erred by dismissing Manzarek’s and DTI’s

claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Lastly, the district court

abused its discretion by failing to allow Manzarek and DTI

the opportunity to amend. 

REVERSED.

2990 MANZAREK v. ST. PAUL FIRE & MARINE INS.