The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
STATE FARM FIRE AND CASUALTY 3:19-cv-00972-BR
COMPANY, an Illinois Company,
OPINION AND ORDER
Plaintiff,
v.
EVANS CONSTRUCTION & SIDING
CORP., an Oregon corporation,
Defendant.
DAVID P. ROSSMILLER
ELISS M. BOYD
Betts, Patterson & Mines, P.S.
111 S.W. 5th Ave., Suite 3650
Portland, OR 97204
(503) 961-6338
Attorneys for Plaintiff
EMILY S. MILLER
RACHEL C. NIES
Miller Nies, LLC
422 N.W. 8th Ave., Suite B
Portland, OR 97209
(971) 255-1407
Attorneys for Defendant
BROWN, Senior Judge.
This matter comes before the Court on Defendant Evans
Construction & Siding Corp.'s Motion (#8) to Dismiss for Failure
to State a Claim (Rule 12(b)(6)). The Court concludes the
record is sufficiently developed and, therefore, oral argument
would not be helfpul to resolve this Motion.
For the reasons that follow, the Court DENIES Defendant's
Motion to Dismiss.
BACKGROUND
On June 21, 2019, Plaintiff State Farm Fire and Casualty
Company filed an action in this Court against Evans for
declaratory judgment in which it seeks an order from this Court
that it does not have a duty to defend or to indemnify Evans in
an underlying lawsuit (Underlying Lawsuit) filed in Oregon state
court. Plaintiff also alleges claims for breach of contract and
misrepresentation based on Evans's tender of defense.
I. The Underlying Lawsuit in State Court
On May 15, 2018, Irvington Garden Apartments, LLC, filed a
second amended complaint in Multnomah County Circuit Court
against Creston Homes, LLC, and others, in which it alleged
claims for negligence based on defects in the construction of
the Irvington Garden Apartments (the Construction Project) in
Portland, Oregon. Creston was the general contractor on the
Construction Project. Irvington alleges on September 26, 2017,
it notified Creston of defects in the Construction Project.
On August 22, 2018, Creston filed a third-party action
against Evans, a subcontractor on the Construction Project, in
which it alleged Evans was at least responsible in part for the
construction defects Irvington claimed. Irvington's second
amended complaint was attached as an exhibit to Creston's third-
party complaint.
II. The Declaratory-Judgment Action
As noted, State Farm filed in this Court a declaratory-
judgment action against Evans on June 21, 2019. State Farm
alleges it issued two Contractors Liability Policies (the
Policies) that named Evans as the insured and that were
effective from December 26, 2006, through December 26, 2008.
State Farm also alleges the Construction Project identified in
the Underlying Lawsuit was commenced in 2011, and the
subcontract between Evans and Creston was signed in 2011. State
Farm alleges the Policies issued to Evans had expired before the
Underlying Lawsuit was commenced, and any damages alleged in the
Underlying Lawsuit "could not have occurred during the time
periods the Policies were in effect." Accordingly, State Farm
alleges it does not have a duty to defend or to indemnify Evans
in the Underlying Lawsuit.
In addition, State Farm asserts two separate claims against
Evans for breach of contract and misrepresentation. State Farm
alleges the Cooperation Clauses of the Policies require the
insured to "cooperate with [State Farm] in the investigation,
settlement[,] or defense of the claim or suit" and that Evans
knew when it tendered defense of the Underlying Lawsuit that the
damages could not have occurred during the effective period of
the Policies. Accordingly, State Farm alleges Evans breached
its duty to cooperate in the investigation of the claims in the
Underlying Lawsuit by making a knowingly false tender of
defense.
State Farm also alleges a claim for misrepresentation that
Evans made a knowingly false representation that it was entitled
to coverage when it made the tender of defense. State Farms
asserts it relied on the false representation by Evans and was
damaged as a result of such reliance. State Farm states it is,
therefore, relieved of any performance required by the Policies
as a result of the false representation by Evans.
On August 2, 2019, Evans filed a Motion to Dismiss State
Farm's Complaint pursuant to Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim.
On August 30, 2019, the Court took Evans's Motion under
advisement.
STANDARDS
To survive a motion to dismiss a complaint must contain
sufficient factual matter, accepted as true, to “state a claim
for relief that is plausible on its face.” Bell Atlantic v.
Twombly, 550 U.S. 544, 545 (2007). A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id. at 556.
“The plausibility standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)(quoting Twombly, 550 U.S. at 546). When a
complaint is based on facts that are “merely consistent with” a
defendant's liability, it “stops short of the line between
possibility and plausibility of entitlement to relief.” Iqbal,
556 U.S. at 678 (citing Twombly, 550 U.S. at 557). See also
Bell Atlantic, 550 U.S. at 555-56. The court must accept as
true the allegations in the complaint and construe them in favor
of the plaintiff. Din v. Kerry, 718 F.3d 856, 859 (9th Cir.
2013).
The pleading standard under Federal Rule of Civil
Procedure 8 “does not require ‘detailed factual allegations,’
but it demands more than an unadorned, the-defendant-unlawfully-
harmed-me accusation.” Iqbal, 556 U.S. at 678 (quoting Twombly,
550 U.S. at 555). See also Federal Rule of Civil Procedure
8(a)(2). “A pleading that offers ‘labels and conclusions’ or ‘a
formulaic recitation of the elements of a cause of action will
not do.’” Id. (citing Twombly, 550 U.S. at 555). A complaint
also does not suffice if it tenders “naked assertion[s]” devoid
of “further factual enhancement.” Id. at 557.
“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." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th
Cir. 2007)(citing Jacobson v. Schwarzenegger, 357 F. Supp. 2d
1198, 1204 (C.D. Cal. 2004)). A court, however, "may consider a
writing referenced in a complaint but not explicitly
incorporated therein if the complaint relies on the document and
its authenticity is unquestioned." Id. (quoting Parrino v. FHP,
Inc., 146 F.3d 699,706 (9th Cir. 1998), superseded by statute on
other grounds as stated in Abrego v. Dow Chem. Co., 443 F.3d 676
(9th Cir. 2006)).
DISCUSSION
I. State Farm's Claim Regarding Its Duty to Defend
Evans contends the Court should dismiss State Farm's First
Claim for failure to state a claim regarding State Farm's
assertion that it does not have a duty to defend.
A. Standards
The insurer’s duty to defend is determined exclusively
by reference to the insurance policy and the pleadings in the
underlying action. Bresee Homes, Inc. v. Farmers Ins. Exch.,
353 Or. 112, 116 (2012). “‘An insurer has a duty to defend an
action against its insured if the claim against the insured
stated in the complaint could, without amendment, impose
liability for conduct covered by the policy.’” Bresee Homes,
353 Or. at 116 (quoting Ledford v. Gutoski, 319 Or. 397, 399-400
(1994)). The duty to defend arises if the “complaint provides
any basis for which the insurer provides coverage” even if some
of the conduct alleged in the pleadings falls outside of the
policy’s coverage. Id. (emphasis in original). “Any ambiguity
in the complaint with respect to whether the allegations could
be covered is resolved in favor of the insured.” Id.
B. Analysis
State Farm contends it has stated a plausible claim
for declaratory judgment that it does not owe a duty to defend
Evans on the ground that the Policies issued to Evans expired
years before the Construction Project began in 2011. Evans,
however, contends State Farm's theory requires the Court to
consider extrinsic evidence outside of the "eight corners" of
the Policies and the allegations in the Underlying Lawsuit,
which is not allowed under Oregon law.
Although a court is generally limited to considering
only the facts alleged in the underlying complaint and the
policy language "regardless of whether information extrinsic to
the complaint could establish that the claim at issue is not
covered" (see Ledford, 319 Or. at 400), courts recognize several
exceptions to this rule. For example, one exception allows the
court to consider "extrinsic evidence of the date a claim was
noticed to an insured when analyzing an insurer's duty to defend
under a claims-made policy." Keizer Campus Ops., LLC v.
Lexington Ins. Co., No. 6:13-cv-00165, 2013 WL 4786521, at *2
(D. Or. Sept. 5, 2013). Another limited exception applies when
there is a judicial determination that precludes coverage such
as the criminal conviction of an insured for intentional injury,
which estops the insured from claiming the injury was
unintentional. Bresee, 53 Or. at 124-25. A third exception
applies "in instances when courts are attempting to determine
whether an organization or individual was an insured under a
policy." Clarendon Am. Ins. Co. v. State Farm Fire & Cas. Co.,
No. 3:11-cv-01344, 2013 WL 54032, at *6 (D. Or. Jan. 3, 2013)
(Brown, J.). The courts have applied each of these exceptions
to determine whether the court could consider extrinsic evidence
in the context of a motion for summary judgment.
Here State Farm contends the Court may consider
extrinsic evidence in the context of Evans's Motion to Dismiss
to determine whether the Policies were in effect and whether
Evans was insured at the time it tendered defense of the
Underlying Lawsuit to State Farm. This Court agrees.
In Fred Shearer & Sons, Inc. v. Gemini Ins. Co. the
court held the plaintiff was not limited to the allegations of
the underlying complaint in order to determine whether it was
"insured" within the meaning of the policy issued by the
defendant. 237 Or. App. 468, 477 (2010). The court noted:
"The facts relevant to an insured's relationship with its
insurer may or may not be relevant to the merits of the
plaintiff's case in the underlying litigation . . . . [T]he
plaintiff often is not required to establish the nature of the
defendant's relationship to some other party or to an insurance
company in order to prove a claim." Id.
Here there would not be any reason for the plaintiff
in the Underlying Lawsuit to include facts in its complaint
about the relationship between Evans and State Farm in order to
establish liability. The current issue before this Court is
merely whether State Farm has stated a facially plausible claim
for declaratory judgment that it does not have a duty to defend
Evans in the Underlying Lawsuit. In other words, Evans's Motion
to Dismiss for Failure to State a Claim may be granted only if
there is not any cognizable legal theory to support State Farm's
claim or if State Farm's Complaint lacks sufficient factual
allegations to state a facially plausible claim. See Shroyer v.
New Cingular Wireless Svcs., Inc., 622 F.3d 1035, 1041 (9th Cir.
2010). Accordingly, State Farm is not limited to the eight
corners of the underlying complaint and the Policies to support
its allegation that it does not have a contractual duty to
defend Evans.
As noted, State Farm has alleged it issued Policies
insuring Evans during the period from December 26, 2006, through
December 26, 2008. State Farm alleges the Construction Project
commenced in 2011, and the subcontract between Evans and Creston
Homes was signed in 2011, which was more than two years after
the Policies lapsed. State Farm also alleges Evans tendered
defense of the Underlying Lawsuit and was aware that any damage
alleged in the Underlying Lawsuit did not occur during the time
the Policies were in effect.
On this record the Court concludes State Farm has
sufficiently alleged facts that state a facially plausible claim
for declaratory judgment as to its duty to defend.
II. Evans's Request to Stay State Farm's Second Claim Regarding
Its Duty to Indemnify
Evans contends State Farm's Second Claim regarding its duty
to indemnify is independent of its duty to defend, and,
accordingly, the Court should stay determination of State Farm's
Second Claim pending resolution of the Underlying Lawsuit
because there is a "possibility of prejudice" to Evans in the
Underlying Lawsuit.
Evans does not appear to seek dismissal of State Farm's
Second Claim regarding the duty to indemnify, but only requests
the Court to stay that claim pending resolution of the
Underlying Lawsuit. Thus, the only question for the Court at
this stage is whether the Court should stay resolution of State
Farm's Second Claim that it does not have a duty to indemnify
Evans.
A. Standards
A federal district court has the inherent power to
control its own docket and calendar. Mediterranean Enter., Inc.
v. Ssangyong Constr. Corp., 708 F.2d 1458, 1465 (9th Cir.
1983). See also Kee Action Sports, LLC v. Syang Huei Indus.
Co., Ltd., No. 3:14-cv-00071-HZ, 2014 WL 2506496, at *4 (D. Or.
June 2, 2014); Fed. R. Civ. P. 16. The district court must
weigh the following competing interests to determine whether to
exercise its discretion to stay proceedings:
[T]he possible damage which may result from the
granting of a stay, the hardship or inequity
which a party may suffer in being required to go
forward, and the orderly course of justice
measured in terms of simplifying or complicating
issues, proof, and questions of law which could
be expected from a stay.
CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962)(citing
Landis v. N. Am. Co., 299 U.S. 248, 254-55 (1936)). See also
Lockyer v. Mirant Corp., 398 F.3d 1098, 1110 (9th Cir. 2005).
B. Analysis
The Oregon court of appeals in North Pacific Insurance
Co. v. Wilson's Distributing Service, Inc., held the trial court
should have stayed the insurer's declaratory-judgment action to
the extent that it sought to determine whether the insurer had a
duty to indemnify its insured in an underlying case based on
additional evidence outside of the underlying complaint. 138
Or. App. 166, 175 (1995), rev. denied, 323 Or. 264 (1996). The
court noted the declaratory-judgment action put the insured in
the position of being required to abandon denial of liability in
the underlying lawsuit in order to come within the exception to
the policy exclusion in the declaratory-judgment action. Id.
Here Evans does not point to any evidence that it
would be prejudiced in the Underlying Lawsuit by this Court's
determination as to whether State Farm has a duty to indemnify
Evans. Moreover, Evans does not point to any evidence that it
would be prejudiced in the Underlying Lawsuit if it is required
to proceed in this Court on State Farm's claim for declaratory
judgment regarding State Farm's duty to indemnify. In fact,
Evans states even if it "concede[d] that State Farm has no duty
to indemnify Evans in the Underlying Lawsuit, this does not
affect State Farm's ongoing duty to defend."
Although Evans does not challenge the plausibility of
State Farm's Second Claim, the Court also concludes based on its
review of State Farm's Complaint that State Farm has
sufficiently alleged facts that state a facially plausible claim
for declaratory judgment regarding its duty to indemnify.
Accordingly, in the exercise of its discretion, the
Court denies Evans's request to stay the Court's determination
of State Farm's duty-to-indemnify claim.
III. State Farm's Claims for Breach of Contract and
Misrepresentation
Evans contends the Court should dismiss State Farm's Third
Claim for breach of contract and Fourth Claim for
misrepresentation for failure to state a claim. Evans contends
its tender of defense to State Farm on which these two claims
are based "does not include the key fact on which these claims
rest"; i.e., a false representation that Evans was entitled to
coverage.
A. Background
On September 4, 2018, Evans, through its attorney,
tendered defense of the Underlying Lawsuit to State Farm. The
tender of defense stated: "I am defending the State Farm
insured [Evans] as personal counsel. The insured has asked that
I tender defense of this claim to State Farm. Based on the
pleadings, it appears State Farm has a duty to defend. Please
let me know if you have any questions." Decl. of Rachel Nies
(#8-1), Ex. 1.
B. Analysis
Evans contends State Farm has not alleged a sufficient
factual basis to support either its breach-of-contract or
misrepresentation claim. Evans contends its tender of defense
was "based on the pleadings," does not assert damages that may
have occurred during the period of the Policies, and does not
make any false representation. Evans asserts State Farm cannot
meet any of the requirements necessary to rescind the Policies,
and the mere act of Evans tendering defense is insufficient to
support either of these claims.
As noted, State Farm alleges the Cooperation Clauses
in the Policies provide: "You and any other involved insured
must . . . cooperate with us in the investigation, settlement or
defense of the claim or suit . . . ." State Farm also alleges
the Concealment, Misrepresentation or Fraud conditions in the
Policies provide:
[T]his entire policy will be void . . .
(a.) if, whether before or after a loss, you have
willfully concealed or misrepresented any
material fact or circumstance concerning:
(1) this insurance or the subject of it; or
(2) your interest in it; or (b.) in the case of
any false swearing by you relating to this
insurance.
When a plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged, the claim has facial
plausibility. Twombly, 550 U.S. at 556. State Farm asserts
Evans knew or should have known the Policies were not in effect
when it tendered the defense of the Underlying Lawsuit. State
Farm alleges Evans, therefore, knowingly made a false tender of
defense that breached the duty to cooperate and knowingly made a
false representation that voided the Policies. State Farm
contends these allegations must be taken as true for purposes of
this Motion, and, therefore, it has sufficiently stated
plausible claims against Evans at this stage of the proceedings.
On this record the Court concludes State Farm has
pleaded factual content sufficient to state facially plausible
claims for breach of contract and misrepresentation against
Evans.
CONCLUSION
For these reasons, the Court DENIES Defendant's Motion (#8)
to Dismiss for Failure to State a Claim.
The Court DIRECTS Defendant Evans to file no later than
October 11, 2019, its Answer in response to State Farm's
Complaint. The Court will set a Rule 16 Conference in due
course thereafter.
IT IS SO ORDERED.
DATED this 26th day of September, 2019.
/s/ Anna J. Brown
_________________________________
ANNA J. BROWN
United States Senior District Judge