Allstate Insurance Company v. Richard Thacher

FILED
NOT FOR PUBLICATION MAR 26 2013

MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS

FOR THE NINTH CIRCUIT

ALLSTATE INSURANCE COMPANY, Nos. 11-56208, 11-56321
an Illinois Corporation,
D.C. No. 2:08-cv-03326-RSWL-
Plaintiff-counter-defendant - FMO
Appellee-Cross-Appellant,

v. MEMORANDUM *

RICHARD THACHER, an individual;
VALERIE ANN THACHER, an
individual; GUADALUPE TRUJILLO, an
individual,

Defendants-counter-claimants
-Cross Appellants- Appellees.

Appeal from the United States District Court
for the Central District of California
Ronald S.W. Lew, Senior District Judge, Presiding

Argued and Submitted February 5, 2013
Pasadena, California

Before: PREGERSON, W. FLETCHER, and NGUYEN, Circuit Judges.

*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
 Richard and Valerie Thacher (Thachers) and Guadalupe Trujillo (Trujillo)

appeal the district court’s grant of summary judgment in favor of Allstate on their

counterclaims for breach of contract, bad faith, and punitive damages. Allstate

cross-appeals the jury verdict underlying the district court judgment in favor of the

Thachers and Trujillo and denying Allstate’s claim for declaratory relief. The

United States District Court for the Central District of California had diversity

jurisdiction over this action pursuant to 28 U.S.C. § 1332. We have jurisdiction

pursuant to 28 U.S.C. § 1291. We affirm both the jury verdict and the summary

judgment order.

I. Allstate’s challenge to the three-part jury verdict

A jury verdict in a civil case is reviewed for substantial evidence. George v.

City of Long Beach, 973 F.2d 706, 709 (9th Cir. 1992). The jury was presented

with sufficient “relevant evidence as reasonable minds might accept as adequate to

support a conclusion”: (1) that Allstate did not send the notice of non-renewal

regarding the Comprehensive Policy to the Thachers, (2) that Allstate denied the

Thachers coverage under the Umbrella Policy, and (3) that the arbitration award

between the Thachers and Trujillo was not unreasonable or the product of fraud or

collusion. Id.

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 Specifically, as to the notice of non-renewal and the denial of coverage

under the Umbrella Policy, the jury was presented with conflicting witness

testimony and chose to believe the Thachers’ and Trujillo’s witnesses’ accounts.

With respect to the reasonableness of the arbitration award, the jury considered the

expert reports that had been submitted to the arbitrator, as well as Trujillo’s

testimony on direct and cross-examinatrion.

Accordingly, the district court’s judgment upholding the jury verdict against

Allstate is proper.

II. The Thachers’ and Trujillo’s challenge to the summary judgment dismissal
of their counterclaims for breach of contract, bad faith, and punitive damages

An appeal from the dismissal of a claim at summary judgment is reviewed de

novo. Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F.3d 1132, 1137 (9th Cir.

2009).

1. Breach of contract counterclaim

The district court properly granted summary judgment to Allstate on the

Thachers’ and Trujillo’s breach of contract counterclaim because Allstate had not yet

breached its duty to defend or indemnify the Thachers pursuant to the Umbrella Policy

when Allstate filed for declaratory relief. After Allstate learned of the $515,073.98

arbitration award, it reserved its rights, provided the Thachers with counsel, and

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properly filed a declaratory relief action to determine its obligations under the

Comprehensive Policy and the Umbrella Policy. See Cal. Civ. Proc. Code § 1060

(providing insurers like Allstate a statutory right to seek declaratory relief to

determine their rights and obligations under a contract after a final judgment is

entered); see also George F. Hillenbrand, Inc. v. Ins. Co. of N. Am., 128 Cal. Rptr. 2d

586, 599 (Ct. App. 2002). The district court only determined that Allstate had a duty

to indemnify the Thachers under the Umbrella Policy after the jury found that the

underlying primary Comprehensive Policy was in effect at the time of Trujillo’s

accident, and that Allstate had effectively denied Umbrella Policy coverage to the

Thachers in 2005.

Allstate’s failure to defend or indemnify the Thachers before they sought

declaratory relief was not a breach of contract as to Allstate’s Umbrella Policy.

Accordingly, the Thachers’ and Trujillo’s breach of contract counterclaim was

properly dismissed at summary judgment.

2. Bad faith counterclaim

A party has acted in bad faith when it breaches the implied covenant of good

faith and fair dealing. The implied covenant of good faith and fair dealing prevents

a party from doing anything that “injure[s] the right of the other to receive the benefits

of the agreement.” Comunale v. Traders & Gen. Ins. Co., 328 P.2d 198, 200 (Cal.

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1958); see also Chateau Chamberay Homeowners Ass’n. v. Associated Int’l Ins. Co.,

108 Cal.Rptr.2d 776, 90 Cal. App. 4th at 347 (“the reasonableness of the insurer’s

decisions and actions must be evaluated as of the time that they were made”). Under

the genuine dispute doctrine, an insurer has not acted “in bad faith when it mistakenly

withholds policy benefits, if the mistake is reasonable or is based on a legitimate

dispute as to the insurer’s liability.” Century Sur. Co. v. Polisso, 43 Cal.Rptr.3d 468,

478 (2006). Because there was a legitimate dispute as to Allstate’s obligations under

the Umbrella Policy at the summary judgment stage, the district court’s dismissal of

the Thachers’ and Trujillo’s bad faith claim was proper.

3. Punitive damages counterclaim

A claim for punitive damages is established when an insurer takes an

unreasonable position, and has an intent to harm. See Beck v. State Farm Mut. Auto.

Ins. Co., 126 Cal.Rptr. 602, 54 Cal. App. 3d 347, 355 (1976). Because Allstate did

not act unreasonably as a matter of law, the counterclaim for punitive damages was

also properly dismissed at summary judgment. See id.

III. Conclusion

In sum, we affirm the district court’s rulings across the board. The three-part

district court jury verdict in favor of the Thachers and Trujillo is supported by

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substantial evidence.1 The grant of summary judgment in favor of Allstate as to the

Thachers’ and Trujillo’s breach of contract, bad faith, and punitive damages

counterclaims is also proper.

AFFIRMED.

1
The district court verdict and judgment uphold the underlying arbitration
award confirmed by the Los Angeles County Superior Court.

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