Colony Insurance Company v. Glenn E. Newcomer Construction

Background

Colony Insurance Company filed a lawsuit seeking a declaration of the parties’ rights and obligations under a general liability insurance policy issued to Glenn E. Newcomer Construction. The dispute involved an underlying construction-related lawsuit alleging cost overruns and construction defects, as well as four related matters: two complaints to the California State License Board, a claim against Old Republic Surety Company, and unpaid-wage claims.

Colony alleged that it had agreed to defend Newcomer in the underlying lawsuit while reserving its rights, but that it had no duty to defend or indemnify Newcomer for the asserted damages or related matters. Newcomer alleged that Colony was defending the underlying lawsuit under a reservation of rights but refused to defend or indemnify Newcomer in the four additional matters. Newcomer also alleged that Colony had not provided information to Newcomer’s personal attorney about the defense.

Newcomer asserted counterclaims for breach of contract and bad faith. Colony moved to dismiss both counterclaims under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when the pleaded facts do not state a legally sufficient claim.

Court’s Analysis

For the breach-of-contract counterclaim, the court explained that a claimant must allege a contract, performance or an excuse for nonperformance, a breach, and resulting damage. The court concluded that Newcomer did not identify any specific policy provision that Colony had breached. Newcomer admitted that Colony was defending the underlying lawsuit, and therefore did not allege facts supporting a claim based on a failure to defend.

The court also found that Newcomer did not identify any express or implied policy provision requiring Colony to provide the requested information to Newcomer’s personal attorney. As to indemnity, Newcomer did not allege that it had become legally obligated to pay damages, which the policy language identified as a condition for Colony’s indemnity duty. The court further found that Newcomer had not sufficiently alleged a breach based on Colony’s refusal to defend or indemnify the four related matters.

The court declined to consider correspondence and other materials Newcomer submitted with his opposition because those materials were not alleged in or attached to the pleadings and Newcomer did not provide authority allowing the court to consider them at this stage.

For the bad-faith counterclaim, the court stated that an insurance bad-faith claim requires benefits due under the policy to have been withheld and the withholding to have been unreasonable or without proper cause. Because Newcomer had not sufficiently alleged a breach of the insurance contract, the court held that the bad-faith claim also failed.

Disposition

The court granted Colony’s motion to dismiss Newcomer’s counterclaims. It dismissed the breach-of-contract and bad-faith counterclaims with leave to amend, concluding that amendment could not be said to be futile. Any amended counterclaims were due by August 3, 2020. Judge Donna Ryu issued the order on July 20, 2020.