Hilario v. Allstate Insurance Company

Background

Tisha Hilario alleged that Allstate used an incorrect square-footage figure to calculate her homeowners insurance premiums. She alleged that her home had 862 square feet of finished living space and a 288-square-foot attached garage, for a total of 1,154 square feet, but that her policy listed 1,438 square feet. She claimed that Allstate double-counted the garage space. She also alleged, on information and belief, that Allstate had systematically overcharged California policyholders by using the same method for homeowners and earthquake insurance premiums.

Hilario sued individually and on behalf of a proposed class of California Allstate policyholders with at least one built-in garage who paid premiums for homeowners or renters insurance. Her complaint asserted breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of California Business and Professions Code section 17200, commonly called the Unfair Competition Law.

Allstate moved to dismiss all three claims under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim.

Breach of Contract

The court dismissed the contract claim for two reasons. First, the court concluded that the policy language stating that premiums were based on information supplied by the policyholder appeared to describe how Allstate had calculated the premiums, rather than impose an affirmative contractual duty on Allstate to calculate the square footage correctly. Even assuming the language created such a duty before the policy was formed, the court reasoned that Hilario alleged Allstate used information she supplied; she did not allege that Allstate ignored the information or set the premiums randomly.

Second, the court held that the policy required Hilario to notify Allstate of errors in the policy declarations and cooperate in determining whether the information was accurate before bringing suit. Because Hilario did not dispute that she had not notified Allstate or otherwise cooperated to correct the alleged error, the court held that she had not satisfied a condition required before filing a contract action. The court also rejected her argument that paying premiums constituted substantial performance of that specific cooperation obligation.

Implied Covenant of Good Faith and Fair Dealing

The court dismissed this claim because the alleged bad-faith conduct occurred before the insurance contract was formed. The court explained that the implied covenant protects a party’s right to receive benefits under an existing contract. Hilario alleged that Allstate calculated the premiums incorrectly when creating the original policy, but she did not allege that Allstate later interfered with her right to receive benefits under the policy she actually purchased.

The court rejected Allstate’s arguments that the claim necessarily required a breach of a specific contract provision, that it had to involve withholding insurance benefits, or that the voluntary-payment doctrine required dismissal at this stage. The court held that the claim nevertheless failed for the separate reason that it challenged pre-contract conduct rather than interference with contractual benefits.

Unfair-Competition-Law Claim

The court held that Rule 9(b), which requires fraud-based allegations to identify the circumstances of the alleged misconduct in detail, applied to Hilario’s unfair-competition claim because the claim alleged a fraudulent course of conduct.

The court found that Hilario adequately alleged the square-footage figures for her own home but did not provide enough factual detail to support her conclusion that Allstate had double-counted the garage. The complaint did not sufficiently explain what information Allstate requested, what information Hilario provided, or how Allstate calculated property square footage. The court also identified unsupported and inconsistent allegations concerning when the alleged practice began, when Allstate learned of it, and whether the problem affected policyholders statewide.

The court noted that Hilario’s counsel described additional facts at oral argument, including a possible computer glitch, an internal error code, a January 2019 system change, and notice from a former Allstate employee. But those facts were not included in the complaint, so they could not prevent dismissal of the claim as pleaded.

The court also held that Hilario had not identified a viable legal violation supporting the unfair-competition claim’s unlawful-practice theory. It rejected Allstate’s argument that using the same facts for the contract and unfair-competition claims was, by itself, a reason for dismissal. The court did not decide Allstate’s argument concerning standing to seek an injunction because the claim was dismissed on other grounds.

Disposition

Judge William H. Orrick granted Allstate’s motion to dismiss. The court dismissed Hilario’s contract, implied-covenant, and unfair-competition claims and gave her 30 days to amend them. The opinion does not state that the dismissal was with or without prejudice.