Cook v. State Farm General Insurance Company

Background

Plaintiffs Jason Cook and Elfe Kuesters alleged that they insured their homes under State Farm policies titled "FP-7955 CA." They alleged that a 2020 extreme weather event caused the CZU Lightning Complex fire, that they were ordered to evacuate, and that they found their refrigerators had failed after returning. According to the complaint, their homes had been without power for several days, causing food to rot and produce an odor that allegedly resulted in the total loss of the refrigerators. State Farm denied their requests for coverage.

The plaintiffs asserted four state-law causes of action: declaratory relief, breach of contract, breach of the covenant of good faith and fair dealing, and injunctive and restitutionary relief under California's Unfair Competition Law. They brought the claims individually and on behalf of a proposed class.

Motion to dismiss

State Farm moved to dismiss the complaint under Rule 12(b)(6), which permits dismissal when a complaint does not state a legally recognized claim or does not allege enough facts to support one. State Farm argued that the plaintiffs had not adequately alleged a "direct physical loss" to their refrigerators.

The court relied on California and Ninth Circuit authorities interpreting that policy term. Those authorities require a physical change or physical alteration to the insured property. A loss of use without such a physical change is not enough. The court found that the complaint alleged that the refrigerators were "lost" and had "failed," and that odors from rotten food resulted in their total loss, but did not allege facts showing that the odors physically changed or altered the refrigerators. The court treated those assertions as conclusions rather than sufficient factual allegations.

The plaintiffs also relied on statements in letters from State Farm describing Cook's refrigerator as "damaged" or referring to "damage." The court concluded that those statements appeared to describe the claim being denied and did not identify a physical change or alteration. The court further stated that such statements would not prevent State Farm from arguing that the complaint failed to plead a covered loss. The court also rejected reliance on State Farm's statements that it had found covered smoke damage and would pay certain smoke-related cleaning and treatment costs.

Class allegations and disposition

State Farm separately sought to strike the proposed class allegations. Because the court dismissed the complaint in its entirety for failure to state a claim, it denied the motion to strike the class allegations as moot.

Judge Maxine Chesney ordered that, to the extent State Farm sought dismissal, the motion was granted and the complaint was dismissed with leave to amend. The plaintiffs were required to file any amended complaint by November 5, 2021. To the extent State Farm sought an order striking the class allegations, that part of the motion was denied as moot. The court also continued the case-management conference from October 29, 2021, to January 28, 2022.