Rejoice! Coffee Company, LLC. v. The Hartford Financial Services Group, Inc.

Background

Rejoice! Coffee Company, LLC. sued Sentinel Insurance Company, Ltd. and its parent, The Hartford Financial Services Group, Inc. Rejoice brought the case on behalf of itself and others similarly situated. It asserted a claim under California’s Unfair Competition Law, which prohibits certain unlawful, unfair, or fraudulent business practices, and a claim for unjust enrichment or restitution.

Rejoice alleged that it had purchased business-risk insurance from Sentinel for its commercial properties and operations. Before the COVID-19 pandemic, it sold coffee to large employers and others, and operated two coffee shops in office-building amenity spaces. The pandemic and related government measures substantially reduced its operations and closed its premises, which Rejoice alleged also substantially reduced the risks covered by its policy. Rejoice claimed that the defendants should have reduced or refunded premiums but instead continued collecting and retaining amounts that exceeded a fair rate of return.

Motion to dismiss and exclusive jurisdiction

The defendants moved to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Rule 12(b)(1) concerns the court’s subject-matter jurisdiction, while Rule 12(b)(6) tests whether a complaint adequately states a legally plausible claim. The defendants argued that California Insurance Code section 1860.1 gave the California Insurance Commissioner exclusive jurisdiction over Rejoice’s claims because they concerned insurance ratemaking.

The court distinguished between a challenge to an approved insurance rate itself and a challenge to the application of an approved rate in particular circumstances. It explained that section 1860.1 bars challenges to rates or rating factors approved by the Insurance Commissioner, but does not immunize insurer conduct that was not taken under ratemaking authority. The court concluded that Rejoice was not alleging that the approved rates or rating factors were excessive on their face. Instead, Rejoice alleged that the defendants failed to account for the pandemic’s effect on business operations, premises, and insured risks when applying the approved rates and rating plan.

The court gave weight to the Insurance Commissioner’s brief, which stated that section 1860.1 did not preclude a civil challenge to an insurer’s refusal to adjust premiums for changed pandemic conditions or to the incorrect application of an approved rate or rating plan. The court therefore held that section 1860.1 did not prevent it from exercising subject-matter jurisdiction and rejected the defendants’ motion to dismiss on that ground.

Unfair Competition Law claim

The court held that Rejoice plausibly stated a claim under the unfairness prong of California’s Unfair Competition Law. Rejoice alleged that businesses suffered widespread closures and reduced operations during the pandemic while the defendants continued charging the same premiums even though the insured risks had decreased. Rejoice also relied on California laws and regulations describing a policy of limiting insurance premiums to a fair rate of return and on Proposition 103’s stated consumer-protection purposes.

The defendants argued that Sentinel could not have acted unfairly by charging rates approved by the Insurance Commissioner. The court rejected that argument because approval of a rate did not necessarily prevent the rate from being applied improperly. It also rejected the argument that Rejoice had to wait for a policy audit or adjustment before filing suit, noting the allegations that the defendants had not attempted to provide relief and that the policy’s audit provision apparently did not cover the entire alleged excessive premium.

The court stated that whether the defendants’ conduct was unfair raised factual questions that could not properly be resolved at the pleading stage. It therefore denied the defendants’ motion to dismiss the Unfair Competition Law claim.

Unjust enrichment claim

Rejoice also alleged that the defendants were unjustly enriched by collecting and retaining excessive premiums. The court explained that unjust enrichment, also described as restitution or a quasi-contract theory, concerns a benefit allegedly obtained through circumstances such as mistake, fraud, coercion, or request.

The defendants argued that unjust enrichment was unavailable because the premiums were governed by an insurance contract. The court rejected dismissal at the pleading stage, reasoning that the existence and enforceability of a contract had not yet been determined and that federal pleading rules allow alternative or inconsistent theories. The defendants also argued that Rejoice could not pursue the claim against HFSG because HFSG was not a party to the insurance contract. The court found Rejoice’s allegations sufficient at this stage because Rejoice alleged that Sentinel, which was controlled by HFSG, transferred some or all of the collected premiums to HFSG and that HFSG possessed or controlled them.

The court therefore denied the defendants’ motion to dismiss the unjust enrichment claim.

Requests for judicial notice and disposition

The court denied in part the defendants’ request for judicial notice because Rejoice objected to using an HFSG filing to establish the truth of disputed statements about HFSG’s relationship with its subsidiaries. The court granted the remainder of the defendants’ request. It granted Rejoice’s request for judicial notice of specified publicly available California Insurance Commissioner and Department of Insurance documents because their authenticity was not disputed.

The court denied the defendants’ motion to dismiss in its entirety. The order disposed of Docket No. 34. Judge Edward M. Chen signed the order on December 8, 2021.