Day v. GEICO Casualty Company

Background

Jessica Day challenged a premium-credit program operated by GEICO Casualty Company, GEICO General Insurance Company, and GEICO Indemnity Company, which the opinion collectively calls “GEICO.” GEICO announced the “GEICO Giveback” program in April 2020. The program provided a 15% discount on new and renewed insurance policies.

Day alleged that GEICO misrepresented the program as passing along GEICO’s pandemic-related savings from having fewer claims and did not disclose the actual amount of those savings. Her First Amended Complaint included a breach-of-contract claim based on the implied covenant of good faith and fair dealing.

The court had previously granted in part and denied in part GEICO’s motion to dismiss Day’s original complaint. In this order, the court considered GEICO’s motion to dismiss the breach-of-contract claim in the First Amended Complaint.

Legal Standard

GEICO moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. At this stage, the court generally accepts well-pleaded factual allegations as true and views them in the light most favorable to the plaintiff. The complaint must contain enough factual matter to make the claim plausible, meaning the alleged facts would reasonably support the defendant’s liability.

Breach-of-Contract Claim

GEICO argued that Day’s amended theory depended on an alleged GEICO discretion to make voluntary downward premium adjustments based on an insured’s changed circumstances. GEICO argued that no specific insurance-policy provision granted that discretion and that the implied covenant of good faith and fair dealing could not add terms to the contract.

Day argued that the court’s earlier order had left open a theory that GEICO had inherent discretion to reduce her premium and had to exercise that discretion consistently with the implied covenant.

The court agreed with GEICO. It explained that the implied covenant prevents one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made. But the covenant cannot change the contract’s substantive terms or impose duties beyond the agreement’s specific provisions. Day therefore had to connect GEICO’s alleged discretionary power to a particular provision of the insurance policy.

The court concluded that the First Amended Complaint presented a general good-faith obligation that was not tied to any contractual obligation. Day had previously relied on the policy’s “Changes” provision, but the court had rejected that theory in its earlier order. The court distinguished cases in which the contract expressly gave the defendant discretion and the plaintiff claimed that the discretion was abused. According to the court, Day identified no comparable policy provision granting GEICO power to make the premium reductions at issue.

The court also reasoned that allowing a breach-of-contract claim based on an implied covenant untethered to a specific contractual provision would undermine the certainty contracts provide. Without a specific provision authorizing the practice, the implied covenant could not itself require GEICO to reduce premiums because of changed economic or environmental circumstances.

Other Issues and Disposition

GEICO also appeared to ask the court to reconsider its earlier ruling that the dispute was not within the insurance commissioner’s exclusive jurisdiction. The court declined to reconsider that ruling at that time. It stated that some of GEICO’s arguments might be relevant to Day’s pending motion for class certification, but that motion was not ready for decision and the court would not prejudge it.

The court granted GEICO’s partial motion to dismiss. It dismissed Day’s breach-of-contract claim with prejudice and denied leave to amend because the court had already rejected her reliance on a specific policy provision and she identified no other supporting provision in the First Amended Complaint. The court also noted that Day’s unjust-enrichment claim had previously been dismissed with prejudice. Day’s claim under California’s Unfair Competition Law would proceed. GEICO was ordered to answer the complaint within 30 days of the order.