Varlack v. Liberty Mutual Insurance Company

Background

Gustavas Varlack brought four claims against Ohio Security Insurance Company: breach of contract, breach of the covenant of good faith and fair dealing, a claim under California’s Unfair Competition Law, and a common-counts claim. The dispute involved Ohio Security’s denial of coverage. Varlack’s complaint indicated that the policy covered only physical loss of property, not income lost because of government pandemic policies. He also argued that Ohio Security breached the contract by failing to investigate alleged fraud involving CoverWallet and by failing to preserve his phone call with Kaiser.

Judicial Notice

The court granted Ohio Security’s request to take judicial notice of the insurance contract because the complaint referred to it, the contract was central to Varlack’s claims, and Varlack did not appear to dispute its accuracy. The court denied the request as to the letter denying coverage because the complaint did not explicitly refer to that letter.

Reasons for Dismissal

The court granted the motion to dismiss. It concluded that the insurance contract did not cover income lost because of government pandemic policies. It also found that Varlack identified no contract provision requiring Ohio Security to investigate his fraud allegations or preserve the phone call.

The court rejected Varlack’s argument that Ohio Security violated California Insurance Code provisions as part of the contract claim. The complaint alleged that Ohio Security responded to his claim within 12 days, which the court held was not an unreasonable delay. The court also found no allegations showing that Ohio Security knowingly committed the other listed unfair settlement practices or acted with enough frequency to indicate a general business practice.

Because Varlack did not state a breach-of-contract claim, the court held that he could not state a claim for breach of the covenant of good faith and fair dealing. The court dismissed the Unfair Competition Law claims against Ohio Security because Varlack alleged no facts showing that Ohio Security participated in the fraud attributed to Kaiser. It also dismissed the common-counts claim against Ohio Security because Varlack alleged no facts suggesting that Ohio Security was indebted to him.

Disposition

Judge Vince Chhabria granted the motion to dismiss. The court dismissed the claims with leave to amend. Any amended complaint was due within 14 days of the order. The court stated that if no amended complaint was filed, the dismissal would be with prejudice.