Policy Reformation Count Dismissed by Northern District of California
Hartford Cas. Ins. Co v. Fireman’s Fund Ins. Co., 2015 U.S. Dist. LEXIS 148428 (N.D. Cal. Nov. 2, 2015)
In Hartford, the Northern District of California granted a carrier’s motion to dismiss a reformation count, but granted the plaintiff leave to amend.
Hartford was a coverage action based on an underlying case which awarded $14 million to the family of the victim of an accident on a building site. One carrier denied coverage for the claim based on the fact that it issued a homeowners policy and not a commercial lines policy. A second carrier paid the claim and took the insured’s assignment of any rights against the denying carrier. The carrier filed suit based on that assignment, and that suit included a claim for reformation through which the plaintiff insurer attempted to establish that the denying carrier intended to issue a commercial policy. The Hartford court granted the defendant’s motion to dismiss that claim, but granted the plaintiff leave to amend.
The court addressed the possible grounds for a reformation argument under California law, which is governed by Cal. Civ. Code § 3399. Under the theory of mutual mistake, the court held that both parties must share the same misconception. The court further found that the allegations in the complaint failed to suggest that both parties were under a misconception that the defendant would issue a commercial policy. As to a unilateral mistake, the court stated that that plaintiff must plead facts sufficient to demonstrate that the other party to the contract (the insured) “knew or suspected at the time” of the contract that such a mistake occurred. The court found that the complaint failed to alleged this required fact. The court also addressed the possibility that the reformation count was intended to be based on fraud, but found that the complaint was unclear, and “plainly insufficient” in light of the heightened pleading requirement for fraud under Rule 9(b) of the Federal Rules of Civil Procedure.
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