1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 NAVIGATORS SPECIALTY Case No. 22-cv-07102-AMO

INSURANCE COMPANY,

8 Plaintiff, ORDER DENYING MOTION TO 9 DISMISS v. 10 Re: Dkt. No. 45

SVO BUILDING ONE, LLC,

11 Defendant.

12 13 This case is about an insurance company, Navigators Specialty Insurance Company, 14 seeking to recover costs and fees incurred in its defense of an underlying lawsuit brought by 15 Claimant Liebert Corporation against Defendant SVO Building One, LLC. Before the Court is 16 SVO Building One, LLC’s motion to dismiss. The matter is fully briefed and suitable for decision 17 without oral argument. Accordingly, the hearing set for June 20, 2024, is VACATED. See Civil 18 L.R. 7-6. Having read the parties’ papers and carefully considered their arguments and the 19 relevant legal authority, the Court hereby DENIES the motion to dismiss for the following 20 reasons. 21 I. BACKGROUND1 22 A. Factual Background 23 Plaintiff Navigators Specialty Insurance Company (“Navigators”) issued an insurance 24 policy to SVO Building One, LLC (“SVO”), effective Jun 12, 2017 to August 12, 2019 (the 25 “Policy”), which provides coverage for certain bodily injury, property damage, and “personal and 26

27 1 The Court accepts Plaintiff’s allegations in the complaint as true and construes the pleadings in 1 advertising injury.” ECF 43 (“First Amended Complaint” or “FAC”) ¶¶ 6-8. Liebert Corporation 2 (“Claimant”) brought suit against SVO. FAC ¶¶ 10-11. In Liebert Corporation v. SVO Building 3 One, LLC, American Arbitration Association, Case No. 01-18-0003-1318 (“Underlying Action”), 4 Claimant asserted 18 causes of action against SVO, including breach of contract, misappropriation 5 of trade secrets, patent infringement, intentional interference with contractual relations, 6 defamation, fraud, negligent misrepresentation, and civil conspiracy. FAC ¶¶ 1, 10-11. 7 Upon SVO’s tender of the claim, Navigators agreed to defend SVO in the Underlying 8 Action on October 28, 2019, pursuant to a reservation of rights. FAC ¶ 24. On March 24, 2021, 9 the Claimant dismissed the defamation cause of action. FAC ¶ 19. After the Claimant’s dismissal 10 of the defamation cause of action, Navigators advised SVO on March 31, 2021, that it would 11 withdraw from the defense because there was no coverage. FAC ¶ 26. SVO objected to 12 Navigators’ withdrawal, and Navigators agreed to continue defending the Underlying Action, 13 reserving its rights to argue that coverage was not required. FAC ¶¶ 27-28. On January 5, 2022, 14 the parties in the Underlying Action settled and filed a joint notice of dismissal with prejudice. 15 FAC ¶¶ 22-23. 16 B. Procedural Background 17 On November 14, 2022, Navigators filed the instant action against SVO seeking 18 declaratory judgment for three causes of action: 1) that it is entitled to reimbursement for defense 19 fees and costs incurred in the Underlying Action after March 24, 2021; 2) that it is entitled to 20 reimbursement for uncovered claims under the policy; and 3) that it has no duty to indemnify SVO 21 in the Underlying Action. ECF 1 (“Complaint”) ¶¶ 29-52. SVO moved to dismiss the Complaint. 22 ECF 30. The Court granted the motion to dismiss, dismissing the third cause of action without 23 prejudice for lack of ripeness and the first two causes of action with leave to amend to allege that 24 Navigators incurred defense costs for claims that are not potentially covered. ECF 41. On 25 February 15, 2024, Navigators filed the First Amended Complaint, the operative complaint. ECF 26 43. Through the instant motion, SVO moves to dismiss the two causes of action. ECF 45 27 (“Mot.”). 1 II. LEGAL STANDARD 2 Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint may be 3 dismissed for failure to state a claim for which relief may be granted. Fed. R. Civ. P. 12(b)(6). 4 Rule 12(b)(6) applies when a complaint lacks either a “cognizable legal theory” or “sufficient facts 5 alleged” under such a theory. Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th Cir. 6 2019) (citation omitted). Whether a complaint contains sufficient factual allegations depends on 7 whether it pleads enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v. 8 Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). 9 A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the 10 reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. 11 When evaluating a motion to dismiss, the court “accept[s] factual allegations in the 12 complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving 13 party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 14 However, “allegations in a complaint . . . may not simply recite the elements of a cause of action 15 [and] must contain sufficient allegations of underlying facts to give fair notice and to enable the 16 opposing party to defend itself effectively.” Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 17 2014) (citations omitted). The Court may dismiss a claim “where there is either a lack of a 18 cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal claim.” 19 Hinds Invs., L.P. v. Angioli, 654 F.3d 846, 850 (9th Cir. 2011). 20 III. DISCUSSION 21 Under California law, an insurer has the duty to defend claims that are “merely potentially 22 covered” by the insurance policy. Buss v. Superior Ct., 16 Cal. 4th 35, 46 (1997). Conversely, the 23 insurer has no duty to defend in an action where none of the claims are potentially covered. Id. at 24 47. In “mixed” causes of action, in which some claims are at least potentially covered, and others 25 are not, “the insurer has a duty to defend as to the claims that are at least potentially covered . . . 26 but does not have a duty to defend as to those that are not . . . [.]” Id. at 47-48. While in such a 27 mixed action the insurer must defend the action in its entirety, id. at 48 (citing Horace Mann Ins. 1 reimbursement of defenses costs, it may seek reimbursement “[a]s to the claims that are not even 2 potentially covered,” id. at 50, 61 n.27; see Scottsdale Ins. Co. v. MV Transportation, 36 Cal. 4th 3 643, 649 (2005). That is, the insurer may be reimbursed for “[d]efense costs that can be allocated 4 solely to the claims that are not even potentially covered[.]” Buss, 16 Cal. 4th at 52. It is the 5 insurer’s burden to show that it is entitled to reimbursement beyond a preponderance of the 6 evidence. Id. at 53. 7 SVO moves to dismiss both of Navigators’ causes of action, arguing that the FAC fails to 8 allege that Navigators incurred defense costs allocable solely to claims that are not potentially 9 covered. Mot. at 13. In the FAC, Navigators contends that “it is entitled to reimbursement of all 10 defense fees and costs incurred,” and that “Navigators does not contend it has a right to 11 reimbursement of attorneys’ fees and costs incurred in SVO’s defense of claims that were 12 potentially covered under the Policy.” FAC ¶¶ 1, 42. SVO argues that these allegations are 13 deficient because they are contradictory, and Navigators does not allege the correct standard under 14 Buss – that the insurer may only obtain reimbursement for costs “that can be allocated solely to 15 claims that are not even potentially covered.” Mot at 8 (citing Buss, 16 Cal. 4th at 52). The 16 amended complaint states that Navigators is not seeking reimbursement for defending claims “that 17 were potentially covered.” FAC ¶¶ 1, 42. This is the standard in Buss, 16 Cal. 4th at 52. 18 Accordingly, Navigators has stated a claim and the Court will not dismiss on this basis. 19 SVO also argues that the FAC should be dismissed because Navigators has conceded that 20 it is seeking reimbursement of fees and costs paid by another insurer. Mot. at 15. Not so. 21 Navigators does not contest that another insurer, Hallmark Financial Services, Inc. (“Hallmark”), 22 paid certain fees and costs in the Underlying Action. See ECF 47 (“Opp.”) at 17. SVO attaches 23 invoices to its motion to dismiss which show that Navigators and another insurer, Hallmark, both 24 incurred fees in the defense of the Underlying Action. ECF 45 at 45-63 (Ex. 2). SVO argues that 25 these invoices show that Navigators “is seeking reimbursement of fees and costs paid by another.” 26 Mot. at 15. That is not so. Instead, the invoices show that Navigators and Hallmark were each 27 billed 50% of the cost on each invoice. They do not support SVO’s assertion that Navigators 1 Navigators only seeks reimbursement of fees and costs it incurred. SVO takes issue with 2 || Navigators’ use of the word “all” in alleging that it is “entitled to rermbursement of all defense 3 fees and costs incurred in [the Underlying Action].” Mot. at 15-16 (citing FAC ff 1, 37). SVO 4 || fails to include the rest of the language in the FAC, which states that Navigators seeks recovery of 5 “all fees and costs incurred . . . under the Policy.” FAC 1, 37. Navigators thus only seeks the 6 || fees and costs which it incurred in its defense of SVO under the Policy between Navigators and 7 SVO. The Court therefore declines to dismiss on this basis as well.” 8 || IV. CONCLUSION 9 For the foregoing reasons, the Court DENIES the motion to dismiss. 10 11 IT IS SO ORDERED. 12 Dated: June 13, 2024

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ARACELI MARTINEZ-OLGUIN

2 IS United States District Judge 16

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19 20 21 22 23 24 25 26 2 SVO also appears to argue that the claims should be dismissed because some allegations in the Underlying Complaint were “potentially covered.” Mot. at 14-15. However, SVO does not 07 provide any analysis as to why these allegations are potentially covered under the Policy. Accordingly, the Court cannot assess the merits of this argument and declines to dismiss the 28 complaint on this basis.