Travelers Indemnity Co. of Connecticut v. Centex Homes, 1:14-cv-00217

Centex, a homebuilder, was sued in Fresno County Superior Court (the Chang action) for alleged construction defects; subcontractors Fresno Precision Plastics and Ken Perry had CGL policies naming Centex as an additional insured issued by Plaintiffs (insurers).
Centex tendered defense to Plaintiffs as an additional insured; Plaintiffs acknowledged the tender and stated they planned to accept and defend and intended to retain counsel of their choosing.
Plaintiffs allege Centex refused to accept Plaintiffs’ choice of counsel and breached the policy cooperation clause, substantially prejudicing Plaintiffs’ ability to defend.
Plaintiffs sued in federal court seeking, among other relief, equitable reimbursement for fees/costs incurred defending Centex in the Chang action; Plaintiffs pleaded they no longer owe a duty to defend because Centex’s breach excused further defense duties.
Centex moved to dismiss the equitable reimbursement claim under Rule 12(b)(6), arguing Plaintiffs did not (1) immediately agree to defend, (2) fully defend, and (3) defend in entirety.
The Court held Plaintiffs adequately alleged they defended the action in its entirety insofar as the duty to defend was excused by Centex’s breach, but Plaintiffs failed to allege they “immediately” agreed to defend; dismissal of the equitable reimbursement claim was granted without leave to amend.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Plaintiffs defended the Chang action "entirely" for equitable reimbursement purposes	Plaintiffs: duty to defend ceased because Centex’s cooperation-breach substantially prejudiced Plaintiffs, so Plaintiffs effectively provided an "entire" defense by being excused from further duty	Centex: Plaintiffs have not and cannot have defended the action entirely because the underlying suit remains ongoing	Held: Plaintiffs sufficiently pled they defended the action in entirety to the extent their duty was excused by Centex’s breach (claim survives this sub-issue)
Whether Plaintiffs "immediately" agreed to defend upon tender	Plaintiffs: alleged acknowledgment of tender and plans to accept and defend; argue duty arose and then was excused by breach	Centex: Plaintiffs never immediately accepted defense; pleadings show only a planned future acceptance	Held: Plaintiffs failed to plead an immediate agreement to defend; this deficiency is fatal to equitable reimbursement claim
Whether Plaintiffs fully and timely defended before seeking reimbursement	Plaintiffs: alleged steps to accept and defend and intent to retain counsel; alleged prejudice excused further obligations	Centex: Plaintiffs did not fully perform a defense or timely assume control as required	Held: Court found only the immediate-acceptance deficiency dispositive and dismissed the claim without leave to amend

Balistreri v. Pacifica Police Dept., 901 F.2d 696 (9th Cir.) (standards for Rule 12(b)(6) dismissal)
Lazy Y. Ranch Ltd. v. Behrens, 546 F.3d 580 (9th Cir.) (pleading facts taken as true on motion to dismiss)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (application of Twombly plausibility standard)
Buss v. Superior Court, 16 Cal.4th 35 (1997) (elements of equitable reimbursement: defend now, seek reimbursement later)
Scottsdale Ins. Co. v. MV Transp., 36 Cal.4th 643 (2005) (insurer’s duty to defend continues until there is no potential for coverage)
State v. Pacific Indemnity Co., 63 Cal. App.4th 1535 (1998) (discussion of "defend now seek reimbursement later" theory)
Truck Ins. Exchange v. Unigard Ins. Co., 79 Cal. App.4th 966 (2000) (insured's breach of cooperation clause can excuse insurer's duties)
Cook, Perkiss & Liehe, Inc. v. Northern California Collection Serv., Inc., 911 F.2d 242 (9th Cir.) (leave to amend where pleadings curable)