Opinion
D.C. No. CV-97-00081-AHS. Argued and Submitted March 2, 1999. Submission Deferred March 4, 1999
Editorial Note:
This opinion appears in the Federal reporter in a table titled "Table of Decisions Without Reported Opinions". (See FI CTA9 Rule 36-3 regarding use of unpublished opinions)
Resubmitted Jan. 14, 2000.
Appeal from the United States District Court for the Central District of California Alicemarie H. Stotler, District Judge, Presiding.
Before BROWNING, HALL, and GRABER, Circuit Judges.
ORDER
This case is resubmitted for decision as of January 14, 2000.
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as may be provided by 9th Cir. R. 36-3.
Romuald and Krystyna Chmura (the "Chmuras") appeal the district court's order granting Allstate Insurance Company's ("Allstate") Rule 12(b)(6) motion to dismiss. The Chmuras sued Allstate for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing when Allstate refused to tender a defense to the Chmuras after the Chmuras were sued by the buyer of their house for fraud, negligent misrepresentation, and negligence. We have jurisdiction under 28 U.S.C. § 1291, and we reverse.
The facts are known to the parties and need not be recited; however, the unusual procedural posture of this case requires some detailing. In ruling for the defendant, the district court relied on a long line of cases interpreting California insurance law, which stated that the insuring words "legally obligated to pay" operated to cover those claims that arose from tort liabilities (ex delicto ), but not those claims that arose from contract liabilities (ex contractu ). See, e.g., Stanford Ranch, Inc. v. Maryland Cas. Co., 89 F.3d 618, 624 (9th Cir.1996); Allstate Ins. Co. v. Hansten, 765 F.Supp. 614, 615-16 (N.D.Cal.1991); Fragomeno v. Insurance Co. of the W., 207 Cal.App.3d 822, 828 (1989); Insurance Co. of the W. v. Haralambos Beverage Co., 195 Cal.App.3d 1308, 1317 (1987). The district court opined that Allstate had no duty defend, in that no potential for coverage existed because the Chmuras' claims arose by operation of contract. See District Court Order at 9.
By the time we received the Chmuras' appeal, the California Supreme Court had granted certiorari to consider the issue "[w]hether a general liability insurance policy may never provide an insured defendant with coverage for losses that are plead by the plaintiff as breaches of contract." See Vandenberg v. Superior Court, 73 Cal.Rptr.2d 195 (1998). We therefore deferred decision of this case pending resolution of Vandenberg. Earlier this year, the California Supreme Court decided Vandenberg and held that the phrase "legally obligated to pay" does not create an ex contractu/ex delicto distinction and, therefore, that contractual liabilities also are covered under commercial general liability insurance policies such as that at issue in this case. See Vandenberg v. Superior Court, 88 Cal.Rptr.2d 366, 384-85 (1999). In so holding, the California Supreme Court explicitly overruled those cases that had applied the contract/tort distinction. See id ., at 385 n. 13.
As a result, those cases relied on by the district court and Allstate to reach the conclusion that Allstate had no duty to defend are now disapproved. In its letter to this court informing us of the Vandenberg decision, Allstate states as much. See November 29, 1999, letter from Allstate. We therefore conclude as a matter of law that Allstate had a duty to defend in this case, because the defunct ex contractu/ex delicto distinction was the sole basis for district court's dismissal of this case in favor of Allstate.
Allstate argues that, notwithstanding the above conclusion, we should preclude the Chmuras' "bad faith" claim on remand. To state a cause of action for breach of the implied covenant of good faith and fair dealing, a plaintiff must show that (1) the insurance company withheld benefits that were due under the insurance policy, and (2) that such withholding was unreasonable. See Love v. Fire Ins. Exchange, 221 Cal.App.3d 1136, 1151 (1990). Whether or not the insurance company's decision was reasonable under the circumstances normally is a question of fact for the jury. See Dalrymple v. United Services Auto. Ass'n., 40 Cal.App. 4th 497, 511 (1995). In granting Allstate's motion to dismiss, the district court resolved the first prong as a matter of law and did not reach the second issue. We have no record before us that would entitle us to decide the issue of reasonableness and therefore decline to do so. The appropriate forum for the resolution of the second prong is the district court.
For the foregoing reasons, the district court's order granting Allstate's motion to dismiss is REVERSED, and the case is REMANDED for further proceedings consistent with this memorandum disposition.