Filed 9/30/26 Guess v. Allied World Specialty Ins. Co. CA2/2
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
GUESS?, INC., et al., B345276
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. 23STCV10331)
v.
ALLIED WORLD SPECIALTY
INSURANCE COMPANY et al.,
Defendants and Respondents.
APPEAL from judgments of the Superior Court of Los
Angeles County, Richard L. Fruin, Jr., Judge. Affirmed in part
and reversed in part.
Barnes & Thornburg, David P. Schack, Matthew B.
O’Hanlon and Alice M. Kyureghian for Plaintiffs and Appellants.
Gordon Rees Scully Mansukhani, David C. Capell and
Erin B. Newman for Defendant and Respondent Allied World
Specialty Insurance Company.
Foley & Lardner, Kimberly A. Klinsport and Kelsey Finn
for Defendant and Respondent Arch Insurance Company.
Prough Law, Michael D. Prough and Dean C. Burnick for
Defendant and Respondent RLI Insurance Company.
Troutman Pepper Locke, Kevin F. Kieffer and Ross Smith
for Defendant and Respondent Beazley Insurance Company, Inc.
____________________
Insureds Guess?, Inc. (Guess), Paul Marciano and Maurice
Marciano appeal from judgments entered after the trial court
dismissed their third amended complaint (TAC) against excess
insurers RLI Insurance Company (RLI), Arch Insurance
Company (Arch), Beazley Insurance Company, Inc. (Beazley), and
Allied World Specialty Insurance Company (Allied World).
The trial court concluded Plaintiffs could not state a cause
of action against Defendants because Plaintiffs had not
exhausted the underlying policies. The court based its ruling in
part on Fox Paine & Co., LLC v. Liberty Mutual Ins. Co. (2024)
104 Cal.App.5th 1034 (Fox Paine I), reversed by Fox Paine & Co.,
LLC v. Twin City Fire Ins. Co. (2026) 20 Cal.5th 188 (Fox Paine
II).
After we held oral argument, the California Supreme Court
decided Fox Paine II, and held that the failure to exhaust
underlying policies does not categorically preclude an insured
from suing an excess insurer for declaratory relief and bad faith.
Upon our request, the parties submitted supplemental letter
briefs apprising us of their views as to Fox Paine II’s impact on
causes of action being alleged here.
We hold as follows: (1) under Fox Paine II, Plaintiffs
adequately alleged an actual controversy regarding coverage to
state a claim for declaratory relief, even though they had not
exhausted the underlying policies; (2) under Fox Paine II, the
2
trial court erred in dismissing the bad faith cause of action solely
on the basis that Plaintiffs failed to allege exhaustion of the
underlying policies; (3) Plaintiffs’ causes of action for breach of
contract and anticipatory breach are still foreclosed because they
have not alleged exhaustion of the underlying policies; and
(4) dismissal of the unfair competition cause of action was
appropriate because it is derivative of the breach of contract
causes of action.
Although Defendants contend the trial court’s dismissal of
the bad faith cause of action should be affirmed on alternative
grounds raised in the demurrers which the court did not reach,
for the reasons discussed post, we decline to rule on alternative
grounds not addressed in the first instance by the trial court.
Therefore, we reverse the judgments of dismissal in favor of RLI,
Arch, and Beazley only as to declaratory relief and bad faith
causes of action and the judgment of dismissal in favor of Allied
World only as to the bad faith cause of action.
FACTUAL BACKGROUND1
Guess is a Delaware public company trading on the New
York Stock Exchange. It maintains directors and officers (D&O)
liability insurance, which protects directors and officers from
liabilities arising from activities connected with serving the
corporation. During relevant time periods here, Guess had a
primary policy with limits of $10 million and a “tower” of excess
policies, with each excess layer providing an additional
$10 million in coverage.
1 We draw the factual background from the allegations of the
TAC and facts of which judicial notice can be taken. (Schifando v.
City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
3
There are two towers of D&O insurance implicated in this
case. The 2008/2009 Tower Insurers provided coverage from
November 1, 2008, through November 1, 2009, as follows:
(1) Federal Insurance Company (Federal), $10 million; (2) RLI,
$10 million excess of $10 million; (3) Arch, $10 million excess of
$20 million; and (4) Beazley, $10 million excess of $30 million.
The 2021/2022 Tower Insurers provided coverage from
December 15, 2021, through December 15, 2022, as follows:
(1) North American Specialty Insurance Company (NAS),
$10 million; (2) Ace American Insurance Company (ACE),
$10 million excess of $10 million; (3) Twin City Fire Insurance
Company (Twin City), $10 million excess of $20 million; and
(4) Allied World, $10 million excess of $30 million.
D&O insurance is generally written on a “claims-made”
basis as opposed to an “occurrence” basis. Accordingly, with some
exceptions such as “related claim” provisions, the D&O insurance
policy in force at the time a claim is made is the policy for which
coverage is triggered even if the alleged wrongful acts and
damage occurred before the policy came into effect.
In September 2022, the Employees’ Retirement System of
Rhode Island filed a derivative lawsuit (ERSRI Lawsuit) against
Guess and its directors, which included Paul and Maurice
Marciano. That lawsuit alleged the directors failed to address
allegations of sexual misconduct by Paul Marciano, mishandled a
2018 board investigation into those allegations, and engaged in
conflicted related-party transactions benefitting the Marcianos.
In the background allegations, the ERSRI Lawsuit referenced a
2009 lawsuit against Paul Marciano filed by Lindsey Ring
alleging harassment (Ring Claim). In February 2023, Legion
Partners Holdings, LLC filed a derivative suit (Legion Lawsuit)
4
against Guess and its directors alleging similar claims and also
referencing the Ring Claim.
Plaintiffs initially gave notice of the ERSRI Lawsuit and
Legion Lawsuit (collectively, the Lawsuits) to the 2021/2022
Tower Insurers because the ERSRI Lawsuit was filed within the
December 15, 2021, to December 15, 2022 policy period. Those
insurers denied coverage, reasoning that the reference to the
Ring Claim meant that the Lawsuits were related to the Ring
Claim, which would make the Lawsuits claims made in 2009.
To preserve their rights in the event that the 2021/2022
Tower Insurers were correct, Plaintiffs also gave notice of the
Lawsuits to the 2008/2009 Tower Insurers. The 2008/2009 Tower
Insurers also denied coverage, contending the Lawsuits were
covered by the 2021/2022 Tower Insurers.
Ultimately, Plaintiffs settled the Lawsuits for $30 million
and $5,447,213 in attorney fees. Delaware law allowed Guess to
pay the attorney fees settlement but not the $30 million
settlement. Because neither tower of insurers accepted coverage,
the Marcianos personally funded substantial portions of the
settlement.
A third party, the Chubb Group of Companies (Chubb),
funded $10 million of the $30 million settlement. Chubb did so
because it was implicated in both towers, through its subsidiary
Federal in one and its subsidiary ACE in the other. The settling
parties agreed Chubb’s $10 million would be deemed a payment
from Federal if a court or jury were to determine the 2008/2009
Tower Insurers had coverage and deemed a payment from ACE if
a court or jury were to determine the 2021/2022 Tower Insurers
had coverage.
5
PROCEDURAL HISTORY
On May 8, 2023, Plaintiffs commenced the instant action.
In Plaintiffs’ TAC, they pursued claims against the 2021/2022
Tower Insurers and 2008/2009 Tower Insurers, except for Federal
and ACE.2
As it pertains to the Defendants involved in this appeal,
Plaintiffs alleged the following: (1) breach of contract against
Allied World; (2) breach of contract and anticipatory breach of
contract against RLI, Arch, and Beazley (2008/2009 Excess
Insurers); (3) declaratory relief against the 2008/2009 Excess
Insurers; (4) bad faith against all Defendants; and (5) unfair
competition against all Defendants. By the first, second, and
fourth causes of action, Plaintiffs sought damages for Defendants’
alleged breaches of their insurance policies. By the third cause of
action, Plaintiffs sought a declaration regarding the 2008/2009
Excess Insurers’ duties under their policies. By the fifth cause of
action, Plaintiffs sought restitution and an injunction restraining
Defendants from denying coverage.
In October 2024, Defendants separately demurred to the
TAC. Defendants argued, among other things, that Plaintiffs’
causes of action should be dismissed because Plaintiffs failed to
allege exhaustion of the underlying policies to trigger Defendants’
obligations. In support of their demurrers, Defendants asked the
trial court to take judicial notice of their insurance policies.
2 The only insurers involved in this appeal are RLI, Arch,
Beazley, and Allied World. After the trial court sustained their
demurrers, the litigation proceeded with the primary insurer
NAS and excess insurer Twin City. Because issues related to
those insurers are not the subject of this appeal, we will not
further reference Plaintiffs’ claims against them.
6
Plaintiffs opposed the demurrers and objected to the
requests for judicial notice.
On November 15, 2024, the trial court held a hearing on
the demurrers.
On February 3, 2025, the trial court granted Defendants’
requests for judicial notice and sustained the demurrers without
leave to amend. The court ruled Plaintiffs did not adequately
allege exhaustion of the underlying policies to sustain the causes
of action for breach of contract, anticipatory breach of contract,
bad faith, and unfair competition. Relying on Fox Paine I, the
court also concluded that, without exhaustion of the underlying
policies, there was no actual controversy to make declaratory
relief necessary or proper.
Plaintiffs timely appealed.
DISCUSSION
I. Demurrers and Standards of Review
On review from an order sustaining a demurrer, “we
examine the complaint de novo to determine whether it alleges
facts sufficient to state a cause of action under any legal theory,
such facts being assumed true for this purpose.” (McCall v.
PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We do not
assume the truth of contentions, deductions, or conclusions of fact
and law. (Dudek v. Dudek (2019) 34 Cal.App.5th 154, 163.)
“We review judicial notice rulings for abuse of discretion.”
(Physicians Committee for Responsible Medicine v. Los Angeles
Unified School (2019) 43 Cal.App.5th 175, 182.)
7
Whether a claim presents an “actual controversy” for
purposes of declaratory relief under Code of Civil Procedure3
section 1060 is a question of law that we review de novo.
(Environmental Defense Project of Sierra County v. County of
Sierra (2008) 158 Cal.App.4th 877, 885.)
II. The Trial Court Did Not Abuse Its Discretion in
Taking Judicial Notice of the Insurance Policies
We first conclude the trial court appropriately took judicial
notice of Defendants’ insurance policies because they form the
basis of Plaintiffs’ TAC.
Under Evidence Code section 452, subdivision (h), courts
may take judicial notice of “[f]acts and propositions that are not
reasonably subject to dispute and are capable of immediate and
accurate determination by resort to sources of reasonably
indisputable accuracy.” Courts may take judicial notice of
documents pursuant to this provision when they form the basis of
the allegations of the complaint. (See Ingram v. Flippo (1999)
74 Cal.App.4th 1280, 1285, fn. 3 (Ingram), disapproved on other
grounds by Leon v. County of Riverside (2023) 14 Cal.5th 910,
930–931; accord Salvaty v. Falcon Cable Television (1985) 165
Cal.App.3d 798, 800, fn. 1 (Salvaty) [“Given the references to the
agreement in the complaint, [the defendants] were entitled to
present the trial court with the complete document”].)
Here, Defendants’ insurance policies unquestionably
formed the basis for the TAC. Plaintiffs alleged the policies
required Defendants to provide coverage for the Lawsuits.
Plaintiffs further alleged that because Defendants denied
3 Undesignated statutory references are to the Code of Civil
Procedure.
8
coverage, Defendants breached or repudiated their respective
contracts, acted in bad faith, and violated California’s unfair
competition laws. Plaintiffs additionally alleged that declaratory
relief against the 2008/2009 Excess Insurers is proper because
there is a justiciable controversy regarding Plaintiffs’ rights and
those insurers’ duties under their policies. Under these
circumstances, the trial court did not abuse its discretion in
taking judicial notice of the policies to rule on the demurrers.
(See Ingram, supra, 74 Cal.App.4th at p. 1285, fn. 3; Salvaty,
supra, 165 Cal.App.3d at p. 800, fn. 1.)
The cases cited by Plaintiffs for a contrary conclusion are
inapposite because the parties in those cases disputed the
contracts’ existence, authenticity, or interpretation. (See, e.g.,
The Travelers Indemnity Co. of Connecticut v. Navigators
Specialty Ins. Co. (2021) 70 Cal.App.5th 341, 352, 355 [noting the
plaintiff raised issues as to authenticity and the defendant’s
interpretation of the insurance policy]; Gould v. Maryland Sound
Industries, Inc. (1995) 31 Cal.App.4th 1137, 1144–1146 [holding
the trial court could not take judicial notice of written
employment contract governed by Maryland law where the
plaintiff alleged he was employed under an oral contract
governed by California law instead].)
Plaintiffs claim they did dispute the authenticity of
Defendants’ insurance policies by pointing out they made
authenticity objections in the trial court. These objections,
however, only state in conclusory fashion that the documents
lacked foundation and were insufficiently authenticated. The
court overruled these objections, and Plaintiffs provide no
explanation on appeal as to how the policies are inauthentic.
Plaintiffs’ claim that they disputed the authenticity or accuracy
9
of the policies also fails because Plaintiffs acknowledge the court
took judicial notice of the policies to confirm they had exhaustion
requirements, and Plaintiffs never disputed the policies had
these requirements.
III. The Trial Court Appropriately Dismissed All but the
Declaratory Relief and Bad Faith Causes of Action
We now address whether Plaintiffs adequately alleged the
causes of action asserted against Defendants. We begin with a
general discussion of Fox Paine II. After, we discuss how Fox
Paine II requires us to reverse the trial court’s dismissal of the
causes of action for declaratory relief and bad faith. We then turn
to those causes of action as to which no error is shown.
A. The Fox Paine II Decision
In Fox Paine II, the plaintiffs and their former colleagues at
an investment firm had been embroiled in extensive litigation
dating back to 2007. (Fox Paine II, supra, 20 Cal.5th at p. 200.)
To fund the litigation, both the plaintiffs and their former
colleagues presented claims to their primary and excess insurers.
(Id. at p. 201.) The insurers provided coverage for the former
colleagues but not for the plaintiffs. (Id. at pp. 202–203.) The
plaintiffs sued the insurers for breach of contract, declaratory
relief, bad faith, and aiding and abetting breach of fiduciary
duties. (Id. at p. 203.) The trial court sustained the higher-layer
excess insurers’ demurrers on the basis that the plaintiffs failed
to allege exhaustion of the underlying policies. (Id. at p. 204.)
The Court of Appeal affirmed. (Fox Paine II, supra,
20 Cal.5th at p. 204.) In addition to agreeing with the trial court’s
rationale, the appellate court also held that had the trial court
exercised its discretion under section 1061, it could have found
that declaratory relief was not necessary or proper. (Fox Paine II,
10
at p. 205.) The appellate court reasoned that: (1) the plaintiffs’
declaratory relief cause of action was derivative of their breach of
contract cause of action; (2) declaratory relief may result in a
purely advisory opinion because the outcome of the plaintiffs’
pending litigation against one of the lower-layer insurers was not
known; and (3) it would burden excess insurers to have them
prematurely litigate coverage issues before exhaustion occurs.
(Id. at pp. 205–206.)
Our Supreme Court did not disturb the trial and appellate
courts’ disposition of the breach of contract and aiding and
abetting causes of action. It only accepted review to “consider
whether claims for declaratory relief and breach of the implied
covenant of good faith and fair dealing brought by alleged
insureds . . . against excess insurers are susceptible to demurrer
on the ground that the insureds could not allege prior exhaustion
of all of the insurance coverage underlying the excess insurers’
policies.” (Fox Paine II, supra, 20 Cal.5th at p. 198.) The court
concluded “the absence of exhaustion is not fatal to these claims.”
(Ibid.)
With respect to declaratory relief, the court held that lack
of exhaustion does not categorially make a coverage dispute
involving an excess policy unripe. (Fox Paine II, supra, 20 Cal.5th
at p. 211.) An actual controversy exists between an insured and
an excess insurer when it has been “adequately alleged that the
insured’s covered losses are sufficient to reach [the excess]
policy.” (Id. at p. 213.) Next, addressing the Court of Appeal’s
alternative holding that the trial court could have reasonably
denied declaratory relief pursuant to section 1061, the Supreme
Court held that the reasons outlined by the appellate court were
11
not proper grounds to deny declaratory relief. (Fox Paine II, at
pp. 221–224.)
As for bad faith, the Supreme Court held that the “inability
to plead that all underlying insurance has already been
exhausted is not by itself fatal to their claims for bad faith.” (Fox
Paine II, supra, 20 Cal.5th at p. 227.) Although the court
acknowledged the absence of prior exhaustion means it cannot
yet be said that an excess insurer is in breach of their contractual
obligations, it reasoned “an insurer may breach the implied
covenant of good faith and fair dealing while remaining in
technical compliance with the express terms of its policy.” (Ibid.)
For example, “in some instances it may be the insurer’s bad faith
itself that prevents an insured from fulfilling all of the conditions
of coverage.” (Ibid.) Accordingly, insureds in the plaintiffs’
position need “only to allege facts that, taken as true, are
sufficient to show that coverage under a defendant insurer’s
excess policy will attach—or that it would attach, if not for the
excess insurer’s bad-faith conduct—and that the insurer’s
misconduct has impaired the insured’s recovery of benefits owed
to it under the policy.” (Ibid.)
Regarding disposition, the Supreme Court remanded the
case to the Court of Appeal for it to reevaluate whether the
plaintiffs adequately alleged facts to support their causes of
action for declaratory relief and bad faith. (Fox Paine II, supra,
20 Cal.5th at pp. 218, 228.) On remand, if the Court of Appeal
found the allegations to be inadequate but that the deficiency was
capable of being cured through amendment, the court directed
that the plaintiffs should be granted leave to amend. (Id. at
p. 228.)
12
B. Plaintiffs Adequately Alleged an Actual
Controversy to Make Declaratory Relief
Necessary and Proper
We conclude that under the standard enunciated by our
Supreme Court in Fox Paine II, Plaintiffs adequately alleged an
actual controversy regarding coverage to state a cause of action
for declaratory relief against the 2008/2009 Excess Insurers.4
“ ‘Any person interested . . . under a contract’ as to which
there is an ‘actual controversy relating to the legal rights and
duties of the respective parties’ may bring an action seeking ‘a
declaration of rights or duties, either alone or with other relief,’
and a court may then ‘make a binding declaration of these rights
or duties, whether or not further relief is or could be claimed at
the time.’ [Citation.] Such a declaration ‘may be either
affirmative or negative in form and effect, and . . . shall have the
force of a final judgment. The declaration may be had before
there has been any breach of the obligation in respect to which
said declaration is sought.’ ” (Fox Paine II, supra, 20 Cal.5th at
p. 207.) Even if a plaintiff has alleged an “actual controversy,” a
trial court may “refuse to exercise the power” to grant declaratory
relief “in any case where its declaration or determination is not
4 Plaintiffs did not sue Allied World for declaratory relief. In
Plaintiffs’ supplemental letter brief, they contend that if we
affirm the judgment in Allied World’s favor we should grant them
leave to amend the TAC to pursue a declaratory relief cause of
action against Allied World. Plaintiffs’ request is moot because,
as discussed below, we reverse the dismissal of the bad faith
cause of action and remand the matter to the trial court for
further proceedings. Our remand is without prejudice to
Plaintiffs renewing their request in the trial court.
13
necessary or proper at the time under all the circumstances.”
(§ 1061.)
Applying these legal principles and Fox Paine II to our
case, we agree with Plaintiffs that they adequately alleged an
actual controversy. Plaintiffs alleged a genuine dispute exists
between them and the 2008/2009 Excess Insurers as to whether
the excess policies covered the Lawsuits. And Plaintiffs
sufficiently alleged losses to reach the excess policies: Plaintiffs
allegedly incurred over $35 million in losses by virtue of settling
the Lawsuits.
None of the 2008/2009 Excess Insurers’ arguments
supports a contrary conclusion. First, the 2008/2009 Excess
Insurers argue Plaintiffs did not allege a “covered” loss because
the record establishes that the 2021/2022 Tower Insurers had
coverage.5 But the purpose of Plaintiffs’ cause of action for
declaratory relief is to resolve this very controversy. Although the
2008/2009 Excess Insurers may be ultimately correct that they
did not have coverage, this is not an appropriate basis to dismiss
the cause of action for declaratory relief. As cautioned by our
Supreme Court: “[A]t the pleading stage, a court should not give
undue weight to what are at that juncture only potential defenses
5 RLI claims the trial court expressly found Plaintiffs failed
to allege a covered loss within the temporal scope of the
2008/2009 policies. RLI bases this assertion on a proposed order,
signed by the court, stating that Plaintiffs’ TAC against RLI was
dismissed because Plaintiffs could not plead that the Lawsuits
were covered by RLI’s policy. This may have been a clerical error
as the court’s final ruling on Defendants’ demurrers did not rest
on such a contention and was based instead on failure to exhaust.
Thus, we decline to read the order in the manner interpreted by
RLI.
14
to coverage that may prove successful in future proceedings and
ultimately prevent exhaustion.” (Fox Paine II, supra, 20 Cal.5th
p. 215.)
Second, the 2008/2009 Excess Insurers argue the trial court
reasonably exercised its discretion under section 1061 to
determine that declaratory relief was not necessary or proper. We
disagree. In making that finding, the court was concerned that it
would be rendering an advisory opinion based on a future event,
exhaustion, that may never happen. This same concern was
shared by the Fox Paine I court, but the Supreme Court rejected
it as a basis to deny declaratory relief under section 1061. (Fox
Paine II, supra, 20 Cal.5th at pp. 222–223.)
Third, RLI argues the allegations of the TAC establish
exhaustion can never occur because Plaintiffs have settled with
Federal (through Chubb) but Federal still has not paid its
$10 million limits. This ignores Plaintiffs’ allegations that
Chubb’s contribution of $10 million would be deemed a payment
from Federal if a court or jury were to determine the 2008/2009
Tower Insurers had coverage. As our Supreme Court held,
actions for declaratory relief may depend on such a future
contingency. (See Fox Paine II, supra, 20 Cal.5th at p. 210.)
Fourth, Beazley argues Plaintiffs did not adequately allege
a covered loss because Plaintiffs only alleged $15.5 million in
actual payments made by an insured (Plaintiffs’ $5.5 million in
attorney fees) or insurer (Chubb’s $10 million). But Plaintiffs did
not have to allege enough payments have been made to reach
Beazley; that is just another way of saying there has not been
exhaustion. Instead, Plaintiffs need only allege “loss” that would
reach Beazley. (Fox Paine II, supra, 20 Cal.5th at p. 213.) As
already explained, Plaintiffs alleged that here.
15
In sum, we conclude the trial court’s dismissal of the cause
of action for declaratory relief against the 2008/2009 Excess
Insurers must be reversed in light of the Supreme Court’s opinion
in Fox Paine II.
C. The Trial Court Erred in Dismissing the Bad
Faith Cause of Action Solely on the Basis That
Plaintiffs Failed to Allege Exhaustion of the
Underlying Policies
The trial court dismissed the bad faith cause of action on
the ground that “there are no facts establishing the underlying
insurance has been exhausted.” This was error under the
standard clarified by our Supreme Court in Fox Paine II.
(20 Cal.5th at p. 227 [the inability to plead exhaustion “is not by
itself fatal to . . . claims for bad faith”].)
Defendants argue the dismissal should be affirmed on
alternative grounds raised in the demurrers which the trial court
did not reach. For example, the 2008/2009 Excess Insurers argue
that Plaintiffs’ allegations at most show they denied the payment
of policy benefits due to the existence of a genuine dispute as to
coverage while Allied World argues Plaintiffs can never reach its
policy because of how “loss” is defined under its policy.
It is true “we may affirm on any ground stated in the
demurrer” (Humphreville v. City of Los Angeles (2020)
58 Cal.App.5th 115, 122), but we find that Defendants’
alternative arguments should be considered by the trial court in
the first instance on remand. Although Defendants presented
these arguments to the trial court, the arguments were made in
conclusory fashion without much reasoned argument. Some
parties treated the bad faith cause of action as wholly derivative
of the breach of contract cause of action. Clearly, the parties’
16
focus was on the other causes of action and the exhaustion issue.
That is understandable given the state of the law before Fox
Paine II, but the fact remains these alternative arguments were
not robustly developed below. Even if we conclude the arguments
are well taken as directed toward the TAC, the inquiry would not
be over as it may be possible for Plaintiffs to further amend the
TAC in light of Fox Paine II’s holding to state a cause of action for
bad faith. (See City of Riverside v. RLI Ins. Co. (2026) 119
Cal.App.5th 405, 417.)
Accordingly, we decline to reach the alternative arguments
made by Defendants and remand for the trial court to evaluate
those arguments in the first instance. If it concludes that
dismissal of the bad faith cause of action is still appropriate, it
should then consider whether to grant leave to amend. (See Fox
Paine II, supra, 20 Cal.5th at p. 228.)
D. The Trial Court Appropriately Dismissed the
Cause of Action for Breach of Contract Against
RLI and Allied World6
We next conclude the trial court did not err in dismissing
the cause of action for breach of contract against RLI and Allied
World. The court’s stated reason for dismissal, lack of exhaustion,
remains valid under Fox Paine II. (See 20 Cal.5th at p. 218 [“It is
true that the absence of prior exhaustion means it cannot yet be
said, at the time a complaint has been filed, that an excess
insurer is in breach of any express promise within the policy to
provide coverage upon the exhaustion of all underlying
insurance”].)
6 On appeal, Plaintiffs abandoned their cause of action for
breach of contract against Arch and Beazley.
17
To plead a cause of action for breach of contract, a plaintiff
must allege: “(1) the existence of the contract, (2) plaintiff’s
performance or excuse for nonperformance, (3) defendant’s
breach, and (4) the resulting damages to the plaintiff.” (Oasis
West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)
Here, Plaintiffs failed to allege RLI and Allied World owed
an obligation to provide coverage for the Lawsuits. The policies
for both insurers required exhaustion of the underlying insurance
limits before coverage attached. Because Plaintiffs failed to allege
there had been a payment to satisfy these exhaustion
requirements and trigger RLI’s and Allied World’s obligations,
Plaintiffs failed to allege the necessary element of breach. Fox
Paine II does not apply to the claims for breach of contract.
Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London
(2008) 161 Cal.App.4th 184 (Qualcomm) supports affirmance.
There, the plaintiff sued its excess insurer for breach of contract
to recover costs incurred in excess of its primary policy limit after
settling with its primary insurer for an amount less than the
primary insurer’s limit. (Id. at pp. 187–188.) The excess insurer
filed a demurrer arguing the settlement did not trigger its
reimbursement obligation because its policy stated it would “ ‘be
liable only after the insurers under each of the Underlying
Policies . . . have paid or have been held liable to pay the full
amount of the Underlying Limit of Liability’ ” and the underlying
carrier had not paid its full limit. (Id. at pp. 189–190.) The
Qualcomm court affirmed the judgment of dismissal, concluding
“under the referenced portion of the exhaustion clause, [the
excess insurer’s] liability—its reimbursement obligation—did not
arise until [the primary insurer] actually paid the full
$20 million amount of its underlying limit.” (Id. at p. 196.)
18
Plaintiffs’ arguments do not support a contrary conclusion.
With respect to RLI, Plaintiffs argue their allegations concerning
the Chubb settlement were sufficient to allege exhaustion of the
underlying Federal policy. Dubbing this their “either/or theory,”
Plaintiffs alleged Chubb paid $10 million toward the $30 million
settlement amount and the parties agreed that “(1) the
$10 million would be a payment from ACE, as the first layer
excess insurer, if the [2021/2022] Tower [Insurers were] found to
have coverage and be liable for the $30 million settlement in this
coverage action; and (2) the $10 million would be a payment from
Federal, as the [2008/2009 Tower Insurers’] primary insurer, if
the [2008/2009] Tower [Insurers were] found to have coverage
and be liable for the $30 million settlement in this coverage
action.” (Italics added.) Plaintiffs argue this was sufficient to
allege the triggering of RLI’s obligations because either Federal’s
or ACE’s policy would be exhausted “once a court or jury
determines which tower of insurance is liable.” (Italics added.)
We are not persuaded.
Although Chubb has made a payment, the conditional
language Plaintiffs use confirms there has been no determination
as to whether the 2008/2009 Tower Insurers or the 2021/2022
Tower Insurers have coverage. Plaintiffs’ reliance on an
undifferentiated Chubb contribution that “might be” allocated to
Federal or ACE in the future is insufficient to allege the Federal
policy has been exhausted.
As for Allied World, Plaintiffs argue that even if their
reliance on the Chubb settlement is insufficient to allege
exhaustion against RLI, it is sufficient against Allied World
because its policy stated the underlying policies may be
19
exhausted by payments from the insured or a third party, like
Chubb. We are unconvinced.
Although Allied World’s policy allowed a third party to
make the payment that would exhaust the underlying policies, it
still required actual exhaustion of these policies. Chubb has
contributed $10 million, but Plaintiffs’ allegations show that the
status of the Chubb payment remains in limbo. Thus, Plaintiffs
failed to allege exhaustion of the ACE policy to trigger Allied
World’s obligations.
Plaintiffs also argue the trial court should not have rejected
their either/or theory because the Chubb settlement deferred the
question of which tower was responsible for exhaustion purposes
to the court. Although that may create a ripe controversy for
declaratory relief (see pt. III.B., ante), that does not create a ripe
breach of contract action against RLI and Allied World.
Plaintiffs additionally argue the trial court’s rejection of the
either/or theory contravened the settled rule that plaintiffs may
allege alternative and inconsistent legal theories. (See, e.g.,
Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 29.) But Plaintiffs’
either/or theory went beyond presenting alternative theories; it
confirmed a condition precedent necessary for Plaintiffs to
maintain a cause of action for breach of contract has not yet
occurred.
In short, Plaintiffs did not adequately allege breach of
contract against RLI and Allied World.
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E. The Trial Court Appropriately Dismissed the
Cause of Action for Anticipatory Breach
Against the 2008/2009 Excess Insurers
We similarly conclude the trial court did not err in
dismissing the cause of action for anticipatory breach against the
2008/2009 Excess Insurers for lack of exhaustion.
“Anticipatory breach occurs when one of the parties to a
bilateral contract repudiates the contract.” (Taylor v. Johnston
(1975) 15 Cal.3d 130, 137.) “When a promisor repudiates a
contract, the injured party faces an election of remedies: he can
treat the repudiation as an anticipatory breach and immediately
seek damages for breach of contract, thereby terminating the
contractual relation between the parties, or he can treat the
repudiation as an empty threat, wait until the time for
performance arrives and exercise his remedies for actual breach
if a breach does in fact occur at such time.” (Ibid.)
Importantly, “it is the general rule, recognized in this state,
that the doctrine of breach by anticipatory repudiation does not
apply to contracts which are unilateral in their inception or have
become so by complete performance by one party.” (Diamond v.
University of So. California (1970) 11 Cal.App.3d 49, 53
(Diamond); Cobb v. Pacific Mutual. Life Ins. Co. (1935) 4 Cal.2d
565, 573 (Cobb) [“There can be no anticipatory breach of a
unilateral contract”].) “The theory underlying this rule is that
since the plaintiff has no future obligations to perform, he is not
prejudiced by having to wait for the arrival of the defendant’s
time for performance in order to sue for breach.” (Diamond, at
pp. 53–54.) Thus, in the insurance context, our Supreme Court
has recognized that where an insured was “exempt from future
performance so far as dues or assessments were concerned” for a
permanent disability policy, the insured could not state a claim
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for anticipatory breach to recover future “ ‘instalments not yet
due.’ ” (Cobb, at p. 573.)
Here, Plaintiffs alleged they fully performed their
obligations under the 2008/2009 Excess Insurers’ policies. The
contracts thus became unilateral, and there can be no claim for
breach in advance of those insurers’ time for performance.
Plaintiffs failed to allege that time had arrived. Like RLI’s excess
policy, the Arch and Beazley policies had similar exhaustion
requirements, and Plaintiffs failed to plead exhaustion of the
underlying policies to trigger those insurers’ obligations. (See
pt. III.D., ante.)
Plaintiffs claim they sufficiently alleged the 2008/2009
Excess Insurers repudiated their policies because Plaintiffs
alleged that even if the underlying policies are exhausted, those
insurers would not honor their obligation and instead deny
coverage. Plaintiffs based these allegations on those insurers’
position that the Lawsuits did not relate back to the Ring Claim.
We disagree.
An anticipatory repudiation excuses the promisee’s
performance, but it does not expand the promisee’s rights or the
repudiating promisor’s obligations under the contract. (See Cobb,
supra, 4 Cal.2d at p. 573 [allegedly repudiating insurer had no
obligation to make disability installment payments before due];
Combs v. Hughes (1958) 160 Cal.App.2d 809, 816 [“the
repudiation of the contract did not accelerate the time at which
plaintiff was entitled to performance by the defendant”].) By
failing to allege exhaustion—a condition precedent to the
2008/2009 Excess Insurers owing any obligation—Plaintiffs failed
to allege they had any present rights to payment under those
insurers’ policies.
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Thus, Plaintiffs did not adequately allege anticipatory
breach against the 2008/2009 Excess Insurers.
F. The Trial Court Appropriately Dismissed the
Cause of Action for Unfair Competition
Plaintiffs concede their cause of action for unfair
competition rises and falls with their causes of action for breach
of contract and anticipatory breach. Because we have concluded
the trial court properly dismissed those two causes of action, we
also conclude the court appropriately dismissed the cause of
action for unfair competition.
DISPOSITION
The judgments in favor of RLI, Arch, and Beazley are
reversed as to Plaintiffs’ third and fourth causes of action only.
The judgment in favor of Allied World is reversed as to Plaintiffs’
fourth cause of action only. The matter is remanded to the trial
court for further proceedings consistent with this opinion. The
parties are to bear their own costs.
RICHARDSON, J.
WE CONCUR:
LUI, P. J.
CHAVEZ, J.
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