CENTRAL MUTUAL INSURANCE COMPANY v. SANTA CLARA SWIM CLUB LLC (2026)

ORDER DENYING MOTION TO DISMISS

This insurance coverage dispute arises from a state court action alleging that a swim coach employed by Defendants the County of Santa Clara and the Santa Clara Swim Club (“SCSC”) sexually assaulted a minor athlete. See First Am. Compl. ¶¶ 9, 14, 20-22, ECF No. 19 (“FAC”). SCSC tendered its defense of that action to the Plaintiff in this case, Central Mutual Insurance Co. (“Central Mutual”) pursuant to an insurance policy. Id. ¶¶ 6, 24. Central Mutual contributed the $1,000,000 policy limit to settle the underlying action. Id. ¶ 26. In this case, Central Mutual seeks a declaration that the underlying action was not covered by the insurance policy and seeks to recoup the amount it contributed to the settlement. Id. ¶¶ 28-30, 34-35.

SCSC moves to dismiss both claims. Mot. to Dismiss, ECF No. 23 (“Mot.”). First, SCSC argues that Central Mutual fails to plead certain prerequisites that an insurer must satisfy in order to seek recoupment. Second, because Central Mutual lacks a right to recoupment, SCSC contends that the Court lacks subject matter jurisdiction over the declaratory judgment claim. Having carefully reviewed the briefs and relevant authority, the Court finds this matter suitable for disposition without oral argument. See Civil L.R. 7-1(b). The motion to dismiss is DENIED.¹

Under certain conditions, an insurer may settle a third-party claim while reserving its rights to dispute coverage and to seek recoupment from the insured. Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489, 498-502 (2001). Specifically, the insurer must make: “(1) a timely and express reservation of rights; (2) an express notification to the insureds of the insurer's intent to accept a proposed settlement offer; and (3) an express offer to the insureds that they may assume their own defense when the insurer and insureds disagree whether to accept the proposed settlement.” Id. at 502. Here, Central Mutual plausibly alleges that it satisfied these requirements. Central Mutual alleges that “SCSC tendered its defense ․ to Central Mutual on or about April 3, 2025,” and that Central Mutual “accepted SCSC's defense pursuant to a reservation of rights, including the right to seek recoupment.” FAC ¶ 24. Central Mutual further alleges that it provided SCSC “express notification” of its “intent to pay its full policy limits towards resolution of the claims as part of a settlement package.” Id. ¶ 27. Finally, Central Mutual alleges that it offered SCSC “an opportunity to assume [its] own defense if [it] disagreed with acceptance of the proposed settlement.” Id. These allegations support Central Mutual's claim for recoupment.

SCSC's arguments for dismissal are not persuasive. First, SCSC asserts that the complaint lacks detail, but it fails to cite a single case that requires more. Courts have found similar allegations sufficient. See, e.g., Burlington Ins. Co. v. Devdhara, No. CV 09-00421 SBA, 2009 WL 2901624, at *5-6 (N.D. Cal. Sep. 3, 2009). Second, SCSC quibbles that a core allegation, paragraph 27, is not expressly incorporated by reference in the causes of action. Mot. at 3. This technical error is inconsequential because paragraph 27 is placed immediately before the causes of action begin, see FAC ¶¶ 28-30, 34-35, and the complaint spans just eight pages. Third, according to SCSC, Central Mutual alleges that it provided notice of a “general intent to contribute policy limits to an eventual settlement,” rather than notice of a particular settlement as required. Mot. at 8-9. To the contrary, Central Mutual alleges that it provided notice and an opportunity for SCSC to assume its own defense if it disagreed with “the proposed settlement,” not a hypothetical settlement. FAC ¶ 27. Finally, SCSC argues that, to “prove its claim,” Central Mutual will “rely on mediation-related communications” that are privileged. Mot. at 8. This argument is premature because the complaint does not expressly rest on mediation communications. Evidentiary objections can be raised at summary judgment. See AmGUARD Ins. Co. v. Azimi, No. 2:25-cv-05832-SVW-AGR, 2025 WL 4229660, at *5 (C.D. Cal. Dec. 30, 2025).

SCSC's motion to dismiss the declaratory judgment claim assumes dismissal of the recoupment claim. Mot. at 9 (“As Central Mutual cannot plead a case for recoupment, any declaration regarding coverage would be simply advisory.”). Because the recoupment claim proceeds, so does the declaratory judgment claim.

Accordingly, SCSC's motion to dismiss is DENIED. SCSC shall file its answer to the complaint by August 10, 2026.

IT IS SO ORDERED.

FOOTNOTES

1.   This Order assumes the reader's familiarity with the facts, procedural history, applicable legal standards, and arguments made by the parties.

Eumi K. Lee United States District Judge