Judge: Andrew E. Cooper, Case: 24CHCV02746, Date: 2025-01-23 Tentative Ruling

Case Number: 24CHCV02746    Hearing Date: January 23, 2025    Dept: F51

DEMURRER WITH MOTION TO STRIKE

Demurrer with Motion to Strike Filed: 9/16/24

MOVING PARTY: Defendant AmGUARD Insurance Company (“Moving Defendant”)

RESPONDING PARTY: Plaintiff Quick Wash Spotless Systems, Inc. (“Plaintiff”)

NOTICE: OK

RELIEF REQUESTED: Moving Defendant demurs to the first and second causes of action in Plaintiff’s complaint. Moving Defendant also seeks an order striking Plaintiff’s references to punitive damages from the complaint.

TENTATIVE RULING: The demurrer is overruled against Plaintiff’s first cause of action. The demurrer is sustained against Plaintiff’s second cause of action, and the motion to strike is granted, with 30 days leave to amend.

BACKGROUND 

This is an insurance action in which Plaintiff, the insured, alleges that on 3/13/24, it suffered a covered fire loss under its commercial insurance policy with Moving Defendant, Plaintiff’s insurance carrier. (Compl. ¶ 1.) Plaintiff alleges that it submitted an insurance claim to Moving Defendant, who thereafter “unreasonably and in bad faith ignored reliable documents and evidence that support the claim, failed to conduct a thorough investigation to afford coverage for the claim and wrongfully denied Plaintiff’s claim.” (Id. at ¶ 2.) Plaintiff alleges that this denial was based on Plaintiff’s purported “material misrepresentation indicating an automatic fire alarm was present on the Property at the time of the purchase of the POLICY,” despite Moving Defendant’s knowledge that no such fire alarm existed at the subject property, nor did Moving Defendant recommend that one be installed. (Ibid.)

On 7/30/24, Plaintiff filed its complaint, alleging against four named defendants the following causes of action: (1) Breach of Contract; (2) Breach of the Implied Covenant of Good Faith and Fair Dealing; (3) Professional Negligence; and (4) Fraud. Only the first and second causes of action are alleged against Moving Defendant.

On 9/16/24, Moving Defendant filed and served the instant demurrer and motion to strike. On 1/7/25, Plaintiff filed its opposition. On 1/13/25, Moving Defendant filed its reply.

DEMURRER

As a general matter, a party may respond to a pleading against it by demurrer on the basis of any single or combination of eight enumerated grounds, including that “the pleading does not state facts sufficient to constitute a cause of action.” (Code Civ. Proc., § 430.10, subd. (e).) In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice.¿(Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.)¿

“A demurrer tests the pleading alone, and not the evidence or facts alleged.” (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) As such, the court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Ibid.) The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) 

Here, Moving Defendant¿demurs to Plaintiff’s first and second causes of action on the bases that the complaint fails¿to allege facts sufficient to¿state¿those causes of action.

A.    Meet-and-Confer 

Moving Defendant’s counsel declares that on 9/3/24, she emailed Plaintiff’s counsel a meet and confer letter discussing the issues raised in the instant demurrer and motion to strike. (Decl. of Wynn C. Kaneshiro ¶ 3.) On 9/5/24, counsel for the parties met and conferred via telephone, but were unable to reach an informal resolution. (Ibid.) Therefore, the Court finds that counsel has satisfied the preliminary meet and confer requirements of Code of Civil Procedure section 430.41, subdivision (a).

B.     Breach of Contract

Plaintiff’s first cause of action alleges Breach of Contract against Moving Defendant. To state a cause of action for breach of contract, a plaintiff must be able to establish “(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, Plaintiff alleges that despite the terms of the insurance policy between the parties, and despite Plaintiff’s performance thereunder, “(1) AMGUARD failed to properly investigate and evaluate Plaintiffs’ claim in a reasonable, timely and objective manner so as to effectuate timely and complete payment (2) AMGUARD’S representatives utilized improper practices to search for ways to avoid coverage and wrongfully deny the claim; (3) AMGUARD ignored supporting documents which all supported Plaintiff’s claim; (4) AMGUARD was aware or should have been aware that the Property did not have an automatic fire alarm installed at the time it issued the POLICY or shortly thereafter, and continued to accept premium payments from Plaintiff.” (Compl. ¶ 35.)

1.      Condition Precedent

Moving Defendant argues that no breach occurred because “under the plain terms of the Policy, Quick Wash was required to maintain an automatic fire alarm on the premises. Further, under the plain terms of the Policy, there is no coverage for any damage or loss resulting from fire if there is no automatic fire alarm on the premises.” (Dem. 13:26–14:2, citing Ex. 1 to Compl.) Moving Defendant further argues that “here, it is a condition precedent to the Policy that the Property contain an automatic fire alarm. Because the Property did not contain an automatic fire alarm, the condition is not satisfied and AmGUARD has no obligation under the Policy.” (Id. at 15:13–15, citing American Way Cellular, Inc. v. Travelers Property Casualty Co. of America (2013) 216 Cal.App.4th 1040.)

In American Way, the Court of Appeal affirmed the trial court’s entry of summary judgment for the insurer defendant, holding that the Protective Safeguards Endorsement For Sprinklered Locations and Restaurants, contained in the insurance policy, was a condition precedent to coverage. (216 Cal.App.4th at 1054.) In American Way, the Endorsement stated: “‘As a condition of this insurance, you are required to maintain the protective devices or services listed....’ The protective devices were listed as ‘Automatic Sprinkler System, including related supervisory services.’” (Id. at 1045.) The Court of Appeal ultimately found that based on the evidence provided, the insured plaintiff “was precluded from coverage because it failed to maintain an automatic sprinkler system under the terms of the Endorsement.” (Id. at 1055.)

Here, Moving Defendant argues that “the Protective Safeguards Endorsement applied in American Way is functionally identical to the Protective Safeguards Endorsement in the Policy.” (Dem. 16:8–9.) Here, “in the Complaint, Quick Wash admits that the Property did not have the protective safeguard required by the Policy.” (Id. at 16:12–13.) Therefore, Moving Defendant argues that here, as in American Way, Plaintiff “clearly failed to comply with the Protective Safeguards Endorsement because it did not maintain an automatic fire alarm on the Property. As a result, AmGUARD did not breach the policy.” (Id. at 16:14–17.)

Plaintiff argues in opposition that “whether Plaintiff complied with the Protective Safeguard, specifically, the automatic fire alarm, in the Policy is replete with questions of fact that should not be adjudicated at the pleading stage.” (Pl.’s Opp. 7:13–15.) Specifically, Plaintiff argues that “due to the existence of the alarm system and close proximity to the fire station (they were directly adjacent) there are additional questions of fact as to whether Plaintiff did in fact comply with the Protective Safeguard or whether it was a material misrepresentation in light of the fact that a fire station was adjacent to the property.” (Id. at 8:1–4.) Plaintiff therefore argues that “assuming the Court reaches the issue of alleged compliance with the safeguard (which it shouldn’t as this is factual dispute), Plaintiff has alleged that it did in fact have an operating alarm system in place that can also operate as a fire alarm.” (Id. at 10:24–26, citing Compl. ¶¶ 19–20.)

While the Court finds American Way to be inapposite at the demurrer stage, it agrees with Moving Defendant that here, throughout the complaint, Plaintiff has unambiguously alleged that there was no automatic fire alarm at the subject property, as defined by the policy agreement. (Compl. ¶¶ 2, 3, 26, 33.) Accordingly, the Court finds that Plaintiff has failed to allege facts sufficient to show that it was entitled to coverage for its losses due to the subject incident.

2.      Waiver/Estoppel

Alternatively, Plaintiff argues that it has alleged that Moving Defendant has waived its right, or should be estopped from, denying Plaintiff coverage for its noncompliance with the fire alarm requirement. In the insurance context, “the right to information of material facts may be waived, either (a) by the terms of insurance or (b) by neglect to make inquiries as to such facts, where they are distinctly implied in other facts of which information is communicated.” (Ins. Code § 336.) The doctrine of estoppel requires that the “insurer’s conduct caused either (1) a ‘reasonable’ belief that insurer was providing coverage or (2) any detrimental reliance on such conduct.” (State Farm Fire & Casualty Co. v. Jioras (1994) 24 Cal.App.4th 1619, 1627–1628.)

Here, Plaintiff alleges that Moving Defendant:

“completed a loss control review the Property and provided advisory recommendations. Accordingly, following the loss control review, AMGUARD was aware or should have been aware that the building did not have an automatic fire alarm system installed as was required by the Protective Safeguard Endorsement attached to the POLICY. AMGUARD did not recommend that Plaintiff needed to install an automatic fire alarm at the Property. After completing its loss control review, AMGUARD accepted premium payments from Plaintiff and AMGUARD agreed to provide the insurance stated in the POLICY. AMGUARD did not request Plaintiff to supply proof of proper maintenance of an automatic fire alarm prior to the March 2024 fire loss. At no time was Plaintiff aware that the Property did not have the proper protective safeguards required under the POLICY.” (Compl. ¶ 39.)

Plaintiff further alleges Moving Defendant’s waiver and estoppel in paragraphs 51 and 52 of the complaint. Plaintiff therefore argues that “Plaintiff’s allegations of waiver and estoppel based on AmGuard’s own inspection of the property during the underwriting of the property and Policy and advisory recommendations that notably do not mention the necessity of the automatic fire alarm, raise additional questions of fact that must be adjudicated after discovery and a review of the claim and underwriting file relating to Plaintiff’s property.” (Pl.’s Opp. 15:8–12.)

Moving Defendant argues that “in California, waiver and estoppel cannot create coverage if there is no coverage.” (Dem. 16:26, citing Advanced Network, Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054; Manneck v. Lawyers Title Ins. Corp. (1994) 28 Cal.App.4th 1294; Miller v. Elite Ins. Co. (1980) 100 Cal.App.3d 739; Dollinger DeAnza Associates v. Chicago Title Ins. Co. (2011) 199 Cal.App.4th 1132.) Here, Moving Defendant argues that Plaintiff “is improperly applying waiver and estoppel to create coverage under the policy which does not exist.” (Def.’s Reply 12:9–11.) To this extent, the Court agrees, and reiterates its earlier finding that Plaintiff’s allegations, taken as true, allege that it was not covered under the insurance policy.

3.      Reformation

Plaintiff further contends that it has sufficiently alleged a basis for reformation of the policy as a remedy for its first cause of action. “When, through fraud or a mutual mistake of the parties, or a mistake of one party, which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention, so far as it can be done without prejudice to rights acquired by third persons, in good faith and for value.” (Civ. Code § 3399.)

“Reformation may be had for a mutual mistake or for the mistake of one party which the other knew or suspected, but in either situation the purpose of the remedy is to make the written contract truly express the intention of the parties. … A complaint for reformation based on mutual mistake must allege facts showing how the mistake was made, whose mistake it was, and what brought it about, so that the mutuality may appear.” (Komorsky v. Farmers Ins. Exchange (2019) 33 Cal.App.5th 960, 974.)

“Here, Plaintiff has alleged mistake with respect to the nature and functionality of the alarm system in place at the Property. Based on the underwriting and inspection that occurred, there is evidence suggesting that either AmGuard was also mistaken regarding the functionality of the alarm system or worse, knew and understood that Plaintiff did not have a fire alarm system in place and still continued with coverage and did not alert Plaintiff of this alleged non-compliance as evident in the allegations of waiver and estoppel.” (Pl.’s Opp. 16:4–9, citing Compl. ¶¶ 26, 37, 51, 52.) Plaintiff argues that “Defendant either knew or should have known as of the date of the date of its inspection that, that the alarm system in place did not comply with the protective safeguard in the Policy and should have alerted its insured.” (Id. at 16:11–13.) “Defendant’s decision to insure the property knowing that it would simply reject any claim, equates to inequitable conduct and reformation is one of the appropriate remedies.” (Id. at 16:17–19.)

Based on the foregoing, the Court finds that at the demurrer stage, Plaintiff has alleged facts to constitute an equitable remedy of reformation based on fraud or mistake. Accordingly, the demurrer against Plaintiff’s first cause of action is overruled.

C.    Breach of Implied Covenant of Good Faith and Fair Dealing

Plaintiff’s second cause of action alleges against Moving Defendant a breach of the implied covenant of good faith and fair dealing. Every contract contains an implied covenant of good faith and fair dealing that neither party will do anything to interfere with the other party’s right to receive the benefits of the agreement. (Howard v. American Nat’l Fire Ins. Co. (2010) 187 Cal.App.4th 498, 528.) The precise nature and extent of the duty depends on the nature and purpose of the underlying contract and the parties’ legitimate expectations arising from the contract. (Ibid.) “A breach of the implied covenant of good faith is a breach of the contract … and breach of a specific provision of the contract is not ... necessary to a claim for breach of the implied covenant of good faith and fair dealing.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

In the insurance context, “it is the obligation, deemed to be imposed by the law, under which the insurer must act fairly and in good faith in discharging its contractual responsibilities. Where in so doing, it fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing.” (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 574 [emphasis added].)

Here, Moving Defendant argues that “as discussed above, there is no coverage under the Policy for the losses arising out the March 2024 fire. Accordingly, Quick Wash’s cause of action for bad faith is without merit as a matter of law.” (Dem. 17:17–19.) The Court agrees and reiterates its finding that Plaintiff has failed to allege facts sufficient to show that it was entitled to coverage for its losses due to the subject incident. As such, Plaintiff has failed to allege that Moving Defendant breached the implied covenant of good faith and fair dealing by unreasonably denying compensation for an otherwise covered loss. Based on the foregoing, the demurrer against Plaintiff’s second cause of action is sustained.

MOTION TO STRIKE

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436, subd. (a).) The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Id., § 436, subd. (b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id., § 437.) Here, Moving Defendant moves to strike Plaintiff’s references to punitive damages from the complaint.

A.    Punitive Damages

Punitive damages may be recovered in non-contract actions upon a proper showing of malice, fraud, or oppression by clear and convincing evidence. (Civ. Code § 3294, subd. (a).) “Malice” is defined as conduct intended to cause injury to a person or despicable conduct carried on with a willful and conscious disregard for the rights or safety of others. (Id. at subd. (c); Turman v. Turning Point of Cent. Cal., Inc. (2010) 191 Cal.App.4th 53, 63.) “Oppression” means despicable conduct subjecting a person to cruel and unjust hardship, in conscious disregard of the person’s rights. (Ibid.) “Fraud” is an intentional misrepresentation, deceit, or concealment of a material fact known by defendant, with intent to deprive a person of property, rights or otherwise cause injury. (Ibid.)

An insurance carrier may be liable for punitive damages if it is found to have acted with malice, fraud, or oppression in failing to deal fairly and in good faith with its insured. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922–923.) Punitive damages must be supported by factual allegations. Conclusory allegations, devoid of any factual assertions, are insufficient to support a conclusion that parties acted with oppression, fraud or malice. (Smith v. Superior Court (1992) 10 Cal.App.4th 1033, 1042; Anschutz Entertainment Group, Inc. v. Snepp (2009) 171 Cal.App.4th 598, 643.)

Here, the Court agrees with Moving Defendant that “since Quick Wash cannot maintain a bad faith cause of action, its request for an award of punitive damages based on such cause of action necessarily fails as well.” (MTS Reply 2:25–26.) Accordingly, the motion to strike is granted.

LEAVE TO AMEND

Where a demurrer is sustained, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Id.; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) However, “[i]f there is any reasonable possibility that the plaintiff can state a good cause of action, it is error to sustain a demurrer without leave to amend.” (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245).

Here, the Court notes that this is the first demurrer brought against Plaintiff’s original complaint, and that Plaintiff has requested leave to amend should the Court sustain the instant demurrer or grant the motion to strike. (Pl.’s Opp. 17:3–5.) Therefore, under the Court’s liberal policy of granting leave to amend, Plaintiff is granted 30 days leave to amend the complaint to cure the defects set forth above.

CONCLUSION 

The demurrer is overruled against Plaintiff’s first cause of action. The demurrer is sustained against Plaintiff’s second cause of action, and the motion to strike is granted, with 30 days leave to amend.