Judge: Anne Richardson, Case: 22STCV04752, Date: 2023-11-16 Tentative Ruling

Case Number: 22STCV04752    Hearing Date: November 16, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Plaintiff Mahrou Hanassab sues the Interinsurance Exchange of the Automobile Club (AAA) and Does 1 through 25 pursuant to an October 12, 2022 First Amended Complaint (FAC) alleging claims of (1) Breach of Written Contract, (2) Breach of the Implied Covenant of Good Faith and Fair Dealing, (3) Fraudulent Concealment, (4) Negligent Hiring, Retention and Supervision, and (5) Breach of Fiduciary Duty.

The claims arise from allegations that, among other things, AAA mismanaged Hanassab’s defense in consolidated auto collision lawsuits filed against Hanassab in 2017 and 2018: LASC actions BC669326, instituted by the other driver, Connor Lumpkin; and 18STCV03330, instituted by the three passengers in Hanassab’s vehicle. A jury trial was held and resulted in a verdict against Hanassab and in favor of Connor Lumpkin in the amount of $860,042.39, only $100,000 of which was covered by AAA under Hanassab’s Policy with AAA, leaving an unsatisfied judgment of $760,042.39.

The FAC was filed after the Court sustained an unopposed demurer by AAA to the original February 7, 2022 Complaint.

On August 8, 2023, AAA filed a demurrer to the FAC’s five causes of action.

That same day, AAA served the motion on Plaintiff’s counsel via email.

Plaintiff has failed to oppose the demurrer, which is now before the Court.

Request for Judicial Notice

Documents are judicially noticeable to show their existence, what orders were made, and the documents’ legal effect, but the truth of the facts and findings within the documents are not judicially noticeable. (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 885; Julian Volunteer Fire Co. Assn. v. Julian-Cuyamaca Fire Protection Dist. (2021) 62 Cal.App.5th 583, 600 [affirming trial court’s taking of judicial notice of “the dates and the legal effect of the statements contained in the documents”].)

The Court does not take judicial notice of the auto liability policy, BC669326 filings, and the 21STCV04534 filings submitted by AAA as to not convert this hearing into an evidentiary hearing. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604-605.)

Demurrer

Demurrer Sufficiency Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).) This device can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) To sufficiently allege a cause of action, a complaint must allege all the ultimate facts—that is, the facts needed to establish each element of the cause of action pleaded. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 212, superseded by statute as stated in Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235, 242.) Thus, “[t]o survive a [general] demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) In testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-67.) A demurrer, however, “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.) The face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence. (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded by statute on other grounds as stated in White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 521.)

Order on Demurrer: SUSTAINED, without leave.

AAA, unopposed, moves for an order that sustains its sufficiency challenges to the FAC’s five causes of action. California Rules of Court, rule 3.1342 provides that “[t]he failure of the opposing party to serve and file a written opposition may be construed by the court as an admission that the motion is meritorious, and the court may grant the motion without a hearing on the merits.” (See also Sexton v. Superior Court (1997) 58 Cal.App.4th 1403, 1410.)

I.

FAC, First Cause of Action, Breach of Written Contract: SUSTAINED, without leave.

“A contract is a voluntary and lawful agreement, by competent parties, for a good consideration, to do or not to do a specified thing.” (Robinson v. Magee (1858) 9 Cal. 81, 83.) “To prevail on a cause of action for breach of contract, the plaintiff must prove (1) the contract, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting damage to the plaintiff.” (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) Implicit in the element of damage is that the defendant’s breach caused the plaintiff’s damage.” (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1352, italics omitted.)

A contract must be pled verbatim in the body of the complaint, be attached to the complaint and incorporated by reference, or be pled according to its legal effect. (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-99 [“In an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language.”]; Bowden v. Robinson (1977) 67 Cal.App.3d 705, 718.) “In order to plead a contract by its legal effect, plaintiff must ‘allege the substance of its relevant terms.’” (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 993.)

The FAC alleges that Plaintiff was insured with AAA pursuant to an auto policy insuring Plaintiff from any and all damages resulting from a covered loss in an automobile collision and that if a cover loss arose, Defendants would indemnify Plaintiff and hold him without liability. The FAC also alleges that “about October 31, 2017 and continuing thereafter Defendants and each of them breached the contract of insurance by [1] failing to retain competent counsel, [2] failing to attempt settlement of the claim(s) within the policy limits, [3] failing to communicate with Plaintiff all developments in the case and consolidated action, [4] failing to retain necessary experts to assist in the defense of the action(s), [5] failing to initiate settlement conversations with the Plaintiff(s) in the underlying action, [6] failing to undertake all necessary steps to defend, indemnify and [7] hold harmless Plaintiff from the claims in the action(s).” (FAC, ¶¶ 47-48, 54.)

In its demurrer, AAA argues that this claim cannot be sufficiently stated because the FAC alleges at paragraphs 15 and 43 that AAA fully defended Hanassab in the Underlying Action as to a jury award in favor of Connor Lumpkin and properly paid the $100,000 policy limit for bodily injuries, satisfying AAA’s contractual obligations consistent with various California authorities. The demurrer also argues that the FAC’s allegations of failure to indemnify the unsatisfied judgment of $760,042.39 in the Underlying Action does not arise from any contractual provision, and that some of the grounds for breach of contract—e.g., failure to initiate settlement conversations with the plaintiffs in the Underlying Action—do not impose a duty on an insurer to the insured. (Demurrer, pp. 10-11.)

There is no opposition before the Court.

The Court SUSTAINS AAA’s demurrer.

The Court begins by noting that “[an insurance] carrier may rely upon trial counsel to conduct the litigation, [such that] the carrier does not become liable for trial counsel’s legal malpractice” “[i]f trial counsel negligently conducts the litigation, [where] the remedy for this negligence is found in an action against counsel for malpractice and not in a suit against counsel’s employer to impose vicarious liability.” (Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 881-882.) This authority undercuts the first, third, fourth, and sixth grounds for breach of contract alleged in the FAC. (FAC, ¶ 54.)

Moreover, “[n]othing in California law supports the proposition that [a breach of contract claim based on] bad faith liability for failure to settle may attach if an insurer fails to initiate settlement discussions, or offer its policy limits, as soon as an insured’s liability in excess of policy limits has become clear.” (Reid v. Mercury Ins. Co. (2013) 220 Cal.App.4th 262, 277.) This authority undercuts the second and fifth grounds for breach of contract in the FAC. (FAC, ¶ 54.)

This leaves only the allegations that AAA failed to fully indemnify Plaintiff as the ground for breach of contract. (FAC, ¶ 54.) However, the FAC simultaneously and uncertainly alleges policy limits of $100,000 for bodily injury claims, like the one paid to Connor Lumpkin (FAC, ¶¶ 11, 35), and a duty to fully and completely indemnify any deficiency in judgment (FAC, ¶¶ 47-48). These contradictory terms undercut the basis for liability on the breach of contract claim.

All the alleged grounds for breach of contract are thus undercut as a matter of law or based on uncertainty (and thus, lack of sufficiency) in pleading.

AAA’s demurrer to the FAC’s first cause of action is thus SUSTAINED.

Based on Plaintiff’s failure to oppose this demurrer, no leave to amend is granted.

II.

FAC, Second Cause of Action, Breach of the Implied Covenant of Good Faith and Fair Dealing: SUSTAINED, without leave.

To prevail on a cause of action for breach of the implied covenant of good faith and fair dealing, the plaintiff must prove: (1) the existence of a contract between plaintiff and defendant; (2) plaintiff performed his contractual obligations or was excused from performing them; (3) the conditions requiring defendant’s performance had occurred; (4) the defendant unfairly interfered with the plaintiff’s right to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant’s conduct. (Merced Irr. Dist. v. County of Mariposa (E.D. Cal. 2013) 941 F.Supp.2d 1237, 1280 [discussing California law].)

Allegations must demonstrate defendant’s conduct for failure or refusal to discharge contractual responsibilities was a conscious and deliberate act, not an honest mistake, bad judgment or negligence. (Ibid.) “‘[T]he implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract and cannot be extended to create obligations not contemplated by the contract.’” (Ragland v. U.S. Bank Nat. Assn. (2012) 209 Cal.App.4th 182, 206, quoting Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094.)

The Court adopts its discussion in Section I to find that AAA has not, as alleged in the FAC, unfairly interfered with Plaintiff Hanassab’s right to receive benefits under the auto policy with AAA.

AAA’s demurrer to the FAC’s second cause of action is thus SUSTAINED.

Based on Plaintiff’s failure to oppose this demurrer, no leave to amend is granted.

III.

FAC, Third Cause of Action, Fraudulent Concealment: SUSTAINED, without leave.

“[T]he elements of an action for fraud and deceit based on a concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248; see also Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 665-666.)

The FAC pleads various grounds for concealment of material information, intentionally suppressed by AAA. (FAC, ¶¶ 78 [duty], 79-86 [concealments].)

In its demurrer, AAA argues that the third cause of action is not sufficiently stated because much of the liability on this claim arises from the conduct of defense counsel in the Underlying Action, for whose conduct AAA cannot be liable. AAA also argues that the “concealments” alleged against AAA are not concealments at all, specifically addressing the concealment alleged in the FAC’s 86th paragraph. Last, AAA argues that because there is no fiduciary duty between insurer and insured, there can be no duty to disclose based on a fiduciary relationship. (Demurrer, pp. 17-18.)

The Court finds that the concealment claim is not sufficiently alleged.

The Court adopts its discussion in Section I to note that this claim cannot hold AAA liable for malpractice by defense counsel in the Underlying Action, including concealments.

To the degree that this claim alleges concealment against AAA alone (FAC, ¶¶ 79-80, 84), the Court notes that such liability is alleged in relation to information whose materiality the Court cannot readily understand from the pleadings (workload of defense counsel in Underlying Action) or is alleged conclusorily (conflict of interest).

The allegations supporting a duty to disclose are also undercut by the Court’s determination that no fiduciary duty arises from the insurer-insured relationship. (See Section V discussion infra.)

AAA’s demurrer to the FAC’s third cause of action is thus SUSTAINED.

Based on Plaintiff’s failure to oppose this demurrer, no leave to amend is granted.

IV.

FAC, Fourth Cause of Action, Negligent Hiring, Retention and Supervision: SUSTAINED, without leave.

“California case law recognizes the theory that an employer can be liable to a third person for negligently hiring, supervising, or retaining an unfit employee.” (Doe v. Capital Cities (1996) 50 Cal.App.4th 1038, 1054.) “Negligence liability will be imposed on an employer if it ‘knew or should have known that hiring the employee created a particular risk or hazard and that particular harm materializes.’” (Phillips v. TLC Plumbing, Inc. (2009) 172 Cal.App.4th 1133, 1139; Margaret W. v. Kelley R. (2006) 139 Cal.App.4th 141, 156-157 [To establish negligent supervision, a plaintiff must show that a person in a supervisorial position over the actor had prior knowledge of the actor’s propensity to do the bad act].)

The FAC’s fourth cause of action arises from allegations that (1) Defendants knew or should have known that defense counsel and all support staff and associates involved in the defense of this action were unfit and incompetent to perform the services for which they were employed, (2) Defendants knew or should have known that defense counsel and all support staff and associates involved in the defense of this action posed a serious risk of harm to Plaintiff in that their conflicts and incompetence would jeopardize the defense of the Underlying Action and expose Plaintiff to an excess verdict and financial decimation, and (3) defense counsel and all support staff and associates involved in the defense of the Underlying Action failed to competently perform the services they were hired and employed for and did subject Plaintiff to an excess verdict that resulted in Plaintiff being financially exposed to over $750,000 in monetary damages. (FAC, ¶¶ 91-93.)

In its demurrer, AAA argues that the FAC’s fourth cause of action is not sufficiently alleged because AAA cannot be vicariously liable for the malpractice of defense counsel in the Underlying Action and because negligence is an improper standard for claims against an insurer, where bad faith should be the proper standard. (Demurrer, pp. 11-13.)

The Court adopts its discussion in Section I above to find that the three stated grounds for negligence against AAA involve liability based on the conduct of defense counsel in the Underlying Action, such that liability may only lie with counsel, and not with AAA based on vicarious liability.

AAA’s demurrer to the FAC’s fourth cause of action is thus SUSTAINED.

Based on Plaintiff’s failure to oppose this demurrer, no leave to amend is granted.

V.

FAC, Fifth Cause of Action, Breach of Fiduciary Duty: SUSTAINED, without leave.

The elements of a claim for breach of fiduciary duty are (1) the existence of a fiduciary duty, (2) breach, and (3) damages proximately caused by the breach. (Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086.)

The FAC alleges that Defendants “breached their duty of due care as a fiduciary to Plaintiff by retaining incompetent counsel to defend her, failing to disclose settlement demands, failing to retain or appoint independent counsel for Plaintiff, failing to expend monies for experts in the defense of the action, failing to authorize defense counsel to engage a defense that was in the best interests of Plaintiff rather than the financial betterment of Defendants and each of them, failing to disclose material facts that would impact Plaintiff’s choice of action for her best interests and failing to report important events to keep Plaintiff informed of all matters in her defense.” (FAC, ¶ 99.)

In its demurrer, AAA argues that the fifth cause of action fails because insurers are not fiduciaries to their insureds as a matter of law. (Demurrer, p. 13.)

The Court agrees.

“The insurer-insured relationship … is not a true ‘fiduciary relationship’ in the same sense as the relationship between trustee and beneficiary, or attorney and client. [Citation.] It is, rather, a relationship often characterized by unequal bargaining power [citations] in which the insured must depend on the good faith and performance of the insurer [citations]. This characteristic has led the courts to impose “special and heightened” duties, but ‘[w]hile these “special” duties are akin to, and often resemble, duties which are also owed by fiduciaries, the fiduciary-like duties arise because of the unique nature of the insurance contract, not because the insurer is a fiduciary.” (Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1150-1151.) Therefore, while “[c]ases have referred to the relationship between insurer and insured as a limited fiduciary relationship [citation],” “‘akin to a fiduciary relationship’ [citation],” “or as one involving the ‘qualities of decency and humanity inherent in the responsibility of a fiduciary’ [citation],” California case law is clear: an insurer-insured relationship does not connote a fiduciary relationship. (Ibid.)

AAA’s demurrer to the FAC’s fifth cause of action is thus SUSTAINED.

Based on Plaintiff’s failure to oppose this demurrer, as well as the fact that the demurrer to the original complaint was also sustained, no leave to amend is granted as to any of the claims. 

Conclusion

Defendant Interinsurance Exchange of the Automobile Club’s Demurrer to the First Amended Complaint is SUSTAINED, without leave to amend.