Case Number: 22STCV12269    Hearing Date: March 29, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

At some point in or prior to 2016, Plaintiff Vargas obtained orthotic shoe inserts created by Brilsilco, Inc. The inserts were improperly designed and shaped, causing damage to Mr. Vargas’s toes and feet, i.e., lesions on his right foot. The lesions to Plaintiff Vargas’s right foot led to the development of gangrene, which could not be controlled, and resulted in the amputation of his right toe on April 14, 2016, half of his foot on May 17, 2016, and a below-the-knee amputation of his right leg on May 31, 2016. (FAC, p. 4.)

Plaintiff Vargas thereafter sued Brilsilco in binding arbitration. (FAC, p. 4.) Brilsilco was insured under a Commercial General Liability Policy (“Liability Policy”) issued by Employers Mutual Casualty Company (“EMC”), with liability coverage limited to $2,000,000 per occurrence, and containing a “Professional Services Exclusion.” Upon receipt of Plaintiff’s lawsuit against Brilsilco, EMC defended the case but filed a declaratory relief action against Brilsilco in federal court to determine the scope of insurance coverage in light of the Professional Services Exclusion. On October 5, 2018, a United States District Court granted a summary judgment motion made by EMC, finding that Brilsilco was providing professional services to Vargas, conduct which fell under the “Professional Services Exclusion” of the insurance policy, effectively placing the Vargas-Brilsilco litigation outside of Brilsilco’s insurance coverage. (FAC, Ex. A, § I, ¶¶ 1-3.)

In March 2020, declaring itself unable to cover any potential judgment entered against it in light of its lack of insurance coverage, Brilsilco signed an agreement through which Plaintiff Vargas would be assigned Brilsilco’s claims, interests, or causes of action against EMC and any of EMC’s agents, employees, successors, assigns, subsidiaries, related entities, and others, based on claims arising from, or related to, EMC's denial of coverage under the EMC Liability Policy, the refusal to settle for within policy limit of the EMC Liability Policy, and/or the procurement of the EMC Liability Policy. (FAC, Ex. A, § I, ¶ 4 [inability to pay] & § II, ¶ 8 [assignment scope].)

The assignment agreement was signed by Plaintiff Vargas on August 6, 2021. (FAC, Ex. A.)

On August 9, 2021, the arbitrator awarded $1.5 million to Plaintiff Vargas as against Brilsilco. (FAC, p. 4.)

On April 12, 2022, Plaintiff Vargas brought this action against Defendant The Liberty Company Insurance Brokers Inc. (“Liberty Co.”) and Does 1 to 50 pursuant to a single cause of action for Professional Negligence, i.e., Malpractice. The Complaint did not include a copy of the assignment agreement between Plaintiff Vargas and Brilsilco.

Brilsilco utilized Liberty Co. as the broker to obtain the relevant Liability Policy from EMC to cover Brilsilco’s “pedorthist business.” (Opp’n, 5:4-7.)

On November 7, 2022, Plaintiff Vargas filed a First Amended Complaint (“FAC”), making the same allegations and relief claims as the Complaint, but including a copy of the assignment agreement.

The assignment agreement clarifies that Plaintiff brings this suit on the grounds that Vargas and Brilsilco consider the issuance of the insurance policy by EMC through its agent, broker, employee, or other person, with the inclusion of a “Professional Services Exclusion” clause, to be negligence and denial of coverage under the Liability Policy. (FAC, Ex. A, § I, ¶ 7.)

On December 21, 2022, Liberty Co. filed a Demurrer to First Amended Complaint against the FAC’s sole cause of action on the grounds that (1) any claim against Liberty Co. is time-barred because the action was not filed by April 1, 2021, when the statute of limitations expired on the malpractice claim asserted in the FAC, as moored in a trigger date of October 5, 2018, i.e., the date of the summary judgment decision in federal court, (2) the FAC fails to plead standing for Plaintiff Vargas to sue Liberty Co., and (3) the FAC fails to plead that Liberty Co. breached a duty to Plaintiff Vargas. (Demurrer, 4:6-6:16.)

Plaintiff Vargas filed an opposition to the demurrer on March 17, 2023, against which Liberty Co. replied on March 23, 2023.

Demurrer: SUSTAINED, Without Leave to Amend.

Legal 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 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.)

Analysis

I. Statute of Limitations Grounds for Demurrer

Unless a complaint affirmatively discloses on its face that the statute of limitations has run, the general demurrer on these grounds must be overruled. (See Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881 [“It must appear clearly and affirmatively that, upon the face of the complaint, the right of action is necessarily barred”].) Instead, “[t]he proper remedy ‘is to ascertain the factual basis of the contention through discovery and, if necessary, file a motion for summary judgment ….’ [Citation.]” (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316, 325.) Generally, a “statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her” (the “discovery rule”). (Bernson v. Browning–Ferris Industries (1994) 7 Cal.4th 926, 932.) “[A] cause of action accrues at ‘the time when the cause of action is complete with all of its elements.’” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806-07.) However, if the complaint alleges wrongful conduct commencing at a time now barred by the statute of limitations, but continuing until a date not barred, the last overt act supporting the tort controls the trigger date for the statute of limitations. (See Wyatt v. Union Mortg. Co. (1979) 24 Cal.3d 773, 786 [holding that the statute of limitations on continuing tort cause of action does not begin to run until commission of last overt act].)

Liberty Co. argues in relevant part that the FAC incurably fails on demurrer because: (1) claims of negligence against insurance brokers are subject to the two-year limitations period provided by Code of Civil Procedure, section 339, subdivision (1); (2) the trigger date for any claim against Liberty Co. began on October 5, 2018, when a U.S. District Court granted summary judgment in favor of EMC related to whether Brilsilco was entitled to insurance coverage in the Vargas-Brilsilco litigation pursuant to the Professional Services Exclusion; and (3) the statute of limitations on the negligence claim made herein ran on April 1, 2021, taking into account 178 days of tolling pursuant to Emergency Rule 9. (Demurrer, 4:6-5:3.)

In opposition, Plaintiff Vargas argues that (1) a four-year statute of limitations period should apply pursuant to Civil Code section 337 because this lawsuit is being brought through assignment agreement contract (Opp’n, 6:19-24) and (2) even if a two-year period controls, per cited legal precedent, any cause of action by Brilsilco against Liberty Co. would have not begun to accrue until after Vargas obtained his judgment against Brilsilco on August 9, 2021 because Brilsilco did not begin to incur damages until that date (Opp’n, 6:25-7:28).

In reply, Liberty Co. argues that (1) the four-year statute of limitations does not apply per Code of Civil Procedure, section 339, subdivision (1) (Reply, 2:22-3:17), (2) any limitations period began to accrue when EMC withdrew from representation of Brilsilco in the Vargas-Brilsilco litigation, i.e., in or around October 5, 2018, thereby forcing Brilsilco to defend that action on its own, including payment of attorney’s fees (Reply, 3:18-24), and (3) the two cases cited by Plaintiff to argue that the limitations period in this case began to accrue after judgment was entered in the Vargas-Brilsilco litigation are distinguishable because they, unlike here, involved circumstances where the insurance brokers or agencies secured coverage less than that requested by the insureds, such that the insureds did not lose out on their defense during their legal proceedings, but rather, where damages to the insureds were uncertain until the time of judgment against them, at which time the amount of damages incurred by them could be compared to the lower insurance coverage secured by the brokers, for which reason the statute of limitations period did not begin to accrue until judgment was entered against the insureds (Reply, 3:25-5:4).

The Court agrees with Liberty Co.

First, the Court finds that the applicable statute of limitations period is two years pursuant to Code of Civil Procedure section 339, subdivision (1), because this action is “an action founded upon a contract, obligation or liability” where the contract or obligation at issue revolves around Liberty Co.’s obligation to obtain Brilsilco liability coverage that included professional services. (Code Civ. Proc., § 339, subd. (1); see also Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154.)

Second, the Court finds that the FAC shows on its face, through the attachment of the assignment agreement, that the statute of limitations for any claims by Brilsilco against Liberty Co. for failure to procure for Brilsilco insurance containing professional services coverage began on October 5, 2018. (See Frantz v. Blackwell, supra, 189 Cal.App.3d at p. 94 [The face of the complaint includes exhibits attached to the complaint].) The assignment agreement references a federal court decision, rendered on October 5, 2018, through which Brilsilco lost insurance coverage in the Vargas-Brilsilco litigation. (FAC, Ex. A, § I, ¶ 3.) After this date, Brilsilco was no longer being defended by EMC, the insurer. (FAC, Ex. A, § I, ¶ 5.) Of necessity, Brilsilco would have thus begun accruing its own attorney’s fees and other expenses associated with defense of the Vargas-Brilsilco litigation as of or after October 5, 2018. If Liberty Co. failed to act on behalf of Brilsilco in securing insurance covering professional services, damages related thereto would also have begun to accrue for Brilsilco on or soon after October 5, 2018. A two-year statute of limitations period for any corresponding negligence claim against Liberty Co. would have would have, taking into account Emergency Rule 9, therefore lapsed on or around April 1, 2021, as argued by Liberty Co.’s demurrer. (Demurrer, 4:26-5:3, 5:1 fn. 1.) However, this lawsuit was not filed until April 12, 2022. (See Complaint 1:1.) As a result, the statute of limitations for any negligence claim by Plaintiff Vargas, through assignment from Brilsilco, against Liberty Co., as based on damages incurred by Brilsilco through Liberty Co.’s procuring of the Liability Policy with EMC, lapsed before this action was filed.

The Court also agrees with Liberty Co. in its argument that the cases cited by Plaintiff to argue that the limitations period began to accrue on August 9, 2021 are distinguishable. (See Reply, 3:25-5:4.) The two cases cited by Plaintiff’s opposition are Williams v. Hilb, Rogal & Hobbs Insurance Services of California, Inc. (2009) 177 Cal.App.4th 624 and Walker v. Pacific Indemnity Company (1960) 183 Cal.App.2d 513. (See Opp’n, 6:28-7:28.) Both of these cases involved situations where insurance coverage had not been withdrawn from the insureds, but rather, situations where the dollar amount of insurance coverage secured by the brokers or agencies was an amount lower than that requested by the insureds, thus exposing the insureds to personal liability.  In both cases, the courts found that any damages against the brokers would not begin to accrue until judgment was entered against the insureds because, until then, it was uncertain whether the insureds’ liability would be greater or lower than the lower insurance limit secured by the brokers. (See Williams v. Hilb, Rogal & Hobbs Insurance Services of California, Inc., supra, 177 Cal.App.4th at p. 641-42; Walker v. Pacific Indemnity Company, supra, 183 Cal.App.2d at pp. 515-16.) While the opposition argues that, like Williams and Walker, Brilsilco “had yet to suffer any injury from Liberty’s negligence” “[u]ntil the judgment was awarded against [Brilsilco]” on August 9, 2021, the face of the FAC shows that this proposition cannot be true where Brilsilco began incurring expenses related to its defense in the Vargas-Brilsilco litigation as of October 5, 2018, when the federal court rendered its summary judgment ruling in favor of EMC, not on August 9, 2021, when the arbitrator in the Vargas-Brilsilco litigation awarded $1.5 million to Vargas, because nearly three years had elapsed since Brilsilco was forced to undertake its own defense in that lawsuit, without the benefit of insurance coverage from EMC.

For these reasons, the Court SUSTAINS Liberty Co.’s demurrer to the First Amended Complaint, Without Leave to Amend.

Consequently, the Court need not discuss the failure to plead standing and failure to plead breach of duty arguments raised in Liberty Co.’s demurrer. (See Demurrer, 5:4-26, 6:1-16.)

Conclusion

Defendant The Liberty Company Insurance Brokers, Inc.’s Demurrer to First Amended Complaint is SUSTAINED, Without Leave to Amend, because the FAC shows on its face that the statute of limitations on the professional negligence claim alleged therein has lapsed.