Judge: Ashfaq G. Chowdhury, Case: 23GDCV02473, Date: 2024-12-12 Tentative Ruling

Case Number: 23GDCV02473    Hearing Date: December 12, 2024    Dept: E

Case No: 23GDCV02473
Hearing Date: 12/12/2024 – 8:30am

Trial Date: UNSET

Case Name: CREDITORS ADJUSTMENT BUREAU, INC. v. KARA CONSTRUCTION GROUP INC.

[TENTATIVE RULING DEMURRER]

RELIEF REQUESTED
“Cross-Defendant STATE COMPENSATION INSURANCE FUND (“STATE FUND”) will and hereby does demur to the Cross-Complaint filed by Defendant/Cross-Complainant KARA CONSTRUCTION GROUP INC (“KARA”) on the following grounds:

1.      STATE FUND demurs to the First Cause of Action for Breach of Contract on the ground that this Court lacks subject matter jurisdiction because KARA has failed to fully exhaust the administrative remedies available to it before the California Insurance Commissioner. See, Abelleria v. District Court of Appeal (1941) 17 Cal.2d 280, 292-293; P.W. Stephens, Inc. v. State Compensation Insurance Fund (1994) 21 Cal.App.4th 1833, 1840-1841;

2.      STATE FUND demurs to the First Cause of Action for Breach of Contract on the ground that it fails to state facts sufficient to constitute a cause of action pursuant to Code of Civil Procedure section 430.10, subdivision (e); and

3.      STATE FUND demurs to the First Cause of Action for Breach of Contract on the ground that it is uncertain pursuant to Code of Civil Procedure section 430.10, subdivision (f).

STATE FUND has met and conferred with KARA, who filed the pleading subject to demurrer, by telephone on or about October 25, 2024. The parties did not reach an agreement resolving STATE FUND’s objections to the Cross-Complaint.

This Demurrer is based on this Notice of Demurrer and Demurrer, the accompanying memorandum of points and authorities, the concurrently filed declaration of Brandon R. Creel, and any arguments or other evidence as may be presented at or prior to the hearing on this Demurrer, the record and files in this action, and such matters upon which the Court may take notice.”

(Notice, p. 2-3.)

PROCEDURAL ANALYSIS
Moving Party: Cross-Defendant, State Compensation Insurance Fund (Movant, Cross-Defendant, State Fund, or SCIF)

Responding Party: Cross-Complainant, Kara Construction Group Inc. (Cross-Complainant or Kara)

Moving Papers: Notice; Memorandum; Creel Declaration;

Opposition Papers: Opposition; Ginsburg Declaration

Reply Papers: Reply

Proof of Service Timely Filed (CRC Rule 3.1300): Ok
16/21 Court Days Lapsed (CCP § 1005(b)): Ok
Proper Address (CCP § 1013, § 1013a, § 1013b): Ok

Meet and Confer
A party filing a demurrer “shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.”  (Code Civ. Proc., § 430.41, subd. (a).)  “The parties shall meet and confer at least five days before the date the responsive pleading is due. If the parties are not able to meet and confer at least five days prior to the date the responsive pleading is due, the demurring party shall be granted an automatic 30-day extension of time within which to file a responsive pleading, by filing and serving, on or before the date on which a demurrer would be due, a declaration stating under penalty of perjury that a good faith attempt to meet and confer was made and explaining the reasons why the parties could not meet and confer.”  (Code Civ. Proc., § 430.41, subd. (a)(2).)

Failure to sufficiently meet and confer is not grounds to overrule or sustain a demurrer. (Code Civ. Proc., § 430.41(a)(4).)

Here, Movant’s counsel alleged that a meet and confer occurred, but an agreement was not able to be met. (Creel Decl. ¶ 2.)

BACKGROUND
Plaintiff, Creditors Adjustment Bureau, Inc. filed a complaint on 11/20/2023 against Defendant, Kara Construction Group Inc. aka Kara Construction Group Inc. alleging four cause of action for: (1) Breach of Contract, (2) Open Book Account, (3) Account Stated, and (4) Reasonable Value.

Plaintiff alleges that Plaintiff’s Assignor (State Compensation Insurance Fund or SCIF) and Defendants entered into a written agreement wherein Plaintiff’s Assignor agreed to provide policies of workers compensation insurance to the Defendants, bearing Policy Nos. 9268821-21 (covering the period of January 27, 2021 through January 27, 2022) and 9268821-22 (covering the period of January 27, 2022 through May 1, 2022) and Defendants agreed to pay premiums in accordance with the terms and conditions of said policies which provided for payment of premiums. (Compl. ¶ 11.)

Plaintiff alleges that Defendants breached the part of both policies requiring the payment of the premium assessed by Plaintiff’s Assignor (State Compensation Insurance Fund) at the conclusion of the policies. (See Compl. ¶¶ 14-15.)

On 8/12/2024, Defendant/Cross-Complainant, Kara Construction Group Inc. filed a Cross-Complaint against Cross-Defendant, State Compensation Insurance Fund. [The Court notes that State Compensation Insurance Fund is indicated to be Plaintiff’s assignor in the Complaint. (See Compl. ¶ 1.)]

Cross-Complainant/Defendant, Kara, alleges that Kara procured workers’ compensation insurance policies (policies) from SCIF. (Cross-Complaint (CC) ¶ 6.) Kara further alleges that it “paid premiums for the Policies, which are specifically referenced in the operative complaint filed by SCIF’s assignee, Plaintiff Creditors Adjustment Bureau.” (Id.)

Kara’s Cross-Complaint further alleges that “The Policies state that “[t]he final premium will be determined . . . by using the actual premium basis and the proper classifications, rates and rating plans that lawfully apply to the business and work covered by this policy.” The Policies also provide that “[a]ll premium for this policy will be determined by our manuals of rules, rates, rating plans and classifications.”” (CC ¶ 7.)

Kara’s Cross-Complaint further alleges that:

SCIF breached the Policies by overcharging final premium for the Policies. These are the same policies that form the gravamen of the complaint. In the complaint, SCIF, through its assignee, has alleged that its final premium for the Policies is correct and that Kara Construction breached the Policies. Kara Construction disputes that and contends that SCIF breached the Polices in determining the final premium SCIF claims is owed.

(CC ¶ 10.)

LEGAL STANDARDS FOR DEMURRERS
Demurrer – Sufficiency
A demurrer for sufficiency tests whether the complaint states a cause of action.  (Hahn v. Mirda, (2007) 147 Cal.App.4th 740, 747.)  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.)  The court “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law ….”  (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.)  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 pleadings alone and not the evidence or other extrinsic matters; therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.  (Code Civ. Proc., §§ 430.30, 430.70.)  The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.) 

The general rule is that the plaintiff need only allege ultimate facts, not evidentiary facts.  (Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.)  “All that is required of a plaintiff, as a matter of pleading … is that his complaint set forth the essential facts of the case with reasonable precision and with sufficient particularity to acquaint the defendant with the nature, source and extent of his cause of action.”  (Rannard v. Lockheed Aircraft Corp. (1945) 26 Cal.2d 149, 156-157.) 

On demurrer, a trial court has an independent duty to “determine whether or not the … complaint alleges facts sufficient to state a cause of action under any legal theory.”  (Das v. Bank of America, N.A. (2010) 186 Cal.App.4th 727, 734.)  Demurrers do not lie as to only parts of causes of action, where some valid claim is alleged but “must dispose of an entire cause of action to be sustained.”  (Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)  “Generally it is an abuse of discretion to sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment.”  (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)

Demurrer – Uncertainty
A special demurrer for uncertainty, CCP section 430.10(f), is disfavored and will only be sustained where the pleading is so bad that defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her.  (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.)  Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Ibid.)

ANALYSIS
Subject Matter Jurisdiction
Movant/Cross-Defendant/SCIF argues that Cross-Complainant/Kara was required to exhaust all administrative remedies before filing this Cross-Complaint.

SCIF relies predominantly on Insurance Code sections 11737(f), and 11753.1 and P.W. Stephens, Inc. v. State Compensation Insurance Fund (1994) 21 Cal.App.4th 1833, 1840-1841 (P.W. Stephens) to argue that Kara was required to exhaust all administrative remedies before filing this Cross-Complaint.

The Court does not find SCIF’s argument availing.

“Administrative agencies have only such powers as have been conferred on them, expressly or by implication by Constitution or statute.” (State Compensation Insurance Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 458 quoting Noble v. Draper (2008) 160 Cal.App.4th 1, 12.)

With respect to SCIF relying on P.W. Stephens as authority for the proposition that Kara had to exhaust all administrative remedies before filing its Cross-Complaint alleging breach of the Policies in determining the final premium owed to SCIF, the Court does not find this argument availing for several reasons.

First, P.W. Stephens did not rely on Insurance Code sections 11737(f) and 11753.1 like SCIF does here.

“[W]e view section 11741 as broad enough to empower the Commissioner to conduct hearings to assure that premiums are fairly assessed without discrimination.” (P.W. Stephens, Inc. v. State Compensation Insurance Fund (1994) 21 Cal.App.4th 1833, 1842.)

Unlike in P.W. Stephens, here, SCIF is not relying on Insurance Code 11741, SCIF is relying on Insurance Code sections 11737(f) and 11753.1. Further, Insurance Code 11741 was repealed by Stats.2002, c. 6 (A.B. 749), § 6.5, operative Jan. 1, 2007. Further, to the extent that P.W. Stephens relied on Insurance Code § 11737.5(a), not only did Movant here not rely on that statute, but Insurance Code § 11737.5(a) was repealed by Stats.1993, c. 121 (A.B. 110), § 5.5, eff. July 16, 1993, operative Jan. 1, 1995; Stats. 1993, c. 228 (S.B.30), § 1, operative Jan. 1, 1995.)

Second, the plain language of Insurance code sections 11737(f) and 11753.1 do not appear to make it mandatory that Kara must first seek administrative relief before challenging the final premium owed.

Under Ins. Code § 11737(f):

Every insurer or rating organization shall provide within this state reasonable means whereby any person aggrieved by the application of its filings may be heard by the insurer or rating organization on written request to review the manner in which the rating system has been applied in connection with the insurance afforded or offered. If the insurer or rating organization fails to grant or reject the request within 30 days, the applicant may proceed in the same manner as if the application had been rejected. Any party affected by the action of the insurer or rating organization on the request may appeal, within 30 days after written notice of the action, to the commissioner who, after a hearing held within 60 days from the date on which the party requests the appeal, or longer upon agreement of the parties and not less than 10 days’ written notice to the appellant and to the insurer or rating organization, may affirm, modify, or reverse that action. If the commissioner has information on the subject from which the appeal is taken and believes that a reasonable basis for the appeal does not exist or that the appeal is not made in good faith, the commissioner may deny the appeal without a hearing. The denial shall be in writing, set forth the basis for the denial, and be served on all parties.

(Ins. Code § 11737(f).)

Insurance Code § 11737(f) provides that any person aggrieved may be heard by the insurer or rating organization on written request. The plain language of this statute does not state that one must seek administrative review before filing a complaint challenging the price of a final premium.

Further, Under Ins. Code § 11753.1:

(a) Any person aggrieved by any decision, action, or omission to act of a rating organization may request that the rating organization reconsider the decision, action, or omission. If the request for reconsideration is rejected or is not acted upon within 30 days by the rating organization, the person requesting reconsideration may, within a reasonable time, appeal from the decision, action, or omission of the rating organization. The appeal shall be made to the commissioner by filing a written complaint and request for a hearing specifying the grounds relied upon. If the commissioner has information on the subject appealed from and believes that probable cause for the appeal does not exist or that the appeal is not made in good faith, the commissioner may deny the appeal without a hearing. The commissioner shall otherwise hold a hearing to consider and determine the matter presented by the appeal.

(b) Any insurer adopting a change in the classification assignment of an employer that results in an increased premium shall notify the employer in writing, or if the insurance was transacted through an insurance agent or broker, the insurer shall notify the agent or broker who shall notify the employer in writing of the change and the reasons for the change. Any employer receiving this notice shall have the right to request reconsideration and appeal the reclassification pursuant to this section. The notice required by this section shall inform the employer of his or her rights pursuant to this section. No notification shall be required when the change is a result of a regulation adopted by the Department of Insurance or other action by or under the authority of the commissioner.

(Ins. Code § 11753.1(a)-(b).)

The plain language of Insurance Code § 11753.1 deals with the handling of an appeal to the commissioner and does not state that one must seek administrative review before filing a complaint challenging the price of a final premium.

SCIF also relies on Karlin v. Zalta (1984) 154 Cal.App.3d 953, 983 (Karlin) to support its argument. Reliance on Karlin is unavailing as it is inapposite because it dealt with medical malpractice insurance premium rates. Here, we are not dealing with medical malpractice insurance.

In Opposition, Kara relies on several cases to argue that it did not have to first exhaust administrative remedies. Some of the cases that Kara relied on are not entirely on point. However, this Court does find the Opposition’s citation to State Compensation Insurance Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422 (ReadyLink) to be availing.

ReadyLink addressed the exact statutes that Movant cites to support its argument. In relevant part:

The record in this case reveals Insurance Code sections 11753.1 and 11737, subdivision (f) as possible statutory bases for ReadyLink's appeal to the Insurance Commissioner of SCIF's audit decision to include the per diem payments as payroll. Both of these statutory provisions make clear that only the matters identified in those statutory provisions may be appealed to, and determined by, the Insurance Commissioner.²⁷ Neither of these provisions indicates that the Insurance Commissioner has the authority to consider the common law breach of contract and other collection claims raised by SCIF in this action, or to consider the equitable and other affirmative defenses to SCIF's claims asserted by ReadyLink. We have been directed to no authority that would suggest that the Insurance Commissioner has any authority to consider other aspects of a premium calculation dispute, beyond the specific matters identified in sections 11753.1 and 11737, subdivision (f). In fact, case law and the records in this case suggest otherwise.

(State Compensation Insurance Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 458-60; the Court notes that fn. 27 cited the language of 11737(f) and 11753.1.)

“In contrast, issues of contract interpretation, including whether an insurer accurately calculated a premium under the contract, and the application of equitable defenses to the enforcement of a contract, do not involve considerations that fall uniquely within the Insurance Commissioner's expertise. P. W. Stephens thus does not support the conclusion that ReadyLink was required to exhaust administrative remedies before litigating the issues that arise from this contract dispute.” (State Compensation Insurance Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 464.)

While the Reply tries to distinguish ReadyLink to argue that ReadyLink actually had availed itself to the State Fund’s internal review process as well as to the DOI’s administrative remedies, the Court does not find this argument availing as this argument is presented out of context.

“Further, the ALJ in this case specifically informed the parties that she was not determining, and in fact could not determine, whether the ultimate premium charged by SCIF was correct.” (State Compensation Insurance Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 462.)

Uncertainty
SCIF also argues that the breach of contract cause of action is uncertain regarding how SCIF allegedly breached the policy.

The Court does not find this argument availing.

A special demurrer for uncertainty, CCP section 430.10(f), is disfavored and will only be sustained where the pleading is so bad that defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her. (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.)  Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Ibid.)

The Cross-Complaint alleges that “SCIF breached the Policies in determining the final premium SCIF claims is owed.” (CC ¶ 10.)

TENTATIVE RULING
SCIF’s demurrer to the first cause of action for breach of contract is OVERRULED.