Judge Bruce G. Iwasaki, Case 20STCV10768 2023-04-03 Tentative Ruling

This is an action in which the plaintiff alleges negligence against insurance companies and their agents for procuring an unsatisfactory policy.

In January 2019, Rotax, Inc. (Plaintiff or Rotax) entered discussions with M.L. Enterprise, LLC concerning Plaintiff’s interest in storing merchandise in a warehouse leased by M.L. Enterprise (the “M.L. Warehouse”) beginning in April, 2019. One of Plaintiff’s requirements was that M.L Enterprise obtain insurance to provide coverage in the event of damage to Plaintiff’s goods at the M.L. Warehouse. M.L Enterprise’s representative, Nicolas Lieberman, agreed to procure this coverage.

In March, 2019, Plaintiff referred M.L. Enterprise to Defendant Edik Davidyan, an insurance broker, to facilitate the purchase of the insurance.^{^[1]} Davidyan worked for Defendant Daragon Insurance Services. Daragon contacted Defendant G.J. Sullivan Co., a surplus lines broker, to obtain a policy. G.J. Sullivan ultimately procured the insurance from Underwriters at Lloyd’s (the “Policy”). The Policy stated that it provided liability coverage for the named assured as a warehouseman or bailee under warehouse receipts issued by the named assured for direct physical loss or damage to property of others while contained in the premises described in the schedule. The Policy became effective April 1, 2019.

Plaintiff alleges that on May 31, 2019, its property was damaged by a fire at the M.L. Warehouse. Lloyd’s declined to cover the loss, claiming that the insurance was for liability only, not coverage for property damage. Plaintiff sued Lloyd’s and later settled the case with it; Lloyds is no longer a party. Plaintiff sued Daragon and Davidyan for negligence.

On January 12, 2021, Rotax, Inc. (“Plaintiff”) filed the operative Second Amended Complaint against Defendants Underwriters at Lloyd’s, Davidyan, Daragon, Farmers Group, Inc.,^{^[2]} GJS Co., CJ Sullivan Co., Worldwide Facilities LLC, and DOES 1 through 100. The only claim Plaintiff brought against Farmers Group, Inc. was the fourth cause of action for negligence. Plaintiff alleged that Farmers Group, Inc. was “a corporation that acted as principal for the actions of [Davidyan and Daragon] in procuring insurance on behalf of the public.” (SAC, ¶ 5.) On January 11, 2023, Rotax dismissed Farmers Group Inc. from the case.

Defendant Farmers Insurance Exchange (“FIE”) now demurs to the SAC on the grounds that it contains no allegations that FIE acted or neglected to act in such a way as to cause Plaintiff to reasonably believe Davidyan was acting as an agent for FIe in procuring the policy with Lloyd’s.

Plaintiff opposes the demurrer, arguing that the SAC alleges facts sufficient to plead negligence against FIE on the theory of ostensible agency.

Defendant FIE objects to the following statement contained in the Declaration of Sassoon Sales in Support of Opposition of Plaintiff to Demurrer of FIE:

1: Page 2, paragraph 3: “Mr. Torossian, the owner of Rotax, was deposed approximately six months after this lawsuit was filed. To the best of my recollection Mr. Torossian responded to questions by ‘Farmers’ as to why he believed he was dealing with ‘Farmers.’”

FIE objects under CEC §§ 210, 350-351, 352, 702(a), 1200, and 1523. FIE argues that the statement is irrelevant, inadmissible hearsay, and lacks foundation. The objection is sustained. Rotax’s counsel’s recollection of his client’s deposition is hearsay.

Defendant FIE requests that the Court take judicial notice of the following documents:

1) Rotax, Inc. v. Underwriters at Lloyd’s subscribing to Certificate B1136P03460-19, et al., Case No. 20STCV10768, Second Amended Complaint, filed on or about January 12, 2021, in Superior Court of California, County of Los Angeles. (A true and correct copy of which is attached hereto as Exhibit “1”.)

2) M.L. Enterprise Textiles, LLC. v. Edik Davidyan, et al., Case No. 21STCV20307, First Amended Complaint, filed on or about January 12, 2022, in Superior Court of California, County of Los Angeles. (A true and correct copy of which is attached hereto as Exhibit “2”.)

The Court may take judicial notice of records of any court of this state. (Id. at § 452(d)(1).) However, the court may only judicially notice the existence of the record, not that its contents are the truth. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565.) FIE requests judicial notice of two Superior Court records.

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) 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.)

A demurrer for uncertainty may lie if the failure to label the parties and claims renders the complaint so confusing defendant cannot tell what he or she is supposed to respond to. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.)

The SAC Does Not Plead Facts Sufficient to Support a Claim Against FIE for Negligence

Plaintiff’s claim against FIE for negligence is entirely vicarious and based on ostensible agency. (Opposition, Declaration of Sassoon Sales, ¶ 2.)

“An agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency.” (Civ. Code § 2295.) “An agency is either actual or ostensible.” (Civ. Code § 2298.) “An agency is actual when the agent is really employed by the principal.” (Civ. Code § 2299.) “An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.” (Civ. Code § 2300.) “An agent has such authority as the principal, actually or ostensibly, confers upon him.” (Civ. Code § 2315.) “Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess.” (Civ. Code § 2317.)

“Before recovery can be had against the principal for the acts of an ostensible agent, three requirements must be met: The person dealing with an agent must do so with a reasonable belief in the agent’s authority, such belief must be generated by some act or neglect by the principal sought to be charged and the person relying on the agent’s apparent authority must not be negligent in holding that belief.” (J.L. v. Children's Institute, Inc. (2009) 177 Cal.App.4th 388, 403-04.) (see also Lindsay-Field v. Friendly (1995) 36 Cal.App.4th 1728, 1734 (holding that a finding of ostensible agency “cannot be based on the agent’s conduct alone; there must be evidence of conduct by the principal” which causes the third party to believe in the agent’s authority.))

“‘[T]he existence of an agency relationship is usually a question of fact, unless the evidence is susceptible of but a single inference.’ ” (Harley-Davidson, Inc. v. Franchise Tax Bd. (2015) 237 Cal.App.4th 193, 214.)

FIE argues that Plaintiff cannot support a claim against it based on ostensible agency because Plaintiff has not alleged facts to prove that FIE committed some act or neglect to cause Plaintiff to have a reasonable belief in FIE’s authority.

Plaintiff relies solely on Kaplan v. Coldwell Banker Residential Affiliates, Inc. In Kaplan, the plaintiff discovered that land he had purchased was not as it was represented and subsequently filed suit against the sellers, their broker, and appellant’s own broker, who was doing business as Coldwell Banker Citrus Valley Realtors. (Kaplan v. Coldwell Banker Residential Affiliates, Inc. 59 Cal. App.4th 741.) Plaintiff alleged that he “... placed great faith and trust in said defendants, and each of them, particularly because ... [appellant’s broker] was part of the Coldwell Banker organization which had an established reputation for honesty, integrity and expertise.” (Id. at p. 744.) Plaintiff’s broker in fact worked completely independently of Coldwell Banker. He had signed a franchise agreement whereby he agreed to hold himself out to the public as an independently owned and operated member of Coldwell Banker Residential Affiliates, Inc. and his advertising contained disclaimer language to that effect, though it was printed in small font and placed near the much larger Coldwell Banker logo. Plaintiff testified that he relied on the Coldwell Banker signage without noticing the disclaimer language, and, therefore, trusted Coldwell Banker, a large reputable company with a national existence. (Ibid.) Plaintiff’s complaint alleged that “[his broker] is the franchisee of Coldwell Banker pursuant to an agreement whereby, inter alia, [his broker] may use the name Coldwell Banker, thereby benefiting from Coldwell Banker's goodwill and reputation for expertise and integrity in the field of real estate brokerage; further, Coldwell Banker receives compensation and has the right to and does exercise control over the conduct of [his broker].” (Ibid.)

The Court of Appeal reversed the trial court’s granting of summary judgment in favor of defendants. It found a triable issue of fact on ostensible agency. The court reasoned that Coldwell Banker made representations to the general public upon which appellant relied. (Kaplan, supra, 59 Cal.App.4^th at p. 748.) Appellant testified in his deposition that Coldwell Banker's “outreach was successful. I believed they [appellant’s broker] was Coldwell Banker. They do a good job of that.” (Ibid.) The Court found this was sufficient to show that an ordinary person might reasonably believe Coldwell Banker stood behind appellant’s broker.

Here, unlike in Kaplan, there are no allegations that would cause a reasonable person to believe that FIE stood behind Davidyan and Daragon in their transactions with Plaintiff. The SAC does not even mention FIE, let alone allege that FIE was in a contractual relationship with Davidyan and Daragon. There are no allegations that FIE received compensation from Davidyan or Daragon’s work or exercised any control over them. The SAC does not allege that Plaintiff actually relied on advertising portraying FIE as the principal behind Davidyan or Daragon. Nor is there any allegation that FIE holds itself out as Davidyan or Daragon’s principal to the general public.

To establish ostensible agency, Plaintiff must show that the ostensible principal took some action that gives it a reasonable belief that the ostensible principal is the actual principal. Rotax alleges no such thing.

Therefore, the SAC makes insufficient allegations to support a claim for negligence against FIE based on ostensible agency. Accordingly, the demurrer is sustained for failure to state a claim.

Separately, the Court finds that the SAC is fatally uncertain with regards to the allegations against FIE in the SAC.

Plaintiff’s sole factual allegation connecting FIE to the instant action is that Arthur Torossian, the owner of Plaintiff, Rotax, Inc., stated in a deposition that he believed he was working with an entity he referred to as “Farmers” during the procurement of the subject Policy. (Opposition, Declaration of Sassoon Sales, ¶ 3.) Plaintiff provides no other explanation for why it substituted FIE into this action. There are no facts plead that explain the relationship between Davidyan and Daragon, and FIE.

It is far from clear that Torossian’s use of “Farmers” in his deposition referred to FIE. FIE was not a named defendant in the action at the time Torossian gave the deposition; however, Farmers Group, Inc. was a named defendant. Moreover, Plaintiff does nothing to show that the actual entity Torossian was referring to when he said “Farmers” was FIE and not Farmers Group, Inc.

Accordingly, because it is unclear what part of the allegations apply to FIE, the demurrer is sustained for uncertainty.

Defendant FIE’s demurrer is sustained. Rotax shall have leave to file an amended complaint on or before April 18, 2023.

^{^[1]} The instant motion concerns the alleged relationship between Davidyan, Daragon Insurance Services, and new Defendant Farmers Insurance Exchange (“FIE”). For reasons discussed below, it is unclear how FIE is connected to Davidyan and Daragon or to what extent and in what capacity FIE participated directly or indirectly in procuring the subject policy.

^{^[2]} Farmers Group, Inc. is not to be confused with moving party here, Defendant Farmers Insurance Exchange (“FIE”). Rotax dismissed Farmers Group Inc. Farmers Insurance Exchange was substituted for DOE Defendant 5 in this action on January 11, 2023.