Judge: Bruce G. Iwasaki, Case: 20STCV18304, Date: 2023-02-28 Tentative Ruling

Case Number: 20STCV18304    Hearing Date: February 28, 2023    Dept: 58

Judge Bruce G. Iwasaki

Department 58

Hearing Date:             February 28, 2023

Case Name:                 Megan Meadowcroft et al. v. Allied World Assurance Co. et al.

Case No.:                    20STCV18304

Motion:                       Demurrer

Moving Party:             Defendant Allied World Assurance Company

Opposing Party:          Plaintiffs Megan Meadowcroft and Amber Brown

Background

           This is a breach of contract action.  In their Second Amended Complaint, Megan Meadowcroft and Amber Brown (Plaintiffs) sue Allied World Assurance Company (Allied or Defendant), John Sutak Insurance Brokers, Inc., Alteris Insurance Services, Inc., Argo Group, US, Inc., Argonaut Management Services, Inc., Trident Insurance Services, LLC, Paragon Holdings, LLC, and Edgewood Partners Insurance Center for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, and (3) waiver/estoppel.

The case concerns an underlying employment lawsuit (Case No. BC633239).  In that case, Plaintiffs obtained a jury verdict in the amount of $11,777,991.80 (including punitive damages) against their former employers, Silverton Partners, Inc. (Silverton), Keyways Vineyard and Winery, LLC, Essence Business Group, and Carlos Pineiro. 

This Complaint alleged that Silverton previously acquired liability insurance policies from Allied and the Argo Defendants (John Sutak, Alteris, Argo, Argonaut, and Trident).  Silverton allegedly filed a claim under its policies, but Defendants refused to defend or indemnify Silverton.  After the verdict, Silverton assigned its causes of action to Plaintiffs. 

           There have been several demurrers and motions to strike filed against Plaintiffs.  After the original Complaint was filed, Plaintiffs dismissed their initial causes of action for negligent misrepresentation, professional negligence, and breach of fiduciary duty.  Allied then filed a demurrer to the remaining causes of action.  The Court sustained only the third cause of action for unfair business practices without leave to amend. 

           Plaintiffs then filed a First Amended Complaint with an additional claim for intentional misrepresentation.  The Argo Defendants demurred, and the Court sustained the demurrer as to intentional misrepresentation, negligent misrepresentation, professional negligence, and breach of fiduciary duty without leave to amend.

           The current demurrer by Allied is solely to the third cause of action of the Second Amended Complaint (Complaint).  Allied argues there is no cause of action for waiver and estoppel.  Plaintiffs filed an opposition and Defendant replied.  The meet-and-confer requirements are sufficient.  (Kokes Decl., ¶¶ 10-14.)

Legal Standard

           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.) 

Discussion

Third cause of action – waiver/estoppel

           Defendant Allied argues that equitable estoppel and waiver are not causes of action.  It also asserts that several paragraphs in the Complaint seem to improperly implicate claims for violations of the Insurance Code and unfair competition.

           “[E]stoppel in pais cannot be stated as an independent cause of action in California.”  (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 782.)

A cause of action asserts a “claim for relief.”  (Code Civ. Proc., § 583.110, subd. (a).)  A “cause of action is defined as the violation of a primary right.”  (City of Simi Valley v. Superior Court (2003) 111 Cal.App.4th 1077, 1082.) 

           Plaintiffs contend that their waiver and estoppel allegations are based upon additional facts uncovered during discovery.  They say the insurance carriers failed to provide a copy of the insurance policy to the insured that discussed Employment Practices Liability (EPL) coverage.  This caused the insured to be “ignorant of the existence of any Allied insurance policies and ignorant of the EPL/EPLI terms of the insurance policies.”  (Opposition, p. 7:16-19.)  Thus, Plaintiffs argue, Allied’s conduct, through its agents, constituted waiver and estoppel because it sent letters and other documents (such as letters, binders, certificates of insurance, and invoices) to the insured that failed to enclose the insurance policies and list the EPL/EPLI coverage.  Plaintiffs concede that they are “not using ‘waiver’ and ‘estoppel’ to create liability, but rather to preclude the defense from arguing Plaintiff[s] failed to comply with policy provisions.”  (Opposition, 11:1-3.)  In other words, Plaintiffs contend that these allegations are relevant to the breach of contract causes of action.

           Preliminarily, the Court notes that waiver and estoppel are different concepts.  “ ‘Although waiver and equitable estoppel are not always distinguished in the cases, they rest upon different legal principles.  There may be an equitable estoppel where there is no waiver in the technical sense.  Waiver is a voluntary relinquishment, expressly or impliedly, of a known right and depends upon the intention of one party only. Equitable estoppel is based upon the fundamental principle that “one’s conduct has induced another to take such a position that he will be injured if the first party is permitted to repudiate his acts.” [Citations.]’ ”  (Morgan v. Internat. Aviation Underwriters, Inc. (1967) 250 Cal.App.2d 176, 180.)

           As Plaintiffs concede that they are not using the third cause of action to create liability, the demurrer is sustained.  (Moncada v. West Coast Quartz Corp., supra, 221 Cal.App.4th at p. 782; Joffe v. City of Huntington Park (2011) 201 Cal.App.4th 492, 512, n.15 [“The equitable estoppel doctrine acts defensively only. Thus, there is no stand-alone cause of action for equitable estoppel as a matter of law”]; see also 28 Am.Jur.2d (2023) Estoppel and Waiver § 183 [“Waiver is not a cause of action because it cannot create liability in and of itself, and a cause of action cannot be based on a waiver”].)

           As to the allegations themselves, Dones v. Life Insurance Company of North America (2020) 55 Cal.App.5th 665, 671 (Dones) is instructive.  There, a county employee enrolled in group life insurance while on medical leave and died several months later.  The insurance master policy contained a condition precedent requiring that the employee be in active service before the policy became effective.  (Id. at pp. 671-672.)  The insurance company denied coverage and the employee’s beneficiary sued for breach of contract and the implied duty of good faith and fair dealing.  The complaint alleged that the employee “detrimentally relied on the confirmation that the insurance was in effect; and that by repeatedly deducting the premiums from [employee’s] paycheck and not notifying her of any deficiency in her application for coverage, the County, for itself and as agent for [life insurance company] knowingly and voluntarily waived any requirement that the insured be actively at work for the insurance coverage to take effect.”  (Id. at p. 675.)  The trial court sustained the insurance company’s demurrer without leave to amend.

           The Court of Appeal reversed as to the insurance company.  (55 Cal.App.5th at p. 694.)  It held that “in the context of determining the effect of preconditions to effective coverage, waiver and estoppel are questions of fact.”  (Id. at p. 683.)  The beneficiary sufficiently alleged waiver by asserting that the employee received confirmation of enrollment, had payments deducted from her paycheck (and paid out-of-pocket when her paycheck was insufficient), was never informed of any information missing from her enrollment, was otherwise unaware of any requirement that she return to work for her insurance to take effect, could return to work, and would have returned to work if she knew of the requirement.  (Id. at p. 686.)

           Here, Plaintiffs allege similar conduct in Paragraph 106: that Defendants repeatedly sent letters to Silverton that failed to enclose insurance policies, sent binders and certificates that did not list EPL/EPLI coverage, and invoices/quotes that failed to list such coverage.  This is sufficient to raise a question of fact on these issues.  Unlike Plaintiffs here, however, the plaintiff in Dones did not plead waiver and estoppel as a cause of action because none exists.

Finally, Defendant also references several paragraphs, such as Paragraphs 115-118, that it claims were improperly added in as a claim for violation of the Insurance Code or unfair competition.  The Court does not construe these allegations as causes of action.  To the extent that Defendant seeks to strike these paragraphs, it is improper to do so in a demurrer.

Conclusion

           The demurrer to the third cause of action is sustained with 20 days leave to amend.