Judge Bruce G. Iwasaki, Case 22STCV15792 2022-09-02 Tentative Ruling

Department 58

Tentative Ruling: The Motion to Strike is denied.

This is an insurance action brought by the third-party victim of a vehicle collision. George Pollard (Plaintiff) alleges that he was a passenger in a public bus that was struck by Cesar Guerra. Guerra was insured by Alliance United Insurance Company (Defendant). Plaintiff sued Guerra and obtained a default judgment against him for $200,588.88, which was served on Alliance.

In this action, Plaintiff sues Kemper aka Alliance United Insurance Company for its refusal to pay the judgment against the insured under Insurance Code section 11580, subdivision (b)(2), and breach of the covenant of good faith and fair dealing.

Defendant Alliance moves to strike Paragraph 17 of the Complaint and Paragraph 5 in the Prayer for Relief as to punitive damages because of insufficient facts.

Plaintiff opposes the motin, relying primarily on the case of Hand v. Farmers Insurance Exchange (1994) 23 Cal.App.4th 1847 (Hand) that allegations of deliberate indifference and conscious disregard of the creditor’s rights amounts to bad faith.

In reply, Defendant reiterates that the facts are insufficient due to lack of specificity. The declaration of Mr. Lemieux indicates compliance with the meet and confer requirement.

“The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading. (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.”¿ (Code Civ. Proc., § 436.) The grounds for a motion to strike must “appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.”¿ (Code Civ. Proc., § 437.)¿¿¿

A claim for punitive damages in a complaint must allege that the defendant “has been guilty of oppression, fraud or malice. (Civ. Code, § 3294, subd. (a).) “Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.”¿ (Civ. Code, § 3294¿subd. (c)(2).)¿ “Fraud means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.”¿ (Civ. Code, § 3294,¿subd. (c)(3).) “Malice means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.”¿ (Civ. Code, § 3294¿subd. (c)(1); see Taylor v. Superior Court (1979) 24 Cal.3d 890, 895-896.)

To survive a motion to strike allegations of punitive damages, “the ultimate facts showing an entitlement to such relief must be pled by a plaintiff. [Citations.] In passing on the correctness of a ruling on a motion to strike, judges read allegations of a pleading subject to a motion to strike as a whole, all parts in their context, and assume their truth. [Citations.] In ruling on a motion to strike, courts do not read allegations in isolation. [Citation.]” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.)

Defendant Alliance did not demur to any cause of action. Instead, it argues that the Complaint fails to allege sufficient facts to support a prayer for punitive damages.

A third-party beneficiary who obtains a judgment against an insured may pursue punitive damages against the insurer.

A creditor who obtains a judgment against a named insured may enforce the judgment against the insurer. (Ins. Code, § 11580, subd. (b)(2).) The creditor is treated as a “third party beneficiary of the policy, entitled to recover on the judgment on the policy.” (Hand, supra, 23 Cal.App.4th at p. 1858.)

In Hand, the Court of Appeal considered the question of whether a claim for “breach of the implied covenant of good faith and fair dealing may lie in favor of a judgment creditor who has become a third party beneficiary of the insurance policy by operation of section 11580, on account of the insurer’s bad faith refusal to pay the judgment.” (Hand, supra, 23 Cal.App.4th at p. 1851.) The plaintiff in Hand was injured in a vehicle accident with the insured. She then sued and obtained a judgment against the insured. After the insurance company refused to pay the judgment, the plaintiff sued the insurer and also alleged a tort claim for “ ‘Bad Faith Deprivation of a Protected Property Interest.’ ”[1] (Id. at p. 1852.) The trial court granted summary adjudication of the tort claim. The appellate court reversed, finding that an “unreasonable, bad faith refusal to pay a judgment creditor claimant the entire amount of the judgment, after it becomes final, implicates some recognizable duty of good faith by the insurer under its policy, which was intended to benefit such a third party beneficiary.” (Id. at p. 1857.)

The Court of Appeal in Hand recognized the public policy rationale that the insurer has a duty to “pay adjudicated liabilities . . . as much to protect adjudicated injured parties from uncompensated loss as to protect the insured from personal financial disaster.” (Id. at p. 1858.) Thus, “[t]o [that] end, once having secured a final judgment for damages, the plaintiff becomes a third party beneficiary of the policy . . . [a]nd the plaintiff having also become a beneficiary of the covenant of good faith (citation), the duty to exercise good faith in not withholding adjudicated damages necessarily is owing to the plaintiff also.” (Ibid.)

Under the holding in the Hand case, a third-party beneficiary, as judgment creditor, may plead a tort for the breach of implied covenant of good faith. This tort claim allows for allegations of punitive damages under Civil Code section 3294. (See Neal v. Farmers Insurance Exchange (1978) 21 Cal.3d 910, 923 [evidence supported punitive damages because Farmers “acted maliciously, with an intent to oppress, and in conscious disregard of the rights of its insured”]; Fletcher v. Western National Life Insurance Co. (1970) 10 Cal.App.3d 376, 401; see also Jones v. St. Paul Travelers (N.D.Cal. 2007) 496 F.Supp.2d 1079, 1087 [finding that even though Insurance Code section 11580 does not explicitly allow for punitive damages, “plaintiffs are not barred from bringing [punitive damages] claim under California Civil Code § 3294”].)

Here, Plaintiff alleges that he is a third-party beneficiary because he obtained a default judgment against the insured, Cesar Guerra. (Complaint, ¶ 8, Ex. 2.) Thus, he may allege a tort claim for breach of the implied covenant of good faith and fair dealing. Because Defendant did not challenge the sufficiency of the underlying tort claim, the Court concludes that the cause of action supports a prayer for punitive damages. (Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43-44 [“tort remedies are available for a breach of the covenant in cases involving insurance policies” and include “damages not otherwise available in a contract action, such as emotional distress damages resulting from the insurer’s bad faith conduct”].)

A complaint need only allege ultimate facts supporting oppression, fraud, or malice under Civil Code section 3294. (See Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1055; Clauson v. Superior Court, supra, 67 Cal.App.4th at p. 1255. Thus, “a general allegation of [wrongful] intent is sufficient to support a claim for exemplary damages. (Unruh v. Truck Ins. Exch. (1972) 7 Cal.3d 616, 632, superseded by statute on other grounds as stated in Hendy v. Losse (1991) 54 Cal.3d 723, 732, n. 6.)

Liberally construing the allegations of the Complaint, Plaintiff sufficiently alleged a claim for punitive damages. Plaintiff avers that he served Matthew Cook, who is part of Alliance’s Claims Team, with a copy of the entry of judgment against the insured, Cesar Guerra. (Complaint, ¶ 14.) Despite acknowledging the judgment, Cook did not return Plaintiff’s repeated phone calls, voice messages, or e-mails following up on the request. (Id. at ¶ 15.) Defendant’s refusal to communicate with Plaintiff and conduct any investigation was “unreasonable and breached the covenant of good faith and fair dealing.” (Ibid.) The failure to communicate was allegedly done with “reckless or deliberate indifference and intentionally” and “maliciously, fraudulently, despicably, and oppressively.” (Id. at ¶ 17.)

The Complaint is sufficient in alleging that Defendant unreasonably and in bad faith, withheld payment of the judgment. The Court acknowledges that an insurer’s breach of implied covenant of good faith does not automatically justify an award of punitive damages. (Silberg v. California Life Insurance Company (1974) 11 Cal. 3d 452, 462; Van Wrinkle v. Allstate Insurance Co. (C.D.Cal. 2003) 290 F.Supp.2d 1158, 1167 [“A tortious breach of the implied covenant can support an award of exemplary damages against the insurer if the other requirements of ‘oppression, fraud, or malice’ are met”].) However, for pleading purposes, these allegations are sufficient.

Defendant’s reliance on the cases of Tomaselli v. Transamerica Insurance Co. (1994) 25 Cal.App.4th 1269, Hall v. Travelers Insurance Co. (1971) 15 Cal.App.3d 304, 308, and Low v. Golden Eagle Insurance Co. (2002) 101 Cal.App.4th 1354, 1368 is improper because those cases involved a judgment or jury verdict. For example, in Tomaselli, the Court of Appeal concluded, after a review of the facts based upon a trial of the merits in the lower court, that there was insufficient support for “malice, oppression or despicable conduct.” (Tomaselli v. Transamerica Insurance Co., supra, 25 Cal.App.4th at p. 1288.)

Defendant also contends that Insurance Code section 11580, subdivision (b)(2) is limited by the language “subject to its terms and limitations,” and thus is a defense to the action. But that is a factual issue for trial, not a basis for a motion to strike. (Campbell v. Allstate Insurance Co. (1963) 60 Cal.2d 203 [“burden of proving that a breach of a cooperation clause resulted in prejudice is on the insurer”]; Hall v. Travelers Insurance Co. (1971) 15 Cal.App.3d 304, 308 [“an insurer may assert defenses based upon a breach by the insured of a condition of the policy”].) Furthermore, “entitlement to punitive damages is generally an issue for the trier of fact.”and “[r]easonableness is generally a question of fact to be resolved by a jury.” (Nippon Credit Bank v. 1333 North Cal. Boulevard (2001) 86 Cal.App.4th 486, 501; Edgerly v. City of Oakland (2012) 211 Cal.App.4th 1191, 1206.)

The punitive damages allegations are sufficient against Alliance as an employer defendant.

“An award of punitive damages against a corporation. . . must rest on the malice of the corporation’s employees.¿ [¶] But the law does not impute every employee’s malice to the corporation.¿ Instead, the punitive damages statute requires proof of malice among corporate leaders: the ‘officer[s], director[s], or managing agent[s].’ ”¿(Cruz v. Homebase (2000) 83 Cal.App.4th 160, 167.) This may be inferred from a corporation’s ratification of the employee’s misconduct, or its “ ‘confirmation and acceptance of a previous act.’ ” (Id. at p. 168; see also Kiseskey v. Carpenters' Trust for Southern California (1983) 144 Cal. App. 3d 222, 234-235 [holding that allegations of a defendants' acts that were taken in the course and scope of employment and with “the permission and consent of their co-defendants” were sufficient to withstand a general demurrer.].) Under a ratification theory for employer liability, it is enough to plead that the “wrongful act was in legal effect committed by [employer]” or by “alleging that [employer] by his servant committed the act.” (C.R. v. Tenet Healthcare Corp. (2009) 169 Cal.App.4th 1094, 1112.)

The Complaint alleges that the default judgment was served on Matthew Cook, “who was part of Kemper’s Claims Team.” Cook subsequently failed to return Plaintiff’s phone calls, e-mails, or demands for payment, and whose conduct was imputed to Defendant. (Complaint, ¶ 15.) The Complaint further alleges that all defendants were acting as agents and/or employees of each other and that the actions of each defendant were “authorized, approved, and/or ratified by each of the other DEFENDANTS as principals and/or employers.” (Id. at ¶ 4.) This is sufficient. (See Kiseskey v. Carpenters' Trust for Southern California, supra, 144 Cal.App.3d at pp. 234-235 [holding that allegations of a defendants’ acts that were taken in the course and scope of employment and with “the permission and consent of their co-defendants” were sufficient to withstand a general demurrer].) Under a ratification theory for employer liability, it is enough to plead that the “wrongful act was in legal effect committed by [employer]” or by “alleging that [employer] by his servant committed the act.” (C.R. v. Tenet Healthcare Corp. (2009) 169 Cal.App.4th 1094, 1112.)

Additionally, in the context of insurance companies and its managerial employees for purposes of Civil Code section 3294, subdivision (b), “ ‘[i]t must be remembered that we are here concerned with an insurance company . . ., not just any corporation. Manifestly, to plaintiff, [the claims representative’s] actions were actions of defendant. [The claims representative] personally managed the most crucial aspects of his employer’s relationship with its policyholders. Defendant should not be allowed to insulate itself from liability by giving an employee a nonmanagerial title and relegating to him crucial policy decisions.’ ” (Egan v. Mutual of Omaha Insurance. Co. (1979) 24 Cal.3d 809, 823.) As the Complaint alleges that Cook was part of the “Claims Team” and rejected the demand for payment, this may bind Alliance for purposes of imputing punitive damages.

[1] The Court of Appeal considered the cause of action as a “claim for tortious breach of a duty imposed by the contractual implied covenant of good faith and fair dealing.” (Hand, supra, 23 Cal.App.4th at p. 1854.)