Judge Christian R. Gullon, Case Number: 22PSCV02887, Date: 2023-09-07 Tentative Ruling

Judge: Christian R. Gullon, Case: 22PSCV02887, Date: 2023-09-07 Tentative Ruling

DEMURRER OF CROSS-DEFENDANT RESPONSE INDEMNITY COMPANY OF CALIFORNIA TO CROSS-COMPLAINT is SUSTAINED without leave to amend.

This case arises from an agreement regarding a cargo carrier. Plaintiff DEPENDABLE HIGHWAY EXPRESS, INC. (“Plaintiff”) alleges the following against Defendants A.H. Trucking; ALBERTO HUAZANO, D.B.A. A.H. TRUCKING; ALBERTO HUAZANO (collectively, “Defendants AH Trucking” or “Huazano”): In 2017, the parties entered into an agreement whereby Defendants served as Plaintiff’s carrier for cargo. Defendants breached the agreement by not maintaining sufficient insurance and/or not complying with the terms of the policy to compensate Plaintiff for their loss regarding damage to $204,910 worth of cargo in a roll-over accident and by not settling the claim for the loss.

On February 24, 2023, Defendants AH Trucking filed their Answer and filed a cross-complaint against RESPONSE INDEMNITY COMPANY OF CALIFORNIA (“Defendant RICC”)[1] for:

On April 10, 2023, default was entered against Defendant RICC, which the court set aside via a motion to set aside default on July 13, 2023.

On August 11, 2023, RICC filed the instant demurrer (without a motion to strike).

In pertinent part, a demurrer may be asserted on any one or more of the following grounds: there is a misjoinder of parties, the pleading does not state facts sufficient to constitute a cause of action, and the pleading is uncertain (including ambiguous and unintelligible). (See Notice of Demurrer p. 2, citing Code of Civ. Proc., §430.10, subds. (d), (e), (f), respectively.) A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (Blank v. Kirwan, (1985) 39 Cal.3d 311, 318.)

1. AH Trucking’s naming of its insurer is a violation of well-established California law

2. The Cross-Complaint fails to plead the terms of the contract in haec verba or according to the contract’s legal effect

3. The 3^rd COA for breach of implied covenant of good faith and fair dealing and 5^th COA for bad faith denial of claim are duplicative.

1. Whether AH Trucking (a Defendant in Plaintiff’s Tort Action) Can Join AH Trucking’s Cargo Liability Insurer?

RICC largely relies upon Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 (Royal Globe). (Demurrer p. 8.) In Royal Globe, a plaintiff settled her personal injury suit for damages against defendant's insured, and that suit was dismissed with prejudice. Her subsequent complaint against defendant insurer asserted statutory violations (CCP section 790.03) for the defendant insurer’s refusal to settle her claim promptly and fairly against the insured. The Royal Globe court concluded that a joint lawsuit against both the insured for negligence and insurer for violating its duties under section 790.03 is improper.

In opposition, AH Trucking’s predominant argument is that the instant facts do not concern a third-party claimant’s claim against the insured.[5] Rather, the facts concern a first party claim (i.e., claim brought by insured (AH Trucking) against insurer (RICC)).

But who brings the insurance company into the lawsuit (i.e., plaintiff/third party claimant or the insured tortfeasor/first party) was not the court’s concern in both Royal Globe. The Royal Globe court made its determination based upon three reasons: (i) a joint trial would violate Evidence Code section 1155 (which provides that evidence of insurance is inadmissible to prove negligence) (id. at p. 891); (ii) “unless the trial against the insurer is postponed until the liability of the insured is first determined, the defense of the insured may be seriously hampered by discovery initiated by the injured claimant against the insurer” (id. at p. 892, emphasis added); and (iii) “damages suffered by the injured party as a result of the insurer's violation of subdivisions (h)(5) and (h)(14) may best be determined after the conclusion of the action by the third-party claimant against the insured.” (Ibid, emphasis added). Here, the same three concerns would be present because Plaintiff’s claims against AH Trucking remain unresolved.

As observed by the Moradi-Shalal court, “It is fundamental that an insurance contract is, by nature, an indemnity contract; no enforceable claim accrues against the insurer until the insured's liability is in fact established.” (Moradi-Shalal, 46 Cal.3d at p. 306-307, quoting Williams v. Transport Indemnity Co. (1984) 157 Cal.App.3d 953, 960.) Accordingly, since “under its indemnity contract the insurer could be liable only if the insured was liable, the “the essential preliminary inquiry in any action alleging the insurer's violation of ... section 790.03, subdivision (h)(5) must be whether the insured was liable in actuality for the third party claimant's injury.” (Id. at p. 307.) Effectively, here, there must first be proof that the insured (AH Trucking) is liable to Plaintiff/third party claimant. (Id. at p. 308.) Thus, absent a determination that AH Trucking is liable, its filing of a cross-complaint against RICC is premature.[6]

To the extent that AH Trucking cites to Royal Surplus Lines Ins. Co., Inc. v. Ranger Ins. Co. (2002) 100 Cal.App.4th 193 (Royal Surplus) to support its proposition that “[t]here is not requirement that an action against the third-party tortfeasor be finally determined, and liability established for the insured to proceed against her own insurance company for bad faith” (Opp. p. 10:11-13) that case arguably supports RICC’s position. For one, Royal Surplus recognized the canon that “Liability insurance is not a contract for the benefit of the injured party so as to allow it to sue the insurer directly.’ [Citation.]” (Id. at p. 200.) Second, there the insurance issue was brought forth in a separate lawsuit, not the same lawsuit as the underlying action, further suggesting this “suit within a suit” is improper. (Reply p. 4.) Third, unlike Royal Globe which was based upon an underlying negligence came (hence, the concern of prejudice), Royal Surplus was not action for negligence but one for bad faith against the tortfeasor’s insurer. (Royal Surplus, 100 Cal.App.4th at p. 204.) It is for those distinct factual reasonings that the Royal Surplus court determined that there was no misjoinder by the naming of the contractor’s insurer.[7]

Therefore, as the seminal cases on the issue—regardless of whether brought forth by a first party claimant or a third-party claimant—provide that the fact that an insurer has agreed to indemnify the insured for any judgment rendered in the action does not make the insurer a proper party, then the demurrer is sustained. (Reply p. 3, citing Royal Indem. Co. v. United Enterprises, Inc. (2008) 162 Cal.App.4th 194, 205.)

Based on the foregoing, as it is well-established law that an insured may not institute an action until a judgment establishing the liability of the insured has been secured, the demurrer is sustained without leave to amend.

[1] Though a cross-complainant, the court will refer to AH Trucking as a defendant and the same for RICC; though a cross-defendant, the court will refer to RICC as a defendant.

[2] The premise of the cross-complaint is that Huazano was insured under a cargo liability policy issued by RICC and that despite Huazano making a claim under the RICC policy for the damage to Plaintiff’s cargo, RICC denied Huazano/AH Trucking’s coverage for his claim. (See Cross-Complaint generally.) Thus, Huazano filed a cross-complaint against RICC, his liability insurer.

[3] As a prefatory matter, the cases both parties cite involve facts wherein the insurer asserted a statutory cause of action for violations of CCP section 790.03 against the insurer, whereas here, the cross-complaint only asserts bad faith common law claim(s). While the assertion of a statutory claim appears to be of import because the cases largely discuss the legislative intent behind the statute, the court will not address the statute as neither party has raised it.

[4] As the second and third points are not dispositive to the demurrer, the court’s analysis will focus on whether AH Trucking’s naming of its insurer is proper as a matter of law. (For that reason, AH Trucking’s argument that RICC did not meet and confer regarding the duplicity of the claims (which a review of the meet and confer emails was an issue not raised) will not be further addressed.)

[5] In opposition, AH Trucking contends that Royal Globe was overruled by Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287. (Opp. p. 9:18-19.) That is not so because Moradi-Shalal overruled Royal Globe in part. While Moradi-Shalal explicitly “concluded that the Royal Globe court incorrectly evaluated the legislative intent underlying the passage of section 790.03, subdivision (h), and that accordingly Royal Globe should be overruled” (Moradi-Shalal, 46 Cal.3d at p. 292), part VI of the Moradi-Shalal opinion addressed the correctness of Royal Globe’s requirement of a prior determination of liability (id. at p. 293), said part which was not overruled. (Id. at p. 306 [“[T]here must be a conclusive judicial determination of the insured's liability before the third party can succeed in an action against the insurer under section 790.03; see also Westlaw KeyCite [the new red-striped flag in Westlaw Precision indicates that a case has been overruled in part].)

[6] AH Trucking briefly contends the court can bifurcate the issues if the case goes to trial. (Opp. p. 11:12-17.) But, amongst some of the arguments raised in Reply, the court agrees with RICC that whether RICC reasonably handled AH Trucking’s claim is a question of fact, not law. (Reply p. 6, quoting Chateau Chamberay HOA v. Associated Intern Ins. Co. (2001) 90 Cal.App.4th 335, 346.)

[7] Furthermore, to the extent that AH Trucking relies upon the statement in Royal Surplus that provides “there is no requirement that an action against the third party tortfeasor be finally determined and liability established for the insured to proceed against her own insurance company for bad faith” (id. at p. 204), the Royal Surplus court cites to Carter v. Superior Court (1987) 194 Cal.App.3d 424, 428. However, Carter was decided prior to Morardi-Shalal, which is precedent.