Judge Christopher K. Lui, Case 21STCV18290 2022-10-21 Tentative Ruling

Judge: Christopher K. Lui, Case: 21STCV18290, Date: 2022-10-21 Tentative Ruling

Case Number: 21STCV18290 Hearing Date: October 21, 2022 Dept: 76

Pursuant to California Rule of Court 3.1308(a)(1), the Court does not desire oral argument on the demurrer and motion addressed herein. As required by Rule 3.1308(a)(2), any party seeking oral argument must notify ALL OTHER PARTIES and the staff of Department 76 of their intent to appear and argue. Notice to Department 76 may be sent by email to smcdept76@lacourt.org or telephonically at 213-830-0776. If notice of intention to appear is not given and the parties do not appear, the Court will adopt the tentative ruling as the final ruling.

Plaintiff alleges that he was made to wait 6 months for an automobile repair following and accident, and his insurance company failed to pay for a rental. The engine subsequently failed and stranded Plaintiff on the freeway. Plaintiff has been without his vehicle for 9 months, but Defendant insurer has allegedly denied payments and rental coverage in bad faith, while the Defendant mechanic has charged storage fees, repair fees, administrative fees and loaner fees in excess of $2,000 a month, which Plaintiff has paid out-of-pocket.

Defendant Farmers Insurance Exchange demurs to the Third Amended Complaint and moves to strike portions thereof.

TENTATIVE RULING

Defendant Farmers Insurance Exchange’s demurrer to the Third Amended Complaint is OVERRULED as to the eighth and eleventh causes of action and SUSTAINED without leave to amend as to the ninth and tenth causes of action.

Defendant’s motion to strike is GRANTED without leave to amend as to Paragraph 9, page 4 lines 1 through 16; Paragraph 62, page 13 lines 4 through 7 (references to goods and services and the Consumer Legal Remedies Act, Cal. Civ. Code § 1770 et seq. (“CLRA”) only); DENIED as to Paragraph 183, page 30 line 22 through page 32 line 23; Paragraph 189, page 33 line 8 through page 34 line 18 (allegations regarding settling the claims and other allegations); DENIED as to Paragraph 224, page 38 lines 15 through 19; Paragraph 225, page 38 lines 19 through 24 (allegations of authorization, ratification and approval); GRANTED without leave to amend as to Paragraph 33, page 8 lines 23 through 26, Paragraph 43, page 10 lines 13 through 16, Paragraph 92, page 18 lines 14 through 21, Paragraph 123, page 23 lines 3 through 7, Paragraph 137, page 25 lines 10 through 17, Paragraph 138, page 25 lines 18 through 25 (rental car costs).

Defendant is ordered to answer the remaining allegations of the Third Amended Complaint within 10 days.

ANALYSIS

Demurrer

Meet and Confer

The Declaration of Heather M. McKeon reflects that Defendant’s counsel satisfied the meet and confer requirement set forth in CCP § 430.41.

Discussion

Defendant Farmers Insurance Exchange demurs to the Third Amended Complaint on the following grounds.

1. Eighth Cause of Action (Breach of Implied Covenant of Good Faith and Fair Dealing).

Defendant argues that this cause of action fails because there is no allegation that benefits due under the policy were withheld.

Defendant argues that Exhibits attached to the 3AC disproves the allegation at ¶ 33 that Plaintiff was denied a covered claim for rental coverage reimbursement, which was limited to $50 per day/$1,000 max 3AC, Exh. A), and Defendant paid Plaintiff the maximum $1,000 amount covered under the policy. (3AC, Exh. D at 1-2, Exh. F at 3.)

Plaintiff also alleges that Defendant “not only failed to accept Plaintiff’s reasonable offers of settlement to declare the vehicle a Total Loss or to settle at applicable policy limits, but . . . also failed to meet the reasonable and essential terms of the settlement offers . . . .” (¶ 183(c).) However, Defendant argues, the 3AC does not contain allegations regarding the use of settlement offers as a means of providing Plaintiff any benefits due under the subject policy nor does it allege the existence of settlement offers altogether.

At most, Defendant argues, Plaintiff may be alluding to an instance in paragraph 55, which reads: “[o]n July 28, 2021, Plaintiff sent a letter regarding TLT [Total Loss Threshold] calculations to Defendants. To date, FARMERS and TERRY refuse to perform as obligated.” (¶ 55). Defendant argues that the letter as described would not constitute a settlement offer. In any case, Plaintiffs’ claim for coverage arises from a vehicular collision occurring on September 2, 2020. (¶ 22.)

As stated in Exhibit D of the 3ACt, Plaintiff’s claim for coverage was filed by Plaintiff on September 3, 2020. (Ex. D at 1.) In accordance with the subject policy, Defendant granted Plaintiff’s claim and provided collision coverage through the entire duration of Plaintiff’s vehicle repairs, including a final payment in the amount of $41,219.22 for the replacement of Plaintiff’s vehicle’s engine. (Ex. F at 4; see also Ex. A at 21 (“[o]ur limits of liability for an insured loss to your insured car, non-owned car or its equipment will not exceed the cost that is necessary to repair or replace the damaged or stolen property or parts with like kind and quality parts less an adjustment for physical deterioration and depreciation.”).) Ultimately, Defendant argues, Plaintiff’s allegations regarding a failure to declare the subject vehicle a total loss and failure to accept offers of settlement are outside the scope of determining whether benefits due under the policy were withheld. Once the engine was replaced at FIE’s expense, no further payments are owed related to the engine. Any alleged issues with the new engine cannot be related back to a collision wherein the new engine was not involved. Thus, the 3AC demonstrates that all benefits due and owing to Plaintiff under his policy were timely paid.

Plaintiff argues that the basis of the breach of implied covenant / bad faith claim is Defendant’s one-year delay in replacing the engine, and instead reusing the damaged engine block, only replaced the cylinder heads, and then replaced the engine which ultimately failed, leaving Defendant unable to repair the vehicle to its pre-accident condition. (3AC, ¶¶26, 31, 37, 46, 178.)

Moreover, Plaintiff argues, even if there is full payment of the claim, bad faith may exist if there were unreasonable delays and lack of diligence in claims handling. Plaintiff argues that Defendant clearly failed to act thoroughly within 40 days when it took more than 2 years to have the vehicle repaired. Plaintiff argues that Defendant’s duty to investigate and pay claims continues even after a lawsuit is filed.

As in every other contract, an implied covenant of good faith and fair dealing is implicit in an insurance contract: “‘Every contract imposes upon [*1209] each party a duty of good faith and fair dealing in its performance and its enforcement.’” (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683 [254 Cal. Rptr. 211, 765 P.2d 373].) “‘Good faith performance … of a contract emphasizes faithfulness to an agreed common purpose and consistency with the [reasonably] justified expectations of the other party … .’” (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922, fn. 5 [148 Cal. Rptr. 389, 582 P.2d 980] (Neal).) The fundamental purpose of the implied covenant of good faith and fair dealing is “‘that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.’” (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573 [108 Cal. Rptr. 480, 510 P.2d 1032].)

. . .

Moreover, to establish the insurer's “bad faith” liability, the insured must show that the insurer has (1) withheld benefits due under the policy, and (2) that such withholding was “unreasonable” or “without proper cause.” (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 573–574.) The actionable withholding of benefits may consist of the denial of benefits due (McLaughlin v. Connecticut General Life Ins. Co. (1983) 565 F.Supp. 434, 450–452); paying less than due (Neal, supra, 21 Cal.3d at p. 921); and/or unreasonably delaying payments due (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 [44 Cal. Rptr. 2d 370, 900 P.2d 619]).

In first party cases, the implied covenant of good faith and fair dealing obligates the insurer to make a thorough investigation of the insured's claim [*1210] for benefits, and not to unreasonably delay or withhold payment of benefits. If the insurer “without proper cause” (i.e., unreasonably) refuses to timely pay what is due under the contract, its conduct is actionable as a tort. (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 573–574.) “The gravamen of a first party [bad faith] lawsuit is a breach of the implied covenant of good faith and fair dealing by refusing, without proper cause, to compensate the insured for a loss covered by the policy … or by unreasonably delaying payments due under the policy … .” (Waters v. United Services Auto Assn. (1996) 41 Cal.App.4th 1063, 1070 [48 Cal. Rptr. 2d 910], citation omitted (Waters).)

(Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1208-10 [bold emphasis added].)

“A delay in payment of benefits due under an insurance policy gives rise to tort liability only if the insured can establish the delay was unreasonable. (Citations omitted.)” (Brehm v. 21st Century Ins. Co. (2008) 166 Cal.App.4th 1225, 1237.)

Thus, in Waller v. Truck Ins. Exchange, supra, 11 Cal.4th 1, in language particularly apt to the case at bar in light of Brehm's allegations of improper conduct by 21st Century, the Supreme Court explained an insurer's obligations extend beyond simply paying the benefits to which its insured is entitled: “[W]hen benefits are due an insured, ‘delayed payment based on inadequate or tardy investigations, oppressive conduct by claims adjusters seeking to reduce the amounts legitimately payable and numerous other tactics may breach the implied covenant because’ they frustrate the insured's right to receive the benefits of the contract in ‘prompt compensation for losses.’ ”

(Brehm, supra, ) 166 Cal.App.4th at 1236 [bold emphasis added].)

Here, at least part of the eighth cause of action is based on the allegation that Defendant has failed to declare the subject vehicle a Total Loss, even though it knew well before the lawsuit was filed that per the Total Loss Formula, Defendant was required to declare the vehicle a total loss, but instead employed a false “Percentage of FMV” calculation. (3AC, ¶ 183(a), (b). Although Terry advised against reusing the engine block and cylinder heads as it would knowingly fail, Defendant disregarded Terry’s advice and automotive standards and nevertheless reused the defective engine parts. (3AC, ¶¶ 26, 183(b)(6); ¶ 189.) This resulted in Plaintiff waiting from September 2, 2020 through early March 2021 for the automobile to be repaired (3AC, ¶¶ 22 – 33), only to have the engine fail on March 12, 201—about one week after Plaintiff picked up the automobile. (3AC, ¶¶ 34 – 56.)

This is sufficient to plead that Defendant has unreasonably delayed paying policy benefits to restore the car to operational. The cause of action is sufficiently pled.

The demurrer to the eighth cause of action is OVERRULED.

2. Ninth Cause of Action (Breach of Implied Covenant of Good Faith and Fair Dealing), Tenth Cause of Action (Bad Faith – Failure To Properly Investigate a Claim), and Eleventh Cause of Action (Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing).

Defendant argues that the ninth, tenth and eleventh causes of action are merely duplicative of the eighth cause of action; Plaintiff argues that the ninth, tenth and eleventh causes of action provide for different remedies than the eighth.

It appears that the eighth cause of action is based on a contractual breach of the implied covenant of good faith and fair dealing, as it does not contain allegations of malice, oppression or fraud. In this regard, the ninth and tenth causes of action appear to also be contract-based, are not based on different facts, and are thus duplicative of the eighth cause of action. A demurrer is properly sustained as to a duplicative cause of action that adds nothing to the complaint by way of fact or theory of recovery. (Palm Springs Villas II Homeowners Assn., Inc. v. Parth (2016) 248 Cal.App.4th 268, 290.)

However, the eleventh cause of action appears to be tort-based, as it pleads malice and oppression in the form of despicable conduct carried out with a willful and conscious disregard of Plaintiff’s rights and subjecting him to cruel and unjust hardship in conscious disregard of his rights. (3AC, ¶ 227.)

As such, the demurrer to the ninth and tenth causes of action is SUSTAINED without leave to amend, but the demurrer to the eleventh cause of action is OVERRULED.

Motion To Strike

Meet and Confer

The Declaration of Heather M. McKeon reflects that Defendant’s counsel satisfied the meet and confer requirement set forth in CCP § 435.5.

Discussion

Defendant Farmers Insurance Exchange moves to strike the following portions of the 3AC, as indicated by the strikethroughs:

1. Paragraph 9, page 4 lines 1 through 16, as follows:

Defendants have violated California consumer protection laws, including the California Business and Professional Code 17200 et seq. (the “Unfair Competition Law,” hereinafter referred to as “UCL”), the False Advertising Act, Cal. Civ. Code § 17500 et seq. (“FAL”), ~~and the Consumer Legal Remedies Act, Cal. Civ. Code § 1770, et seq. (“CLRA”). Defendant~~ TERRY has misled and deceived California consumers by telling consumers that the condition, benefit and qualities of the goods and services being represented are in fact the condition, benefits and qualities of the goods and services being offered. Defendant knew, or should know, that by concealing the true status of covered repairs, by not releasing the vehicle timely, by concealing the true status of parts and labors, by misrepresenting the condition, benefits and qualities of the goods and services being sold, by intentionally misleading consumers to believe that their vehicles have been repaired and/or repaired properly even though repairs to the vehicle has not even started, by intentionally failing to return a consumer’s vehicle, by intentionally depriving consumers the use of their vehicles, Defendants have rendered their actions misleading and deceptive and in violation of the UCL, FAL, and CLRA.

GRANTED without leave to amend as to references to goods and services and the Consumer Legal Remedies Act, Cal. Civ. Code § 1770 et seq. (“CLRA”) only.

The allegations re: the CLRA and goods and services are improper as against moving Defendant Farmers, as insurance is not a good and service for purposes of the CLRA. These allegations must clearly be limited to Defendant Terry only. The other allegations regarding violations of the UCL and FAL are proper, given that those causes of action remain viable.

2. Paragraph 62, page 13 lines 4 through 7, as follows:

Defendants’ and DOES 1-100’s deception and unfair practices in marketing and selling its insurance ~~and automotive goods and services~~ violate California’s ~~CLRA~~, FAL, and UCL laws.

GRANTED without leave to amend as to references to goods and services and the Consumer Legal Remedies Act, Cal. Civ. Code § 1770 et seq. (“CLRA”) only. (See above re: 1.)

3. Paragraph 183, page 30 line 22 through page 32 line 23, as follows:

b. Failing to settle this case at policy limits when FARMERS and DANIEL COX had an opportunity and obligation to do so well before this lawsuit was filed and well after FARMERS and DANIEL COX knew of the following:

. . .

6. that TERRY advised against reusing the engine block and cylinder heads as it would knowingly fail, but DANIEL COX and FARMERS disregarded TERRY’s advise and automotive standards and nevertheless reused the defective engine parts.

c. Defendants not only failed to accept Plaintiff’s reasonable offers of settlement to declare the vehicle a Total Loss or to settle at applicable policy limits, but Defendants also failed to meet the reasonable and essential terms of the settlement offers, thereby further breaching its obligations of good faith and fair dealing and causing this

~~matter not to settle within the Policy terms and limits.~~

. . .

g. Failing to carry out a prompt, thorough investigation ~~and to meet reasonable conditions for settlement made by Plaintiff~~.

h. Failing to keep its insureds informed and to communicate honestly with them. ~~Among other failures to inform, failing to advise the insureds of their exposure and failing to inform their insured that the repairs would knowingly fail~~.

i. Failing and refusing to take appropriate action and steps to protect its named insured because of placing FARMERS’ and DANIEL COX’s interests above Plaintiff’s interests despite having alternatives available, but not taken, which would have allowed Plaintiff to protect his interests.

DENIED. The allegations regarding settling the claims are proper in the context of Defendant’s alleged failure to declare the vehicle a total loss, as discussed in the demurrer. As to the other allegations, Defendant has failed to demonstrate how these are improper.

4. Paragraph 189, page 33 line 8 through page 34 line 18, as follows:

a. Failing to declare the subject vehicle a total loss and settle Plaintiff’s claim(s) at policy limits when Defendants had an opportunity and obligation to do so well before this lawsuit was filed and well after FARMERS and DANIEL COX knew both of the following:

1. that the Total Cost of Repairs exceeded the Total Loss Threshold and that the documented total cost of repair in its files were clearly incorrect and misleading which confirmed that Defendants’ liability was all but certain to result in a judgment against FARMERS and DANIEL COX for well in excess of the policy limits, and,

2. that the repairs would be defective and the subject vehicle not repaired as required meaning that Defendants’ liability was all but certain to result in a judgment against FARMERS and DANIEL COX for well in excess of the policy limits.

b. Defendants not only failed to accept Plaintiff’s reasonable offers of settlement to declare the vehicle a Total Loss or to settle at applicable policy limits, but Defendants also failed to meet the reasonable and essential terms of the settlement offers, thereby further breaching its obligations of good faith and fair dealing and causing this

~~matter not to settle within the Policy terms and limits.~~

. . .

f. Failing to carry out a prompt, thorough ~~investigation and to meet reasonable conditions for settlement made by Plaintiff~~.

g. Failing to keep its insureds informed and to communicate honestly with them. ~~Among other failures to inform, failing to advise the insureds of their exposure and failing to inform their insured that the repairs would knowingly fail~~.

h. Failing and refusing to take appropriate action and steps to protect its named insured because of placing FARMERS’ and DANIEL COX’s interests above Plaintiff’s interests despite having alternatives available, but not taken, which would have allowed Plaintiff to protect his interests.

5. Paragraph 224, page 38 lines 15 through 19, in its entirety as follows:

FARMERS’ and DANIEL COX’s conduct was undertaken or approved by its officers or managing agents who are and were responsible for claims supervision operations, communications and decisions. This unreasonable conduct was undertaken on behalf of FARMERS and its adjusters and underwriters, including DANIEL COX.

DENIED. This allegation will be permitted.

6. Paragraph 225, page 38 lines 19 through 24, in its entirety as follows:

FARMERS and DANIEL COX had advance knowledge of the actions and conduct of said individuals, and the conduct was ratified, authorized and approved by FARMERS and DANIEL COX, including managing agents' whose precise identities are unknown to Plaintiff at this time and therefore identifies and designates them as DOES 1 through 100.

DENIED. This allegation will be permitted.

7. Paragraph 33, page 8 lines 23 through 26, in its entirety as follows:

Plaintiff asked FARMERS about rental coverage reimbursement, but was denied a covered claim. (Attached and incorporated hereto as Exhibit D is a true and correct copy of Loss Details confirming FARMERS did not cover the Loss of Use as required)

The Court previously accepted Defendant’s argument that the provision detailing payment for rental vehicles can be found under the K-5 Loss of Use Endorsement (J6960-3rd Edition) of the Policy attached as Plaintiff’s Exhibit A of the operative complaint (FIE 0920). The K-5 Loss of Use provision states, in relevant part, that FIE “will pay you $50 per day while your insured car is in the custody of a garage for repairs resulting from a Collision or Comprehensive loss. If your insured car is a total loss (regardless of salvage value) we will pay you $1,000. The maximum payable under K-5 is $1,000.” (emphasis added). Exhibit D of the operative complaint reflects that Plaintiff was paid $1,000 under the K-5 coverage.

“[F]acts appearing in exhibits attached to the complaint will also be accepted as true and, if contrary to the allegations in the pleading, will be given precedence. (Citation omitted.)” (Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627.)

As such, the motion to strike is GRANTED without leave to amend as to rental car costs. Because Defendant paid the maximum available under the policy limits, holding Defendant liable for additional rental costs would be to grant a policy benefit beyond that to which Plaintiff agreed.

8. Paragraph 43, page 10 lines 13 through 16, as follows:

On or about May 11, 2021, Plaintiff requested a copy of the repair estimate and a timeline of when the repairs would be completed. ~~Plaintiff also asked whether or not he would be reimbursed for the rentals. Plaintiff was ignored.~~