Judge: Colin Leis, Case: 22STCV30546, Date: 2023-01-17 Tentative Ruling

Case Number: 22STCV30546    Hearing Date: January 17, 2023    Dept: 74

Superior Court of California

County of Los Angeles – CENTRAL District

Department 74

MOVING PARTY: UNDERWRITER AT LLOYDS subscribing to certificate B1136P03460-19

RESPONDING PARTY: SCOTTSDALE INSURANCE COMPANY

Defendant’s Demurrer to Complaint

The court considered the moving papers, opposition, and reply papers filed in connection with this motion.

BACKGROUND

            Plaintiff, Scottsdale Insurance Company (“Plaintiff”) filed this action on September 19, 2022 against Defendant Underwriters at Lloyds subscribing to certificate B1136P03460-19 (“Defendant”). The Complaint asserts causes of action for declaratory relief and equitable contribution.

            The Underlying Lawsuit

            This is an insurance coverage action concerning the rights and obligations under insurance policies with respect to an underlying lawsuit, United Specialty Insurance Company v. ML Enterprise Textile, LLC, et al., Superior Court of California, County of Los Angeles, Case No. 21STCV43080. The underlying lawsuit alleges ML Enterprise Textile, LLC (“MLE”) was leasing a warehouse to Nicole Bakti, Inc. (“Bakti”) to store merchandise and inventory. According to the underlying lawsuit, Bakti lost merchandise and inventory when MLE’s negligence caused the warehouse to catch fire. United Specialty Insurance Company (“United Specialty”) contends that it issued an insurance policy to Bakti which compensated Bakti for its damages. In the underlying lawsuit, United Specialty seeks reimbursement from MLE for the compensation United Speciality paid to Bakti.

This Lawsuit

Plaintiff issued a commercial general liability (CGL) policy to MLE. For its part, Defendant issued a Warehousemens Legal Liability (WLL) policy to MLE. Plaintiff alleges that MLE tendered its defense in the underlying lawsuit to both Plaintiff and Defendant. Plaintiff alleges that it agreed to defend MLE, but Defendant refused to do so. Plaintiff seeks a judicial determination that Defendant is obligated to defend MLE, and seeks reimbursement of Defendant’s equitable share of the fees and costs.

            Defendant demurs to the Complaint arguing that the Complaint does not allege sufficient facts to state a cause of action for equitable contribution because the two insurance policies cover different risks. Additionally, Defendant argues that the Complaint is deficient because it fails to allege all the relevant contractual terms or to attach copies of the two insurance policies.

REQUEST FOR JUDICIAL NOTICE

            Defendant requests that the Court take judicial notice of the complaint in the underlying case, United Specialty Insurance Company v. ML Enterprise Textile, LLC, Los Angeles County Superior Court Case No. 21STCV43080. The Court grants Defendant’s request for judicial notice.

            The Court notes that Defendant failed to attach Exhibit A to the complaint.  Plaintiff attaches this Exhibit as Exhibit 1 to Astengo Declaration. The Court additionally takes judicial notice of the existence of this Exhibit.

LEGAL STANDARD

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) 

DISCUSSION

Defendant argues that Plaintiff improperly brought an equitable contribution cause of action when Plaintiff should have instead alleged a cause of action for equitable subrogation because the two insurance policies cover different risks. Additionally, Defendant demurs to the Complaint because it omits relevant terms of the insurance contracts.

An insurer that has settled an injured party’s claim against its insured may seek equitable contribution from coinsurers sharing the same level of liability on the same risk as to the same insured, who refused to settle or defend the claim. (Maryland Cas. Co. v. Nationwide Mut. Ins. Co. (2000) 81 Cal.App.4th 1082, 1089.) Equitable contribution differs from equitable subrogation because the insurer does not “stand in the shoes” of the insured but rather has a separate claim against the other insurers on the risk. (Fireman's Fund Ins. Co.v. Maryland Cas. Co. (1998) 65 Cal.App.4th 1279, 1293-1294.)

Defendant argues that its WLL policy covers MLE’s liability for physical loss or damage to property of others only while the property was in MLE’s possession as a warehouse operator or bailee. Defendant further contends that Plaintiff’s CGL policy, in contrast, excludes liability for damage to property that was in MLE’s care, custody, or control.

Proper analysis of Defendant’s demurrer requires keeping in mind the difference between the duty to defend and the duty to indemnify. When a potential duty of indemnification exists, the duty to defend arises. Until the facts in this case develop, one does not know whether MLE had care, custody, and control of Bakti’s merchandise. Because that factual question may go either way, Plaintiff can for the purposes of demurrer allege a potential duty of indemnification – and thus allege the duty to defend.

Eventually, the factual question of MLE’s care, custody, and control of Bakti’s merchandise will be proved (or not) for purposes of indemnification. Defendant posits that the parties’ potential duty to indemnify will be “either/or” between Defendant and Plaintiff. But Defendant has not at this stage of pleading established that the parties’ indemnification duty (if any) will be mutually exclusive. Coverage might exist under Defendant’s Warehousemen’s Legal Liability policy for an “on premises” loss – which, notably, does not involve the phrase “care, custody, or control.” (Complaint ¶ 16; WLL Policy, Clause A(1), at page 5 [Exhibit B to Tommey Decl.]) Simultaneously, coverage might also exist under Plaintiff’s CGL policy because Plaintiff (who is defending under a reservation of rights) does not prove the “care, custody, and control” exclusion. (Tommey Decl. ¶ 7; Exh. C – Commercial General Liability Coverage Form, Section I, Coverage A, Clause 1.a., at Page 1 of 16.)  Thefore, the policies do not cover entirely separate risks. Thus, Plaintiff can state a claim for equitable contribution.

            Defendant contends a warehouse receipt necessarily creates a bailment, and a “bailee” is “a person, that by a warehouse receipt, bill of lading, or other document of title acknowledges possession of goods and contracts to deliver them.” (Cal. Com. Code § 7102(a)(1).) However, possession is not necessarily the same as “care, custody, and control.” Defendant cites to Karpe, which addressed a similar exclusionary clause, and states that “An apparent purpose of the exclusionary clause is to except from policy coverage liability on account of damage to property held under bailment.” (Karpe v. Great Am. Indem. Co. (1961) 190 Cal.App.2d 226 (emphasis added).) However, this case did not hinge on this statement, and this indefinite dictum from sixty years ago is not sufficient to sustain Defendants’ demurrer.

CONCLUSION

Based on the foregoing, the court overrules Defendant’s demurrer.

Defendant shall file and serve its answer within 10 days of this order.   

Defendant is ordered to give notice of this ruling.

IT IS SO ORDERED.

DATED:  January 17, 2023

_____________________________

Colin Leis

Judge of the Superior Court