Judge: Colin Leis, Case: 23STCV26374, Date: 2024-03-20 Tentative Ruling

Case Number: 23STCV26374    Hearing Date: March 20, 2024    Dept: 74

Western Diocese of the Armenian Church of North America v. Brotherhood Mutual Insurance Company, et al.

Defendant The Cutler Group, Inc.’s Demurrer to Complaint

BACKGROUND 

            This action arises from a contractual dispute.

            On October 27, 2023, Plaintiff Western Diocese of the Armenian Church of North America (Plaintiff) filed a complaint against Defendant The Cutler Group, Inc. (Defendant) and others.

            The complaint alleges one cause of action against Defendant: broker negligence.

            On February 16, 2024, Defendant filed this demurrer.

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 

            In support of its demurrer, Defendant argues Plaintiff has failed to sufficiently plead a cause of action for broker negligence. The court disagrees. Insurance brokers owe a duty to their clients to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured. (Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Ins. Services West, Inc. (2012) 203 Cal.App.4th 1278, 1283.) An insurance broker breaches this duty if the broker misrepresents the nature, extent, or scope of the coverage being offered or provided. (Ibid.)

            Here, Plaintiff alleges Defendant procured and sold an insurance policy to Plaintiff. (Complaint, ¶¶ 4, 14, 79.) Plaintiff believed the policy would cover Plaintiff’s loss of earnings and donation income in the event an order of civil authority interrupted Plaintiff’s business operations. (Complaint, ¶ 16.) Moreover, Plaintiff was not under the impression that the order of civil authority had to result from physical damage to Plaintiff’s real property. (Complaint, ¶ 34.) Importantly, Plaintiff alleges that Defendant intentionally concealed a material fact from Plaintiff and sold illusory insurance coverage. (Complaint, ¶¶ 45, 79.)

            From these allegations, the trier of fact could conclude that Defendant concealed from Plaintiff that the insurance policy only covered losses resulting from an order of civil authority if damage to Plaintiff’s property prompted the order. The trier of fact could further conclude that Plaintiff purchased the insurance policy based on Defendant’s misrepresentation. Thus, Plaintiff has sufficiently alleged a breach of duty.

            In addition, Defendant contends Plaintiff fails to allege that, but for Defendant’s breach, Plaintiff would have had insurance coverage for its losses. But Plaintiff alleges that Defendant’s breach caused Plaintiff to not obtain compensation for lost profits. (Complaint, ¶¶ 79, 80.) The insurance policy Plaintiff believed it had purchased could have covered those lost profits. (Complaint, ¶ 16.)

            Defendant goes on to argue Plaintiff’s claim for broker negligence is time-barred. The applicable statute of limitations is two years. (Cyr v. McGovran (2012) 206 Cal.App.4th 645, 651.) A cause of action for professional negligence does not accrue until the plaintiff sustains damage and discovers, or should discover, the negligence. (Roger E. Smith, Inc. SHN Consulting Engineers & Geologists, Inc. (2001) 89 Cal.App.4th 638, 650-651.) Courts have held that the statute of limitations for a broker negligence claim begins to run when the insurer conveys to the plaintiff that anticipated coverage will be denied. (Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1162.)

            Defendant contends the statute of limitations began to run on April 9, 2020: that day, another broker sent Plaintiff the incorrect insurance policy. (Complaint, ¶ 38.) Moreover, Defendant points out that Plaintiff alleges it “relied on the incorrect version of the Policy and was damaged thereby.” (Complaint, ¶ 77.) But these allegations only state when the other broker sent the incorrect policy. The allegations do not specify when Plaintiff sustained damages by relying on the incorrect policy. Elsewhere in the complaint, Plaintiff alleges it sustained damages on November 29, 2022, when the insurer denied Plaintiff its anticipated coverage. (Complaint, ¶¶ 39, 41.) Under the allegations, the limitations period began to run on that day. (Roger E. Smith, Inc. SHN Consulting Engineers & Geologists, Inc. supra, 89 Cal.App.4th at pp. 650-651.) Because Plaintiff filed its complaint within two years of the denial, Plaintiff’s broker negligence claim is not time barred.

CONCLUSION 

The court overrules Defendant’s demurrer.

Defendant shall file and serve its answer within 20 days.

Defendant shall give notice.