Judge: Colin Leis, Case: 23STCV26474, Date: 2024-08-21 Tentative Ruling
Case Number: 23STCV26474 Hearing Date: August 21, 2024 Dept: 74
MOVING PARTY: Defendant Ironshore Specialty
Insurance Company
Defendants’ Demurrer to Complaint
The court considered the moving papers, opposition, and reply papers
filed in connection with this motion.
This action arises from alleged
unpaid reimbursement amounts under a directors and officers’ insurance policy. Plaintiff
John P. Kelly, M.D. (“Plaintiff”) filed this action on October 30, 2023,
against Defendants Ironshore Specialty Insurance Company (“Defendant”), Lockton
Companies dba Lockton Insurance Brokers, and DOES 1-10 (together “Defendants”).
The complaint asserts causes of action for breach of contract, breach of the
duty of good faith and fair dealing, and professional negligence.
Defendant now demurs to the first and second causes of action on the
basis that they fail to state facts sufficient to constitute a cause of action.
(Code Civ. Proc., § 430.10, subd. (e).)
On August 7, 2024, Plaintiff filed an opposition to the demurrer.
On August 14, 2024, Defendant filed its reply.
Allegations of the Complaint
Plaintiff alleges that he is
an “insured person” under Defendant’s Managed Care Organizations Directors and
Officer’s Liability Policy, Including [sic] Employment Practices Liability Declarations
(Policy No. HC7BAB5VSC001, the “Policy”). (Compl. ¶¶ 11-13.) On or about
October 26, 2021, a case naming Plaintiff as a defendant settled, leaving Plaintiff
with approximately $75,000 in unreimbursed defense fees. (Compl. ¶ 21-29.)
Plaintiff alleges that in
early 2021, upon receiving a draft complaint and demand for payment, Plaintiff
gave notice to Defendant Lockton Insurance Companies, LLC, his insurance agency
and broker on January 6, 2021, and February 16, 2021. (Compl. ¶ 7, 17, 18.)
Plaintiff also contends that Defendant Lockton Insurance Companies, LLC, failed
to tender notice of the claim to Defendant Ironshore. (Compl. ¶ 17.)
Plaintiff claims to have
incurred $75,000 in unreimbursed defense fees that Defendant refuses to
reimburse as required by the Policy. (Compl. ¶ 21-29.) Plaintiff alleges that
Defendant refused to participate in settlement negotiations and refused to
provide Plaintiff with insurance policy details several times. (Compl. ¶ 28.)
Plaintiff alleges that even after Defendant conceded that Plaintiff was insured
under the Policy, Defendant still refused to reimburse post- tender fees. (Compl. ¶ 33.) Plaintiff claims that he
incurred $75,000 in unreimbursed defense fees from litigation that settled on
or about October 26, 2021, because Defendant ignored numerous requests for
insurance policy details and refused to participate in the proceedings. (Compl.
¶¶ 21-29.)
Request for Judicial Notice
Defendant asks the court to
take judicial notice of (1) Ironshore’s Directors and Officers Liability with
Ortho West MSO for a term between 12/31/2020 to 12/31/2021 (the “Policy” see
Compl., ¶ 11.), (2) a March 3, 2021 letter from Plaintiff’s counsel, Ethan H.
Seibert (“Attorney Seibert” to Defendant, (3) Portions of the settlement
agreement, dated April 2, 2021, mediation, (4) Ironshore, August 30, 2021
letter to Plaintiff, (5) Defense fee invoices incurred from January 201 to
January 2022, (6) Defendant’s coverage position letter to Plaintiff, dated
November 23, 2021, (7) Defendant’s March 1, 2022 letter to Plaintiff, (8)
Defendant’s Motion to Dismiss, filed October 12, 2022 in Federal Circuit, (9)
Dismiss, filed October 12, 2022, in Federal Court without exhibits, and (10)
Plaintiff’s opposition to Ironshore’s Motion to Dismiss the First Amended
Complaint, filed March 23, 2023 in Federal Court.
Plaintiff filed an opposition
to Defendant's request for judicial notice. As to Requests 2 through 7,
Plaintiff argues that the Court cannot take judicial notice of these documents
because Defendant has failed to supplement its requests with a declaration
stating that the requested documents are complete or are true and correct
copies. As to Requests 8 through 10, Plaintiff argues that no authentication
was provided, and that the court cannot take judicial note of the contents of
the documents.
The Court may take judicial
notice of the legal effect of documents’ language when the effect is clear, but
it may not take judicial notice of the truth of statements of fact recited
within the documents.¿ (Fontenot v. Wells Fargo Bank, N.A. (2011) 198
Cal.App.4th 256, 265.)¿ The request is granted only to that
extent.¿
Demurrer
As an initial matter, the
court notes that there are three causes of action asserted in the body of the
Complaint: (1) breach of contract against Defendant Ironshore and DOES 1-5, (2)
breach of the covenant of good faith and fair dealing against Defendant
Ironshore and DOES 1-5, and (3) professional negligence against Defendant
Lockton and DOES 1-5. Defendant Ironshore demurs to the first cause of action for
breach of contract under Code Civ. Proc. § 430.410(e), alleging that it has not
breached the terms of the Policy. (Demurrer, 2:8-10.) Defendant Ironshore also
demurs to the second cause of action for breach of the covenant of good faith
and fair dealing under Code Civ. Proc. § 430.410(e), alleging that it has not
acted in bad faith. (Demurrer, 2:11-14.) The Court notes that Defendant Lockton
has moved to demur the third cause of action, with a hearing scheduled for
August 23, 2023.
First Cause of Action:
Breach of Contract
Defendant contends that
Plaintiff fails to state a cause of action for breach of contract because Plaintiff
failed to provide notice of and obtain Defenant’s consent prior to entering the
$1.5 million settlement. (Demurrer, 1:9-20.)
To state a cause of action for
breach of contract, Plaintiff must be able to establish “(1) the existence of
the contract, (2) plaintiff’s performance or excuse for nonperformance, (3)
defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis
West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)
If a breach of contract claim
“is based on alleged breach of a written contract, the terms must be set out
verbatim in the body of the complaint or a copy of the written agreement must
be attached and incorporated by reference.” (Harris v. Rudin, Richman &
Appel (1999) 74 Cal.App.4th 299, 307.) In some circumstances, a plaintiff
may also “plead the legal effect of the contract rather than its precise
language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co.)
(2002) 29 Cal.4th 189, 198-199.)
Defendant argues that
Plaintiff has failed to plead sufficient facts to support a breach of contract
cause of action because Plaintiff was not entitled to settlement coverage under
the Policy, and that Plaintiff breached the Policy’s “No Voluntary Payments
Provisions”, by failing to provide adequate notice and obtain prior written
consent from Defendant.
Defendant contends that
Plaintiff’s March 3, 2021, letter was insufficient notice because it was not
delivered to the address required by the Policy, and Plaintiff engaged in mediation
and settlement proceedings without first obtaining Defendant’s written consent,
as required by the Policy. (Demurrer, 4: 11-19.) Defendant argues that notice was properly given
to Plaintiff on August 13, 2024, after Defendant informed Plaintiff that it had
not received notice of the claim. (Demurrer, 4:21-23.)
In opposition, Plaintiff
argues that the purpose of a demurrer is to test the sufficiency of the face of
the complaint, not to establish success on the merits of the claim, and that
Defendant aims to circumvent the pleading standard based on their requests for
judicial notice. Plaintiff further argues that by giving notice to Defendant
Ironshore’s agent, the notice is timely. (Opp’n, 9:24-26.)
In the Complaint, Plaintiff states:
(1) a managed care contract was entered into with Defendant on or about
December 31, 2020, in which Plaintiff was an insured person. (Compl., ¶¶ 11, 13);
(2) Plaintiff incurred a demand for payment under a complaint naming him as a
Defendant in his capacity as director and officer, and immediately tendered defense
of the claim to all his insurers (Compl., ¶ 14-16); (3) Defendant “took no
action to protect Plaintiff’s interests, including the retention of counsel to
defend Plaintiff or the offer of indemnity in the event of a judgment or
settlement” (Compl. ¶ 17), “took no action to provide Plaintiff with the Policy
benefits” (Compl. ¶ 28), “refused to make any contribution towards the defense
of the Claim or the settlement of the Claim” (Compl. ¶ 32), and “refused to
contribute to the settlement of the Claim or reimburse the post-tender fees
incurred by Plaintiff” (Compl. ¶ 33.), (5) Plaintiff alleges approximately
$75,000 in unreimbursed defense fees. (Compl. ¶ 21-29.)
Given that Plaintiff has
established that a contract exists, Plaintiff performed on the contract by notifying
Defendant of the insurance claim, and Defendant failed to provide insurance
policy details, and resulting in unreimbursed defense fees, the Court finds
that Plaintiff has sufficiently stated a cause of action for breach of contract
for the purposes of a demurrer.
Accordingly, Defendant’s
demurrer to Plaintiff’s first cause of action for breach of contract is
overruled.
Second Cause of Action:
Breach of the Implied Covenant of Good Faith and Fair Dealing
“A breach of the implied
covenant of good faith and fair dealing involves something beyond breach of the
contractual duty itself and it has been held that bad faith implies unfair
dealing rather than mistaken judgment.” (Careau
& Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d
1371, 1394.) “If the allegations do not go beyond the statement of a mere
contract breach and, relying on the same alleged acts, simply seek the same
damages or other relief already claimed in a companion contract cause of
action, they may be disregarded as superfluous as no additional claim is
actually stated . . . [T]he only justification for asserting a separate cause
of action for breach of the implied covenant is to obtain a tort recovery.” (Id. at pp. 1394-1395.) To recover in
tort for breach of the implied covenant, the defendant must “have acted
unreasonably or without proper cause.” (Id.
at p. 1395, citations and italics omitted.)
Defendant
argues that Plaintiff cannot maintain a cause of action for breach of good
faith and fair dealing because it is derivative of the breach of contract
claim, which must fail because the Policy affords no coverage to Plaintiff’s settlement
costs. (Demurrer, 10:8-10.)
Plaintiff
alleges as of the date of the pleading, Defendant failed and refused to pay the
costs incurred in defense of the Claim per their agreement. (Compl. ¶ 70.) Plaintiff
alleges that Defendant breached its duty of good faith and fair dealing owed to
Plaintiff by failing to pay entitled benefits, failing to reasonably
investigate and process Plaintiff's claim, and a host of other related
allegations. (Compl. ¶ 70(a)-(q).) Plaintiff
alleges as a direct and proximate result of Defendant’s wrongful conduct, Plaintiff
has suffered and continues to suffer damages under the Policy, plus interest, in
an amount to be proven at trial. (Compl.
¶ 75.) Plaintiff further alleges, as a proximate result of Defendant’s wrongful
conduct, alleged “anxiety, worry, mental and emotional distress, and other
incidental damages and out-of-pocket expenses” (Compl. ¶ 76) and a further
proximate result of Defendant’s wrongful conduct, Plaintiff was compelled to
retain legal counsel to obtain the benefits due under the Policy. (Compl. ¶
77.)
Plaintiff fails to allege the
existence of some specific contractual obligation that frustrated Plaintiff’s
right to the benefits of the contract. If Plaintiff’s allegation is that the
specific contractual obligation was for Defendant to pay Plaintiff’s claim, and
Defendant’s failure to make such payment frustrated his right to benefit from
their agreement, then Plaintiff’s cause of action merely restates her breach of
contract claim.
Accordingly,
Defendant’s demurrer to Plaintiff’s second cause of action is sustained with 10
days’ leave to amend.
CONCLUSION
Based on the foregoing, the court overrules Defendants’ demurrer to
the Complaint’s First Cause of Action for Breach of Contract.
The court sustains Defendants’ demurrer to the Complaint’s Second
Cause of Action for Breach of the Covenant of Good Faith and Fair Dealing with
10 days’ leave to amend.
Defendants shall give notice.