Judge: Curtis A. Kin, Case: 21STCV33658, Date: 2022-08-25 Tentative Ruling

Case Number: 21STCV33658    Hearing Date: August 25, 2022    Dept: 72

DEMURRER AND MOTION TO STRIKE

MOTION FOR JUDGMENT ON THE PLEADINGS

Date:                                8/25/22 (9:30 AM)                 

Case:                               Alberto Cardona v. American Honda Finance Corp., et al. (21STCV33658)

TENTATIVE RULING:

Defendant American Honda Finance Corporation’s Demurrer to First Amended Complaint is OVERRULED.

Defendant American Honda Finance Corporation’s Motion to Strike Portions of First Amended Complaint is DENIED.

Defendant Safe-Guard Products International, LLC’s Motion for Judgment on the Pleadings is GRANTED.

I.                   DEFENDANT AMERICAN HONDA FINANCE CORPORATION’S DEMURRER

Defendant American Honda Finance Corporation (“AHFC”) demurs to the second cause of action for insurance bad faith on the ground that plaintiff purportedly fails to allege the existence of an insurance policy that can form the basis of a bad faith cause of action.

As a preliminary matter, the reply to the concurrently heard motion to strike references a reply in support of the demurrer. The Court notes the reply in support of the demurrer was never filed.

“[T]ort remedies are available for a breach of the covenant [of good faith and fair dealing] in cases involving insurance policies.” (Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43.) “In the insurance policy setting, an insured may recover damages not otherwise available in a contract action, such as emotional distress damages resulting from the insurer's bad faith conduct [citation] and punitive damages if there has been oppression, fraud, or malice by the insurer [citation].” (Id. at 43-44.)

Plaintiff Alberto Cardona alleges that he is entitled to guaranteed asset production (“GAP”) insurance coverage. (FAC ¶¶ 5, 8, 14.) Under Insurance Code § 1758.992(h)(1), GAP insurance is “insurance in which a person agrees to indemnify a vehicle purchaser . . . for some or all of the amount owed on the vehicle at the time of a[ ] . . . total loss . . . pursuant to the terms of a loan, lease agreement, or conditional sales contract used to purchase or lease the vehicle.” Plaintiff sufficiently alleges that by approving plaintiff’s application for GAP coverage, defendants agreed to indemnify plaintiff for the balance of his car loan in the event of a total loss. (FAC ¶¶ 5, 8, 14.)

AHFC contends the insurance which plaintiff describes in the First Amended Complaint is statutorily exempted from the definition of GAP insurance. Under CCP § 1758.992(h)(2)(A)(ii), “GAP insurance does not include, and no insurance license of any type under this code is required to offer, any of the following: (A) A debt cancellation agreement contained in a conditional sales contract for the sale of a vehicle by a licensed motor vehicle dealer . . . to waive some or all of either of the following . . . (ii) The amount owed on the vehicle at the time of an unrecovered theft or total loss . . . .” Plaintiff alleges that, under the GAP insurance contract, defendants, including AHFC were obligated to pay “the difference between the value of the car at the time it was totaled and the amount due and owing on the car loan.” (FAC ¶ 15.) Accordingly, plaintiff alleges a debt cancellation contract to waive the amount owed at the time of a total loss.

However, for such debt cancellation contract to not be considered GAP insurance, the contract must be “contained in a conditional sales contract for the sale of a vehicle.” (CCP § 1758.992(h)(2)(A)(ii).) Here, plaintiff alleges that defendants accepted plaintiff’s application for GAP insurance after execution of the conditional sales contract. (Compare FAC ¶¶ 1, 7, 10 [plaintiff and AHFC entered into sales contract on October 29, 2018] with FAC ¶ 8 & Ex. B [GAP insurance approved on November 12, 2018].) Under Civil Code § 2981.9, the terms of payment for the motor vehicle must be “contain[ed] in a single document.” As alleged, the GAP contract is not part of the same contract as the conditional sales contract.

In addition, under Civil Code § 2981.9, the conditional sales contract “must be furnished to the buyer by the seller at the time the buyer and the seller have signed it.” The “GAP Waiver Addendum” states that it modifies the terms of the finance agreement. (FAC ¶ 8 & Ex. C.) Plaintiff signed the application for GAP insurance on October 29, 2018, and the application was approved on November 12, 2018. (FAC ¶¶ 6, 8 & Exs. A, B.) Accordingly, to the extent the GAP contract is considered an addendum of the conditional sales contract, it was not furnished at the time plaintiff applied for GAP coverage.

Accordingly, because the GAP contract whose existence plaintiff alleges was not contained in a conditional sales contract, plaintiff sufficiently alleges the existence of GAP insurance that can form the basis of the second cause of action for insurance bad faith.

In a footnote, AHFC also argues that a “simple search of the Department of Insurance will show that AHFC is not a regulated insurance company” and therefore AHFC could not enter into any insurance policy. (Demurrer at 5, fn. 1.) In a demurrer, the court considers only the four corners of the complaint, as well as matters that may be judicially noticed, and assumes the truth of the allegations in the pleading. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) AHFC did not include a copy of any documents to be judicially noticed, as required by Cal. Rule of Court 3.1306(c)(1). Accordingly, the Court disregards AHFC’s argument that it may not be considered a regulated insurance company.

The demurrer is OVERRULED.

II.                DEFENDANT AMERICAN HONDA FINANCE CORPORATION’S MOTION TO STRIKE

Defendant AHFC moves to strike the prayers for attorney fees and punitive damages.

With respect to attorney fees, AHFC argues that plaintiff has not alleged any statute or contract from which plaintiff can recover fees. However, unsupported attorney fee allegations need not be stricken pursuant to a motion to strike, because later discovery may reveal a basis for their recovery. (Camenisch v. Superior Court (1996) 44 Cal.App.4th 1689, 1699.)

With respect to punitive damages, for the reasons set forth above with respect to the demurrer, plaintiff sufficiently alleges the existence of insurance which can form the basis of tort damages, including punitive damages. Plaintiff alleges that defendants, including AHFC, approved plaintiff’s application for GAP insurance, even though they knew that plaintiff did not have a driver’s license, and then denied coverage, for which plaintiff paid premiums, on the basis that plaintiff was driving without a driver’s license. (FAC ¶¶ 10, 14, 19, 20.) Plaintiff’s allegations rise to the level of “malice.”  (Civ. Code §3294(c)(1) [malice means “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others”].) 

AHFC also argues that plaintiff did not allege any authorization or ratification by a managing agent, as required to impose punitive damages on a corporate defendant. (Civ. Code § 3294(b).) However, plaintiff alleges that AHFC’s managerial agents ratified the denial of plaintiff’s claim. (FAC ¶ 24.) Plaintiff sufficiently alleged ratification for pleading purposes.

The motion is DENIED.

III.             DEFENDANT SAFE-GUARD PRODUCTS INTERNATIONAL, LLC’S MOTION FOR JUDGMENT ON THE PLEADINGS

Defendant Safe-Guard Products International, LLC (“Safe-Guard”) moves for judgment on the pleadings as to each cause of action on the ground that it was not the party to any contract.

The first cause of action for breach of contract requires the existence of a contract between the plaintiff and the defendant. (CACI 303.) Similarly, an insurance bad faith cause of action fails when there is no underlying contractual relationship between the plaintiff and the defendant. (Seretti v. Superior Nat. Ins. Co. (1999) 71 Cal.App.4th 920, 929.)

Here, the GAP Waiver Addendum that plaintiff is attempting to enforce in this action states that the parties to the Addendum are the customer, plaintiff Alberto Cardona; the dealer, defendant Honda of Downtown Los Angeles; and the lender, American Honda Finance Corporation. (FAC Ex. B.) Safe-Guard is not mentioned in the Waiver Addendum.

Even if plaintiff’s application for the Waiver Addendum states that the application was subject to approval by Safe-Guard (FAC Ex. A), the third-party administrator, plaintiff alleges that Safe-Guard was acting as the agent for AHFC and Honda of Downtown Los Angeles. (FAC ¶ 12.) Non-insurer defendants who act as the agent of the insurer are not parties to the agreement to insure. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576.) Accordingly, as alleged, Safe-Guard was not a party to a contract that can form the basis of a breach of contract cause of action. Moreover, because Safe-Guard was not a party to any agreement for insurance, it was not subject to a duty of good faith and fair dealing. (Id.)

Based on the lack of a contractual relationship between Safe-Guard and plaintiff, the motion for judgment on the pleadings as to the first and second cause of action is GRANTED.

Before granting leave to amend, the Court shall hear from plaintiff as to how the pleading can be amended to address the defect set forth above.