Judge: Daniel S. Murphy, Case: 23STCV31794, Date: 2024-03-22 Tentative Ruling

Case Number: 23STCV31794    Hearing Date: April 17, 2024    Dept: 32

BACKGROUND

            On December 28, 2023, Plaintiff Anthony Haag filed this action against Defendants MK Diamond Products, Inc., Brian Delahaut, and CNA Financial Corporation. The parties have stipulated to Continental Casualty Company substituting in for CNA Financial Corporation.

The complaint asserts twelve causes of action arising from a settlement agreement reached as part of an employment discrimination action filed by Plaintiff. Plaintiff entered the settlement agreement with Defendants MK Diamond and Delahaut. Pursuant to the contract, MK Diamond and Delahaut agreed to pay $93,750 to Plaintiff and $143,750 to Plaintiff’s attorneys in exchange for Plaintiff releasing his claims. MK Diamond and Delahaut had an insurance policy with Defendant CNA Financial, which disbursed the funds. MK Diamond and Delahaut thereafter issued a check to Plaintiff. Plaintiff alleges that the check bounced and that Defendants failed to reissue a check or otherwise make payment despite giving assurances. Plaintiff alleges that Defendants have so far only paid him $16,000.

On February 20, 2024, Defendant Continental Casualty Company filed the instant demurrer to the seventh, eighth, ninth, eleventh, and twelfth causes of action in the complaint. Plaintiff filed his opposition on March 11, 2024. Defendant filed its reply on March 15, 2024.

LEGAL STANDARD

A demurrer for sufficiency tests whether a pleading states a cause of action or defense. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.) The only issue involved in a demurrer hearing is whether the pleading, as it stands, unconnected with extraneous matters, states a cause of action or defense. (Hahn, supra, 147 Cal.App.4th at 747.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court notes that Defendant has complied with the meet and confer requirement. (See Crane Decl.)

REQUEST FOR JUDICIAL NOTICE

            Plaintiff’s request for judicial notice is denied. The document cannot be judicially noticed because it is subject to dispute and is not capable of immediate and accurate determination by a source of reasonably indisputable accuracy. (See Evid. Code, § 452(h).)

DISCUSSION

I. Breach of Contract

            a. Insurance Code Section 11580(b)(2)

Plaintiff alleges breach of the insurance policy under a theory of third-party beneficiary, specifically relying on Insurance Code section 11580(b)(2). (Compl. ¶ 167, 169.) Section 11580(b)(2) requires applicable policies to include “[a] provision that whenever judgment is secured against the insured or the executor or administrator of a deceased insured in an action based upon bodily injury, death, or property damage, then an action may be brought against the insurer on the policy and subject to its terms and limitations, by such judgment creditor to recover on the judgment.”

            Defendant argues that Plaintiff is not a third-party beneficiary because the general rule is that “absent an assignment of rights or a final judgment, a third party claimant may not bring a direct action against an insurance company on the contract because the insurer's duties flow to the insured.” (Harper v. Wausau Ins. Corp. (1997) 56 Cal.App.4th 1079, 1086.) Defendant argues that Section 11580(b)(2) does not help Plaintiff because it only applies to judgments in cases based on bodily injury, death, or property damage. Defendant contends that the underlying discrimination case did not involve bodily injury, death, or property damage, and did not end in a judgment because the parties settled.  

            Plaintiff argues that Section 11580(b)(2) applies because his discrimination claims involved “property damage” in the sense that he was deprived of employment benefits. Plaintiff cites to a California case interpreting pension rights as property interests (Dryden v. Board of Pension Comm 'rs. (1936) 6 Cal.2d 575) and a Ninth Circuit case holding that an employee may have a property interest in continued employment and the terms of employment (Portman v. County of Santa Clara (9th Cir. 1993) 995 F.2d 898.) These cases are not on point and cannot be construed as supporting the proposition that employment discrimination constitutes “property damage” within the meaning of Insurance Code section 11580(b)(2). Plaintiff also fails to address the fact that the discrimination case did not end in a judgment because the parties settled. Therefore, Plaintiff is not a third-party beneficiary under Section 11580(b)(2).

            b. Common Law and Civil Code Section 1559

Plaintiff also argues that he is a third-party beneficiary under common law and Civil Code section 1559. However, it does not appear that Plaintiff alleged these two theories in the complaint. The breach of contract claim focuses on third-party beneficiary based on Insurance Code section 11580(b)(2). (See Compl. ¶ 167.) Plaintiff cannot overcome a demurrer by raising unpled theories in his opposition. In any case, Plaintiff fails to establish that he is a third-party beneficiary under either of these two additional theories.

While Plaintiff cites to caselaw discussing third-party beneficiaries in the insurance context, none of the cited authority supports Plaintiff being a third-party beneficiary in this case. Plaintiff makes the following claims without support: “He was to be paid out, under the insurance contract, to compensate him for his employment claims. He is no different than the people injured in a car accident who are 3rd party beneficiaries to the auto insurance policy of the driver who caused the damage.” (Opp. 6:6-10.) There is no indication that the insurance policy was made for Plaintiff’s benefit or that Plaintiff was to be paid directly under the policy. None of the cited cases suggests that individuals injured in a car accident are third-party beneficiaries to the insurance policy of the guilty driver.

Civil Code section 1559 provides that “[a] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” Plaintiff fails to demonstrate that the insurance contract between MK Diamond and CNA Financial was made expressly for his benefit. The single cover page of the purported insurance policy constitutes extrinsic evidence that cannot be considered on a demurrer. The document also cannot be judicially noticed, as discussed above. In any case, the document does not demonstrate that the insurance policy was expressly made for the benefit of any third party, much less Plaintiff. 

II. Implied Covenant of Good Faith and Fair Dealing

“Only one with the right to sue an insurance company for contract damages for breach of the insurance policy can also sue the insurance company for tort damages for breach of the covenant of good faith.” (Wexler v. California FAIR Plan Assn. (2021) 63 Cal.App.5th 55, 62.) As discussed above, Plaintiff has no claim for breach of contract against Defendant Continental. Therefore, he cannot maintain the derivative implied covenant claim.

III. Negligence

The elements of negligence are: (1) a duty to exercise ordinary care; (2) breach of that duty; (3) causation; and (4) damages. (Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917.) The complaint alleges that CNA Financial was negligent because it “failed to do a thorough and timely investigation on MK DIAMOND's financial status at the time of disbursement.” (Compl. ¶ 199.) “CNA FINANCIAL's conduct was negligent in that it gave a potentially bankrupt company money it needed to keep its business afloat, which belonged to PLAINTIFF. Rather than paying PLAINTIFF directly, CNA FINANCIAL entrusted INSURED with the money, proximately causing an injury to PLAINTIFF.” (Id., ¶ 200.)

Plaintiff fails to establish that CNA Financial owed him a duty to investigate MK Diamond or to directly pay him the insurance proceeds. In opposition, Plaintiff argues that “Plaintiff is owed a duty of reasonable care by Continental for the same reason he is owed a duty of good faith; Plaintiff is a 3rd party beneficiary under three different theories.” (Opp. 10:21-22.) As discussed above, Defendant did not owe Plaintiff a duty of good faith, and all three theories for third-party beneficiary are without merit. None of the cited authority supports the proposition that an insurance carrier has a duty to directly pay an insured’s employee when the insured settles a discrimination claim with the employee. Therefore, the negligence claim fails.

IV. Intentional Infliction of Emotional Distress

To state a cause of action for intentional infliction of emotional distress, a plaintiff must establish: (1) outrageous conduct by the defendant; (2) the defendant’s intention of causing, or reckless disregard of the probability of causing, emotional distress; (3) the plaintiff’s suffering severe or extreme emotional distress; and (4) actual and proximate causation of the emotional distress by the defendant’s outrageous conduct. (Vasquez v. Franklin Management Real Estate Fund, Inc. (2013) 222 Cal.App.4th 819, 832.)

Defendant could not have engaged in outrageous conduct against Plaintiff or caused Plaintiff’s injuries if Defendant did not commit any wrong at all against Plaintiff. As discussed above, Defendant had no duty to directly pay Plaintiff under the insurance policy. Therefore, the IIED claim fails.

V. Unfair Business Practices

            Business and Professions Code section 17200 prohibits unlawful, unfair, or fraudulent business acts or practices. Each of the three prongs is an independent basis for relief. (Smith v. State Farm Mutual Automobile Insurance Co. (2001) 93 Cal.App.4th 700, 718.) For the same reasons as discussed above, Defendant did not engage in any unlawful, unfair, or fraudulent conduct against Plaintiff. Therefore, the UCL claim fails.

CONCLUSION

            Defendant Continental Casualty Company’s demurrer is SUSTAINED without leave to amend.