Judge: David Sotelo, Case: 22STCV04752, Date: 2022-09-13 Tentative Ruling
Case Number: 22STCV04752 Hearing Date: September 13, 2022 Dept: 40
MOVING PARTY: Interinsurance
Exchange of the Automobile Club (AAA).
Plaintiff Mahrou Hanassab sues the Interinsurance Exchange of the Automobile Club (“AAA”) based on AAA’s alleged
misconduct in managing Hanassab’s defense in an auto collision lawsuit filed
against Hanassab in 2017 and which resulted in a $860,042.39 award
against Hanassab, only $100,000 of which was covered by AAA under Hanassab’s
Policy with AAA.
Today AAA brings an unopposed general demur to all Plaintiff’s
Six causes of action base on insufficiently within the meaning of Code of Civil
Procedure section 430.10, subdivision (e).
After review, and for the reasons elaborated on below, the
Court SUSTAINS AAA’s Demurrer.
Plaintiff sues
Interinsurance Exchange of the Automobile Club (“AAA”) pursuant to the
following allegations:
On or about August 11, 2017, Hanassab contracted with AAA
for a general auto liability insurance policy (the “Policy”). The Policy was
effective from August 11, 2016, to August 11, 2017 and had limits for bodily
injury claims of $100,000 per person and/or $300,000 per accident.
On or about April 29, 2017, when the Policy was in full
force and effect, Hanassab was involved in a vehicle collision with another
vehicle—owned by Mr. Connor Lumpkin—in Beverly Hills, California. At the time,
Plaintiff had three passengers in her vehicle. Hanassab thereafter informed AAA
of the accident.
On July 25, 2017, Lumpkin commenced an action against Hanassab
in Los Angeles Superior Court in the case entitled Connor Lumpkin v. Mahrou
Hanassab, et al., case number BC669326 (“Underlying Action”).
AAA acknowledged its duty to “fully defend” Hanassab in the
Underlying Action and appointed law firm Ford, Walker, Haggerty & Behar
(“Insurance Counsel”) to defend Hanassab in that suit. Hanassab alleges that
AAA maintained ultimate control of the representation, including how and when
Insurance Counsel engaged in settlement negotiations with Lumpkin, and how to
proceed with defending Hanassab in the Underlying Action, including such
matters as investigation, discovery, filing motions, trial preparation, and
conducting the jury trial.
On October 31, 2017, Hanassab filed an Answer to the
Complaint in the Underlying Action through Insurance Counsel.
October 31, 2018, another lawsuit was filed with Los Angeles
Superior Court by Hanassab’s three passengers—Parvin Pourmousa, Mahin Abizadeh
Mottahedeh, and Maryam Maddahi—directed at both Plaintiff Hanassab and Lumpkin
in a case entitled Parvin Pourmousa, et al. vs. Conor Lumpkin and Mahrou
Hanassab, et al., case number 18STCV03330 (“Related Action”). Hanassab filed a
cross-complaint in this new suit against Lumpkin seeking indemnification,
apportionment of fault, and declaratory relief.
On June 3, 2019, the Superior Court related the two actions,
and on July 5, 2019, the Superior Court, upon motion, consolidated the
Underlying and Related Actions (“Consolidated Actions”).
Hanassab alleges that during the proceedings in the
Consolidated Actions, Insurance Counsel failed to adequately represent Hanassab.
Such failure included sending a young inexperienced attorney unfamiliar with
the facts of the case to attend the deposition of Lumpkin’s primary
psychiatrist, a person Hanassab viewed as the most important witness in the
Consolidated Actions due to Lumpkin’s greatest source of alleged damages being
based on claims of diminished capacity arising from purported attention deficit
issues related to the auto accident with Hanassab.
The Consolidated Actions proceeded to a jury trial, which
began on January 27, 2020 and ended on February 5, 2020 (“Jury Trial”).
Hanassab argues that during the Jury Trial, Insurance
Counsel also failed to properly represent Hanassab, including: by arguing that
Lumpkin had suffered no damages in the auto accident with Hanassab under
circumstances where Hanassab requested that Insurance Counsel concede some
injury to an-obviously injured Lumpkin; by mounting virtually no defense to
Lumpkin’s diminished capacity claims, such as by failing to call Lumpkin’s
primary psychiatrist to the stand; by failing to put any settlement evaluation
in writing, tender policy limits to Lumpkin, or generally make a reasonable
effort to settle, inter alia.
At the conclusion of the Jury Trial, the jury awarded
damages to Lumpkin in the amount of $860,042.39 (“Judgment Award”), made up of:
(1) $71,375.39 for past medical expenses; (2) $275,778.00 for past lost earning
capacity; (3) $50,000.00 for future medical expenses; (4) $137,889.00 for
future lost earning capacity; (5) $325,000.00 for past non-economic loss,
including pain, mental suffering, loss of enjoyment of life, physical
impairment, anxiety, humiliation, and emotional distress; and (6) $0.00 for the
future non-economic losses.
Plaintiff Hanassab filed post-trial motions contesting the
Judgment Award, which were denied by the Superior Court. Hanassab then appealed
the Judgment Award with the Second Appellate District (case no. B306224), which
was pending on February 7, 2022, when this suit was filed.
After the Jury Trial, Insurance Counsel sought to withdraw
from representation of Hanassab, and AAA paid the limits for bodily injury
claim per person on the Policy ($100,000) toward the Judgment Award, leaving
$760,042.39 due to be paid to the Award recovered by Lumpkin in the
Consolidated Actions (“Outstanding Judgment”).
On February 7, 2022, Hanassab sued AAA based on these allegations,
stating he could afford to pay the Outstanding Judgment of $760,042.39 or a
significant portion thereof, and faulting Insurance Counsel for having dual
duties of loyalty in the Consolidated Actions—to AAA and to Hanassab—which led
Insurance Counsel to make decisions that were not in the best interests of
Hanassab, ultimately resulting in the Outstanding Judgment against Hanassab.
Hanassab’s Complaint alleges six causes of action against
AAA: (1) Breach of Contract; (2) Bad Faith/Breach of the Implied Covenant of
Good Faith and Fair Dealing; (3) Misrepresentation and Concealment; (4)
Negligence; (5) Indemnity; and (6) Breach of Fiduciary Duty.
(The Court notes that AAA provides evidence to show that
Hanassab also sued Insurance Counsel in pro per in Los Angeles Superior Court
case number 21STCV04534.)
AAA now brings an unopposed Demurrer against the Complaint’s
six causes of action on the grounds that they are not sufficiently pleaded
within the meaning of Code of Civil Procedure section 430.10, subdivision (e).
Related Cases
Plaintiff is Ordered to file notice of related case FORWITH in
both BC669326 and 18STCV03330, in (it appears) Department 28.
Preliminary Notes on Lack of Opposition by Plaintiff
Plaintiff Hanassab’s lack of Opposition to the instant
Demurrer lends merit to its credibility. (See Cal. Rules of Court, rule 3.1342
[“The failure of the opposing party to serve and file a written opposition may
be construed by the court as an admission that the motion is meritorious, and
the court may grant the motion without a hearing on the merits”]; Sexton v.
Superior Court (1997) 58 Cal.App.4th 1403, 1410 [“The rule [inferring merit
in unopposed motions] seems to apply only when a party has not filed any
written opposition”].)
Sufficiency Standard on Demurrer
A demurrer for sufficiency tests whether the complaint
states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740,
747; see Code Civ. Proc., § 430.10, subd. (e).) “To survive a [general]
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.) In 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, 966-67.) A demurrer,
however, “does not admit contentions, deductions or conclusions of fact or
law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)
Complaint, First Cause of Action, Breach of Contract:
SUSTAINED, With Leave.
The Complaint’s First cause of action is moored on allegations
that AAA had a duty to provide defend Hanassab by providing Hanassab with
conflict-free defense counsel in the Consolidated Actions pursuant to Civil
Code section 2860 and that AAA breached this duty by appointing Insurance
Counsel in the Consolidated Actions, whose representation of Hanassab was
“impaired by significant and disqualifying conflicts of interest that was
unable (and/or unwilling) to properly advance and protect Plaintiff [Hanassab]’s
interests” with much factual elaboration. (Complaint, ¶¶ 26, 48-49.)
To prevail on a cause of action for breach of contract, the
plaintiff must prove the defendant’s breach of contract. (Richman v. Hartley
(2014) 224 Cal.App.4th 1182, 1186.)
On Demurrer, AAA argues that the Breach of Contract claim
fails because, as a matter of law, the claim fails to plead circumstances where
AAA could have breached its insurance contract with Hanassab. Specifically, AAA
argues that case law in California holds that an insurer has no duty to appoint
independent cumis counsel for an insured unless the insurer has effected a
reservation of rights in their defense of the insured, and in this lawsuit,
Plaintiff Hanassab’s Complaint pleads a duty for cumis counsel while
simultaneously alleging that AAA had agreed to “fully defend” Hanassab in the
Consolidated Actions, i.e., to provide defense without a reservation of rights.
(Demurrer, 10:1-12:4.) If the Complaint pleads that AAA did not reserve rights
in Hanassab’s defense in the Consolidated Actions, argues AAA, then Civil Code
section 2860 is inapplicable to the Complaint’s allegations and cannot
undergird the Breach of Contract claim.
The Court agrees the Complaint fails to plead circumstances
invoking the need for cumis counsel in the Consolidated Actions.
“‘Some of the circumstances that may create a conflict of
interest requiring the insurer to provide independent counsel include: (1)
where the insurer reserves its rights on a given issue and the outcome of that
coverage issue can be controlled by the insurer’s retained counsel [citations];
(2) where the insurer insures both the plaintiff and the defendant [citation];
(3) where the insurer has filed suit against the insured, whether or not the
suit is related to the lawsuit the insurer is obligated to defend [citation];
(4) where the insurer pursues settlement in excess of policy limits without the
insured’s consent and leaving the insured exposed to claims by third parties
[citation]; and (5) any other situation where an attorney who represents the
interests of both the insurer and the insured finds that his or her “representation
of the one is rendered less effective by reason of his [or her] representation
of the other.”’” (Simonyan v. Nationwide Ins. Co. of America (2022) 78
Cal.App.5th 889, 897 [quoting James 3 Corp. v. Truck Ins. Exchange
(2001) 91 Cal.App.4th 1093, 1100].)
The Complaint: (1) pleads that AAA agreed to defend Hanassab
without any reservation of rights (see Complaint, ¶ 14 [“Defendant [AAA] acknowledged
its duty to fully defend Plaintiff [Hanassab in the Consolidated Actions]”]);
(2) does not plead that AAA represented any party other than Hanassab in the
Consolidated Actions; (3) does not allege that AAA has filed suit against
Hanassab; (4) does not plead AAA sought a settlement in excess of policy
limits; or (5) sufficiently plead circumstances beyond conclusions of fact amounting
to a conflict of interest for Insurance Counsel between its interests to AAA
and Plaintiff Hanassan in the Consolidated Actions (see, e.g., Complaint, ¶¶ 20-26
[at paragraph 24, “Together Defendant Insurer and Insured’s Counsel pushed
Plaintiff Insured into a massive liability that would not have existed if one
or both had honored their duties to Plaintiff Insured”; at paragraph 25,
“without consultation with or disclosure to [Hanassab], Insur[ance] Counsel
chose the course of action most likely to advance [AAA]’s adverse interests”]).
While there remains the catch-all principle that a
“[c]onflict of interest between jointly represented clients occurs whenever
their common lawyer’s representation of the one is rendered less effective by
reason of his representation of the other” (Spindle v. Chubb/Pacific
Indemnity Group (1979) 89 Cal.App.3d 706, 713), Hanassab’s claim that there
is a conflict of interest does not on its face rely or sufficiently plead
circumstances where Insurance Counsel was working under conditions where its
representation of AAA in the Consolidated Actions made its representation of
Hanassab less effective. While the Complaint alleges that Insurance Counsel
made bad litigation decisions (see, e.g., Complaint ¶ 25 [“Counsel mounted virtually no
defense to Lumpkin’s diminished capacity claims … [by failing] to call Lumpkin’s
primary psychiatrist [to the stand]”]), these decisions do not, as
pleaded, imply a conflict of interest caused Insurance Counsel to so act, where
conflict of interest is the hinge on which the question of cumis counsel turns,
not competence of representation.
Complaint, Second Cause of Action, Bad Faith/Breach of
the Implied Covenant of Good Faith and Fair Dealing: SUSTAINED, With
Leave.
The Second cause of action alleges Bad Faith/Breach of the
Implied Covenant of Good Faith and Fair Dealing based on: AAA’s refusal to
appoint cumis counsel (Complaint, ¶¶ 62-65); AAA discouraging
Insurance Counsel from properly informing Hanassab of the likelihood of
prevailing at trial in the Consolidated Actions, (Complaint, ¶
66); Insurance Counsel engaging in heavy motion work prior to trial, divesting
attention from defense of Hanassab (Complaint, ¶ 67); AAA failing to settle
despite several settlement offers being made to Hanassab in the Consolidated
Actions (Complaint, ¶¶ 69-74); and AAA failing to conduct a fair investigation
into the auto accident (Complaint, ¶ 75).
Hanassab argues that these allegations fail because cumis counsel
allegations have already failed based on foregoing arguments, because any
settlement offers made to Hanassab and AAA in the Consolidated Actions were
above policy limits and refusal to settle was thus not bad faith per case law
to this effect, and because case law holds that a failure to conduct a
reasonable investigation cannot, without a breach of some duty to the insured,
equal bad faith. (Demurrer, 17:1-18:6.)
The Court agrees with AAA’s stated arguments related to cumis
counsel and the stated case law arguments regarding settlement offers and
reasonable investigations. (See Breach of Contract discussion re: cumis
counsel supra; see also Demurrer, 17:9-18 [citing Graciano v. Mercury Gen.
Corp. (2014) 231 Cal. App. 4th 414, 425 for argument re: lack of bad faith
failure to settle where offers beyond policy limit], 17:19-26 [citing to Betts
v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 707 and Shade Foods,
Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78
Cal.App.4th 847, 881 for proposition that liability for breach of duty of good
faith and fair dealing cannot be found on grounds of failure to reasonably
investigate without some breach of duty to the insured].)
The Court further finds that the allegations that “discouraged
Insured’s Counsel from providing Plaintiff Insured with much needed advice
about the likelihood of prevailing at trial” (Complaint, ¶ 66) is not supported
by sufficient evidentiary fact pleadings to support a breach of implied duty of
good faith and fair dealing and is instead presented as a conclusion of fact
without stating the factual steps leading to its derivation. This finding is without
comment as to whether these allegations, even if sufficiently pleaded, rise to
a breach of duty of good faith and fair dealing between insurer and insured.
The Court also finds allegations that Insurance Counsel’s heavy
motion work prior to the Jury Trial in the Consolidated Actions detracted from
defense of Hanassab (Complaint, ¶ 67) similarly presents pleadings without
evidentiary factual support in the Complaint.
Complaint, Third Cause of Action, Misrepresentation and
Concealment: SUSTAINED, With Leave.
The Complaint’s Third cause of action alleges both Fraud by
Misrepresentation and by Concealment against AAA. (See Complaint, ¶¶ 83-98.)
The Misrepresentation claim is grounded on incorporated
facts and allegations that AAA “doom[ed] Plaintiff [Hanassab]’s defense against
the complaint.” (Complaint, ¶¶ 85.)
The Concealment claims is grounded on, among other (not
further elaborated) things, AAA allegedly: (1) failing to disclose conflicts of
interest meriting the appointment of cumis counsel for Hanassab in the
Consolidated Actions (Complaint, ¶ 86(a)); (2) failing to disclose Insurance
Counsel was resolving conflicts of interest in favor of AAA and against
Hanassab, such as by strategizing to eliminate AAA’s defense obligation without
settlement of the entire suit, advocating for AAA’s insurance coverage
arguments, and pursuing a special rather than general verdict (Complaint, ¶
86(b)); (3) failing to disclose AAA had “private” communications with Insurance
Counsel regarding the Consolidated Actions (Complaint, ¶ 86(c)); and (4) sending
Plaintiff communications that failed to disclose that Hanassab had the right to
control the defense through independent attorneys of her own choosing at AAA’s
expense, i.e., cumis counsel (Complaint, ¶ 87). While the Complaint’s Third
cause of action briefly pleads that Insurance Counsel also held a duty to
disclose information to Hanassab, these allegations quickly pivot to
allegations regarding the intent behind AAA’s concealments to Plaintiff
Hanassab: “the ability to manipulate events favoring [AAA]’s legal interests in
minimizing policy benefits at Plaintiff [Hanassab]’s expense” in the
Consolidated Actions. (Complaint, ¶ 88.)
On Demurrer, AAA argues (1) case law holds leads to a
conclusion as a matter of law that AAA cannot be vicariously liable for
Insurance Counsel’s handling of Hanassab’s defense in the Consolidated Actions,
(2) the allegations regarding failure to disclose grounds for cumis counsel,
Insurance Counsel’s alleged prerogative in resolving the Consolidated Actions
to the benefit of AAA, and private communications between AAA and insurance
counsel are not misrepresentations or concealments giving rise to fraud, and
(3) concealment cannot lie where case law holds that an insurer-insured
relationship is not a true fiduciary relationship and the Complaint bases all
its concealment grounds on this duty relationship alone. (See Demurrer,
15:3-16:28.)
The Court admonishes Plaintiff for making two claims under
the header for a single cause of action and GRANTS LEAVE to separate the two
claims in any future pleading drafted as a result of a sustained demur against
the Complaint’s combined third cause of action.
Regarding Misrepresentation, the Court finds the single
paragraph alleging fraud by misrepresentation against AAA does so on the
conclusory grounds that AAA’s conduct “doom[ed] Plaintiff Insured’s defense
against the complaint.” (Complaint, ¶ 85.) Such allegations are not remotely
sufficiently to plead “a knowingly false representation by” AAA. (Service by
Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1816 [“A
complaint for fraud [i.e., misrepresentation] must allege […]: (1) a knowingly
false representation by the defendant”].)
The Court finds Concealment grounds—premised on failure to
disclose conflicts of interest meriting cumis counsel and failure to disclose
right to independent counsel in mailed communications to Hanassab (Complaint,
¶¶ 86(a)-(b), 87—fail.
The Court also finds—to the extent that the Complaint pleads
Concealment based on AAA’s failure to disclose (1) Insurance Counsel was
resolving conflicts of interest in favor of AAA over Hanassab (Complaint, ¶
86(b)) or (2) AAA had communications with Insurance Counsel related to the
Consolidated Actions without Hanassab’s knowledge or participation (Complaint, ¶
86(c)), these “concealments,” as pleaded, amount to no more than conclusions of
fact that do not appear to connote the failure to disclose a material fact for
the purposes of a Concealment claim. (Boschma v. Home Loan Center, Inc.
(2011) 198 Cal.App.4th 230, 248 [“[T]he elements of … concealment … [include
the requirement that] the defendant must have concealed or suppressed a
material fact”].)
Complaint, Fourth Cause of Action, Negligence: SUSTAINED,
With Leave.
The Negligence claim—reading something like a Negligent
Hiring, Supervision, or Retention claim—is premised on the grounds that AAA is
liable for negligence based on Insurance Counsel’s failure to competently
represent Hanassab in the Consolidated Actions. (Complaint, ¶¶ 100-104.)
On Demurrer, AAA argues that this cause of action fails
because (1) the Negligence claim, according to Complaint paragraph 103, “is
based on a theory that the Exchange is vicariously liable for the alleged
malpractice of its appointed defense counsel,” which is “directly contrary to well-established
California law” in California and (2) California case law allegedly holds that
a Negligence claim cannot be brought against an insurer, which is subject to
the higher standard of “bad faith,” a claim already pled as the second cause of
action in the Complaint. (Demurrer, 12:5-13:15.) The Court agrees with the
former point in sustaining this demur.
“Having chosen competent independent counsel to represent
the insured in litigation, [an insurance] carrier may rely upon trial counsel
to conduct the litigation, and the carrier does not become liable for trial
counsel’s legal malpractice” such that, “[i]f trial counsel negligently
conducts the litigation, the remedy for this negligence is found in an action
against counsel for malpractice and not in a suit against counsel’s employer to
impose vicarious liability.” (Merritt v. Reserve Ins. Co. (1973) 34
Cal.App.3d 858, 881-82.)
Complaint, Fifth Cause of Action, Indemnity: SUSTAINED,
With Leave.
The Complaint’s Indemnity claim is grounded on allegations
that (1) AAA “knew (or should have known) that [Insurance] Counsel jeopardized [Hanassab]’s
case and exposed her to liability and undertook representation strategies
contrary to [Hanassab]’s specific representations and direction” and (2) AAA
directed “[Insurance] Counsel [to fail to] to take reasonably necessary and
proper steps to rectify the situation, mitigate damages, or avoid the risk of
greater liability for which [AAA] has not paid any part,” resulting in the
Outstanding Judgment against Hanassab. (Complaint, ¶¶ 108-09.)
On Demurrer, AAA argues that “is well-established [by
California case law] that the right to implied contractual indemnity is
predicated upon a breach of contract” and “[t]his cause of action fails as a
matter of law because the Complaint admits there was no breach of contract.”
(Demurrer, 13:19-23.) The Court in part agrees with the former position in
sustaining this demur.
“The right to implied contractual indemnity is predicated
upon the indemnitor’s breach of contract.” (West v. Superior Court
(1994) 27 Cal.App.4th 1625, 1633; see Demurrer; 13:19-21 [citing to West].)
Here, the Court has sustained AAA demur challenge to the Breach of Contract
claim advanced by Plaintiff Hanassab. The Indemnity claim must therefore also
fail based on West’s guidance.
Complaint, Sixth Cause of Action, Breach of Fiduciary
Duty: SUSTAINED, With Leave.
The Complaint alleges a breach of fiduciary duty claim
against AAA based on their insured-insurer relationship. (Complaint, ¶ 111.) However, as argued by AAA (Demurrer, 14:18-27)
and explained by the California Supreme Court:
The insurer-insured relationship … is
not a true “fiduciary relationship” in the same sense as the relationship
between trustee and beneficiary, or attorney and client. [Citation.] It is,
rather, a relationship often characterized by unequal bargaining power
[citations] in which the insured must depend on the good faith and performance
of the insurer [citations]. This characteristic has led the courts to impose “special
and heightened” duties, but “[w]hile these ‘special’ duties are akin to, and
often resemble, duties which are also owed by fiduciaries, the fiduciary-like
duties arise because of the unique nature of the insurance contract, not
because the insurer is a fiduciary.
(Vu v. Prudential Property & Casualty Ins. Co.
(2001) 26 Cal.4th 1142, 1150-51; see also Demurrer, 14:18-27 [citing to Vu].)
Therefore, while “[c]ases have referred to the relationship
between insurer and insured as a limited fiduciary relationship (see Gibson
v. Government Employees Ins. Co. (1984) 162 Cal.App.3d 441, 449–450, 208
Cal.Rptr. 511),” “‘akin to a fiduciary relationship’ (State Farm Fire &
Casualty Co. v. Superior Court (1989) 216 Cal.App.3d 1222, 1226, 265
Cal.Rptr. 372),” “or as one involving the ‘qualities of decency and humanity
inherent in the responsibility of a fiduciary’ (Frommoethelydo v. Fire Ins.
Exchange (1986) 42 Cal.3d 208, 215, 228 Cal.Rptr. 160, 721 P.2d 41)” (Vu,
supra, 26 Cal.4th at p. 1150), California case law is clear: an
insurer-insured relationship does not connote a fiduciary relationship. (Ibid.
at pp. 1150-51.)
Defendant’s Demurrer to Complaint is SUSTAINED as to all Six
causes of action because all six claims are not
sufficiently pleaded within the meaning of Code of Civil Procedure section
430.10, subdivision (e).
Hanassab is given 10 DAYS LEAVE TO AMEN the operative pleading.