Judge: Elaine Lu, Case: 20STCV24073, Date: 2023-02-27 Tentative Ruling

Case Number: 20STCV24073    Hearing Date: February 27, 2023    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

            On June 25, 2020, Plaintiff Rita Kahlenberg (“Kahlenberg”) filed the complaint in this action for breach of insurance contract arising out of the denial of an insurance claim for severe water damage.  On July 16, 2021, Plaintiff Kahlenberg filed the operative Second Amended Complaint (“SAC”) against defendants Bamboo Ide8 Insurance Services, LLC[1] (“Bamboo Ide8”), Catlin Insurance Company, Inc. (“Catlin”), and Demian Insurance & Financial Services, Inc. (“Demian”).  The operative Second Amended Complaint asserts five causes of action for (1) Breach of Contract against Defendant Catlin, (2) Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing against Defendant Catlin, (3) Financial Elder Abuse against Defendant Catlin, (4) Breach of Fiduciary Duty against Defendant Demian, and (5) Professional Negligence against Defendant Demian.

            On July 29, 2020, Cross-Complainant Catlin filed a cross-complaint.  On September 1, 2021, Cross-Complainant Catlin filed the operative Second Amended Cross-Complaint against Cross-Defendants Kahlenberg, Heidi Smith (“Smith”), and Demian asserting that Kahlenberg and Smith misrepresented uninsurable conditions at the Property and seeking indemnity against Demian.  Catlin’s Second Amended Cross-Complaint asserts eight causes of action for (1) Recission against Kahlenberg and Smith, (2) Declaratory Relief against Kahlenberg and Smith, (3) Breach of Contract to Defend, Indemnify, and Hold Harmless against Demian, (4) Express Indemnity against Demian, (5) Implied/Equitable Indemnity against Demian, (6) Declaratory Relief re: Duty to Defend against Demian, (7) Declaratory Relief re: Duty to Indemnify against Demian, and (8) Contribution against Demian.

            On November 7, 2022, Cross-Defendant Demian filed the instant motion for judgment on the pleadings of Cross-Complainant Catlin’s Second Amended Cross-Complaint.  On February 10, 2023, Catlin filed an opposition.  On February 17, 2023, Demian filed a reply.

Allegations of the Operative Complaint and Cross-Complaint

            The SAC alleges that:

            On April 25, 2019, Plaintiff Kahlenberg sustained a serious head injury requiring rehabilitation and payment of medical expenses, which caused Plaintiff and her late husband to take out a mortgage on their home at 12760 Kahlenberg Lane, Valley Village, CA 91607 (“Subject Property”).  (SAC ¶¶ 5, 14.)  The mortgage company required that Plaintiff and her late husband obtain additional insurance to cover the Subject Property and arranged for Demian to submit an application for insurance to Catlin on July 24, 2019 in response to which Catlin issued an insurance policy the same day.  (SAC ¶¶ 11, 14.)  On July 30, 2019, Plaintiff’s late husband passed away.  (SAC ¶ 14.) 

            On September 6, 2019, Plaintiff Kahlenberg was discharged from rehabilitation and began residing back at the Subject Property.  (SAC ¶ 16.)  On September 22, 2019, Plaintiff discovered a pipe leak that flooded the entire interior of the house with water.  (SAC ¶ 17.)  Plaintiff timely notified Catlin of the losses sustained as a result of the September 22, 2019 water leak and submitted a claim.  (SAC ¶ 22.)  Plaintiff fully cooperated with Catlin’s claim investigation.  (SAC ¶¶ 22-26.)  On May 8, 2020, Catlin wrongly denied the insurance claim on the grounds that Plaintiff was not occupying the Subject Property at the relevant time period and that the damage was excluded as wear and tear and as a continuous leak or seepage.  (SAC ¶ 26.)  On June 4, 2020, Defendant sent Plaintiff a notice of non-renewal of the insurance policy.  (SAC ¶ 29.)  In October 2020, Catlin “informed Plaintiff, during the course of litigation, that it was rescinding the Policy based on alleged misrepresentations in the insurance application, all of which Defendant had known since at least September 24, 2019, and which constituted some of the bases for the claim denial. That insurance application was completed and submitted by Demian, and never shown to Plaintiff or her husband or signed by either of them.”  (SAC ¶ 30.) 

            Catlin’s Cross-Complaint alleges that:

            “On September 19, 2018, Hany Demian and Bamboo Ide8 Insurance Services, LLC (‘Bamboo’) entered into a Producer Agreement (the ‘Producer Agreement’), whereby Bamboo agreed that Hany Demian could act as a non-exclusive producer, marketing and placing insurance products as Bamboo may offer for insurance companies which have appointed Bamboo to do so. The Producer Agreement includes an explicit indemnity provision, whereby Hany Demian agreed to indemnify Bamboo and Catlin Insurance Company, Inc. (defined as ‘Company’), as an insurance company which has appointed Bamboo as its general agent, for all costs and claims arising out of Hany Demian’s acts or breaches of the Producer Agreement, as follows:

14. INDEMNIFICATION. Producer shall indemnify and hold BAMBOO and Company harmless from any and all costs, claims or demands (including reasonable attorney fees and expenses, whether incurred prior to the commencement of formal legal action, or at the trial, or appellate court level), resulting from any unauthorized acts of Producer, or any breach of any of the provisions of this Agreement by Producer. BAMBOO shall have the right of off-set pursuant to Section 4(c) above, for the purpose of indemnifying BAMBOO.” 

(Catlin SACC ¶ 8, Exh. D.)

            On July 24, 2022, Kahlenberg through her insurance broker, Demian submitted an application for homeowners’ insurance to Catlin.  (Catlin SACC ¶¶ 9-14.)  In reliance on the representations in the application, Catlin issued a homeowners policy to Kahlenberg for the period of July 24, 2019 to July 24, 2020.  (Id. ¶ 15.) 

            On September 23, 2019, Smith on behalf of Kahlenberg reported water damage to the property from a leaking supply line on the toilet located on the second floor that caused significant damage.  (Id. ¶ 17.)  Catlin investigated the claim.  (Id. ¶¶ 18-33.)  During the investigation, Catlin discovered that multiple representations made by Kahlenberg in her application for homeowner insurance were false.  (Id. ¶ 39.)  Kahlenberg represented in the application that the Property did not have a pool or hot tub, but the property had both.  (Id. ¶ 40.)  Kahlenberg represented in the application that the Property did not have any unrepaired damage or known potential defects which was untrue because the Property had an empty pool surrounded by a broken fence which created a falling risk to Kahlenberg and other visitors.  (Id. ¶¶ 41-42.)  The Property also had many unused vehicles and other obstacles creating danger and long-term water damage to the flooring and walls.  (Id. ¶¶ 43-44.)  Finally, Kahlenberg misrepresented in the application that the Property was newly acquired despite having owned the Property for over 40 years.  (Id. ¶ 45.) 

            “Following its investigation, on May 8, 2020, Catlin declined coverage for the Loss and Kahlenberg’s claims on the bases that the Property was not occupied on a continuous basis within the 30 days prior to the date of the Loss, that Kahlenberg, both on her own and by those acting on her behalf, knowingly concealed or misrepresented material facts in connection with the presentation of the claim, and that Kahlenberg and Smith failed to submit to and/or complete Examinations Under Oath, thereby prejudicing Catlin’s investigation.”  (Id. ¶ 34.) 

Legal Standard

A motion for judgment on the pleadings has the same function as a general demurrer but is made after the time for demurrer has expired. (CCP § 438(f).)  Except as provided by statute, the rules governing demurrers apply.  (Civic Partners Stockton, LLC v. Youssefi (2013) 218 Cal.App.4th 1005, 1012.)  “Like a demurrer, the grounds for the motion [for judgment on the pleadings] must appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.”  (Id. at 1013.)  In ruling on a motion for judgment on the pleadings, “[a]ll allegations in the complaint and matters upon which judicial notice may be taken are assumed to be true.”  (Rippon v. Bowen (2008) 160 Cal.App.4th 1308, 1313.)

Code of Civil Procedure section 438 subdivision (c) subsection (1) provides a motion for judgment on the pleading may only made on one of the following grounds:

(A) “[i]f the moving party is a plaintiff, that the complaint states facts sufficient to constitute a cause or causes of action against the defendant and the answer does not state facts sufficient to constitute a defense to the complaint;

(B)  If the moving party is a defendant, that either of the following conditions exist:

                                            i.            The court has no jurisdiction of the subject of the cause of action alleged in the complaint;

                                          ii.            The complaint does not state facts sufficient to constitute a cause of action against that defendant.

Meet and Confer

Per Code of Civil Procedure section 439 subdivision (a), before filing a judgment on the pleadings pursuant to this chapter, the moving party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to the motion for judgment on the pleadings for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the motion for judgment on the pleadings...” (CCP § 439(a).) The moving party shall file and serve with the motion for judgment on the pleadings a declaration concerning the parties meet and confer efforts.  (CCP § 439(a)(3).)

            Here, Cross-Defendant Demian has sufficiently met and conferred.  (McCormick Decl. ¶ 3.)

Discussion

            Cross-Defendant Demian contends that Catlin’s entire Second Amended Cross-Complaint fails because indemnity clause in the producer agreement is inapplicable based on the alleged conduct.

            “[I]ndemnity refers to ‘the obligation resting on one party to make good a loss or damage another party has incurred.’ ” (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157.)  “There are two basic types of indemnity: express indemnity, which relies on an express contract term providing for indemnification, and equitable indemnity, which embraces ‘traditional equitable indemnity’ and implied contractual indemnity.”   (Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559, 573.) 

            “Express indemnity generally is not subject to equitable considerations or a joint legal obligation to the injured party; rather, it is enforced in accordance with the terms of the contracting parties' agreement. [Citation.] In the context of noninsurance indemnity agreements, if a party seeks to be indemnified for its own active negligence, or regardless of the indemnitor's fault, the contractual language on the point ‘must be particularly clear and explicit, and will be construed strictly against the indemnitee.’ [Citations.]”  (Prince, supra, 45 Cal.4th at p.1158.)  “Since indemnity agreements are construed under the same rules which govern the interpretation of other contracts, the indemnity agreement must be interpreted so as to give effect to the mutual intention of the parties. [Citations.] In interpreting an express indemnity agreement, the courts look first to the words of the contract to determine the intended scope of the indemnity agreement.”  (City of Bell v. Superior Court (2013) 220 Cal.App.4th 236, 247.)

            Here, the indemnity clause at issue provides that:

14. INDEMNIFICATION. [Demian] shall indemnify and hold BAMBOO and [Catlin] harmless from any and all costs, claims or demands (including reasonable attorney fees and expenses, whether incurred prior to the commencement of formal legal action, or at the trial, or appellate court level), resulting from any unauthorized acts of [Demian], or any breach of any of the provisions of this Agreement by [Demian]. BAMBOO shall have the right of off-set pursuant to Section 4(c) above, for the purpose of indemnifying BAMBOO.” 

(Catlin SACC ¶ 8, Exh. D.)

            Thus, under a plain reading of the indemnity clause, the clause is applicable for claim arising from unauthorized acts of Demian or breaches of the agreement.  Here, the SAC complaint alleges that Demian submitted an inaccurate insurance application to Catlin without the Plaintiff’s or Plaintiff’s husband consent.  (SAC ¶¶ 30, 51-65.)  Catlin’s Second Amended Cross-Complaint further alleges that Demian “submitted a homeowners Policy Application to Catlin on behalf of Kahlenberg seeking insurance for the Property that contained inaccurate information which was material to the risks to be insured under Catlin’s Policy, and that Catlin issued the Policy to Plaintiff in reliance upon the representations in the Application.”  (Catlin SACC ¶ 7.)  Thus, the SAC and Catlin’s Second Amended Cross-Complaint allege that Demian submitted an insurance application with material inaccuracies without authorization which resulted in Catlin issuing the insurance policy and eventually denying the claim.  This is sufficient to allege liability under the indemnity clause.  Demian did an unauthorized act – i.e., submitting an insurance application without authorization – which contained material inaccuracies – in violation of the producer agreement – that resulted in Catlin denying the claim and the instant action being initiated against Catlin for wrongful denial of the claim.

            Demian’s reliance on City of Bell v. Superior Court (2013) 220 Cal.App.4th 236 is misplaced.  the court analyzed an indemnity agreement contained in an employment contract between the City of Bell and its former employee, Robert Rizzo. (Id. at p. 252.) In that case, the City alleged Rizzo used his position to misappropriate City funds, and filed suit seeking to recover the misappropriated funds. (Ibid.) Rizzo sought to have the City indemnify him against claims brought by the Attorney General – on behalf of the City of Bell – for his wrongdoing. (Ibid.) There the indemnity clause in the agreement stated, in part:

City shall defend, hold harmless and indemnify Employee against any claim, demand, judgment or action, of any type or kind, arising out of any act or failure to act, by Employee, if such act or failure was within the course and scope of Employee's employment. City may compromise and settle any such claim or suit provided City shall bear the entire cost of any such settlement.

(Rizzo, supra, 220 Cal.App.4th at p.243.)

            The Court of Appeal reasoned that the language in the last sentence of the indemnity provision permitting the City to “settle any such claim” could only be reasonably interpreted as encompassing third party claims because, “[t]he idea that the City ‘may compromise and settle’ a suit brought by the City against Rizzo, if it pays itself the settlement amount, would make no sense whatever.” (Id. at p.252.) Thus, the Court of Appeal concluded the indemnity provision contained in the employment agreement applied only to third party claims. (Ibid.)

            Here, there is a clear claim by a third party.  Moreover, the claim against Demian is for its own wrongdoing – i.e., submitting the inaccurate claim.  Thus, the reasoning in City of Bell is inapplicable to the instant action.

Conclusion and Order

Based on the foregoing, Cross-Defendant Demian Insurance & Financial Services, Inc.’s motion for judgment on the pleadings of Cross-Complainant Catlin Insurance Company, Inc.’s Second Amended Cross-Complaint is DENIED.

Moving Party is to give notice and file proof of service of such.

DATED: February 27, 2023                                                   ___________________________

                                                                                          Elaine Lu

                                                                                          Judge of the Superior Court