Judge: John J. Kralik, Case: 22BBCV00351, Date: 2022-10-14 Tentative Ruling
Case Number: 22BBCV00351 Hearing Date: October 14, 2022 Dept: NCB
North
Central District
|
ELIZABETH AVEDISIAN, et
al., Plaintiffs, v. STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY, Defendant. |
Case No.: 22BBCV00351 Hearing Date: October 14, 2022 [TENTATIVE] order RE: Demurrer; motion to strike |
BACKGROUND
A.
Allegations
Plaintiffs Elizabeth Avedisian and
Varuzhan Avedisian (“Plaintiffs”) allege that they are the leaseholders to a
2020 Aston Martin Vantage. They allege
they contracted with Defendant State Farm Mutual Automobile Insurance Company
(“Defendant”) for an insurance policy to insure Plaintiffs against loss for damages
to the vehicle from the period of December 31, 2019 to June 30, 2020. Plaintiffs allege that on June 8, 2020, the
vehicle suffered severe damage when it was involved in a car crash. Plaintiffs allege that they submitted a claim
for coverage to Defendant, but that Defendant unreasonably denied the claim
that Plaintiffs rented out the vehicle on the date of the accident and made
material misrepresentations to Defendant during its investigation of
claims.
The first amended complaint (“FAC”),
filed July 21, 2022, alleges causes of action for: (1) breach of contract; (2) first
party bad faith; and (3) implied contractual indemnity.
B.
Demurrer on Calendar
On August 22, 2022, Defendant filed a
demurrer to the 2nd and 3rd causes of action alleged in
the FAC. Concurrently, Defendant field a
motion to strike portions of the FAC.
On September 26, 2022, Plaintiffs filed a
single opposition brief to the demurrer and motion to strike.
On October 6, 2022, Defendant filed reply
briefs.
DISCUSSION
RE DEMURRER
Defendant demurs to the 2nd
and 3rd causes of action.
In the insurance context, the breach of
the implied covenant is often referred to as “insurance bad faith”, which is an
actionable tort. (See Gaab and Reese,
The Rutter Group, Cal. Prac. Guide Civ. Pro. Trial
Claims and Def. (Oct. 2021 Update) Ch.9(III)-A, § 9:551.) “The law
implies in every contract, including insurance policies, a covenant of good
faith and fair dealing. The implied promise requires each contracting party to
refrain from doing anything to injure the right of the other to receive the agreement's
benefits. To fulfill its implied obligation, an insurer must give at least as much
consideration to the interests of the insured as it gives to its own interests.
When the insurer unreasonably and in bad faith withholds payment of the claim
of its insured, it is subject to liability in tort.” (Maslo v. Ameriprise Auto &
Home Ins. (2014) 227 Cal.App.4th 626, 633 [internal quotation
marks omitted].) “[T]here are at least two separate requirements to establish breach of
the implied covenant: (1) benefits due under the policy must have been
withheld; and (2) the reason for withholding benefits must have been
unreasonable or without proper cause.” (Love v. Fire Ins. Exchange (1990) 221 Cal.App.3d
1136, 1151.) A breach of the implied covenant
of good faith and fair dealing involves something beyond breach of the
contractual duty itself; further, bad faith implies unfair dealing rather than
mistaken judgment. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394.)
In the 2nd
cause of action, Plaintiffs allege that they suffered a severe loss when their vehicle
was damaged in the accident. (FAC,
¶38.) They allege that the insurance
policy was in effect at the time of the accident and that the policy covers
Plaintiffs against loss for damages. (Id.,
¶¶39-40.) Plaintiffs allege that
Defendant conducted an investigation over 18 months, during which Plaintiffs
submitted numerous documents, gave several statements, and sat for lengthy
depositions, but Defendant denied the claim based on false assertions regarding
Plaintiffs’ conduct. (Id., ¶41.) Plaintiffs allege that Defendant delayed the
investigation to manufacture a reason not to accept the claim and provide
coverage, Defendant failed to conduct a fair investigation of the claim, and
Defendant did not act in good faith or deal fairly with Plaintiffs. (Id., ¶¶42-44.)
Defendant
demurs to this cause of action, arguing that Plaintiffs’ bad faith claim
essentially pleads the same facts as the 1st cause of action for
breach of contract Defendant It also argues that the 2nd cause of
action lacks facts showing that its conduct was unreasonable and calculated to
deny the claim. Defendant argues that
Plaintiff only alleges in a conclusory manner that it conducted an 18-month
long investigation with the intent to delay the claim and manufacture a reason
to deny the claim.
The 1st cause
of action alleges facts that Defendant breached the insurance policy for
failing to provide coverage for claims on the vehicle during the policy
period. However, the 2nd
cause of action alleges facts that Defendant engaged in delay tactics to
investigate the claim and ultimately and unreasonably denied the claim by
manufacturing false reasons to deny coverage, such as Defendant’s assertions
that Plaintiffs made false assertions that they rented out the vehicle. (Compl., ¶¶12-15, 17-18, 41, 43-44.) The causes of action are based on separate
grounds, such that the Court declines to sustain the demurrer to the 2nd
cause of action on the basis that it is merely duplicative of the 1st
cause of action.
With respect to
Defendant’s argument that the allegations are conclusory as to whether
Defendant’s conduct was unreasonable, the allegations sufficiently allege
factual support as to why Plaintiffs believe Defendant’s denial of their claim
was unreasonable. They alleged that
Defendant delayed its determination on the claim, manufactured a reason to deny
the claim, and falsely stated that Plaintiffs made misrepresentations during
the investigation. These allegations are
sufficient at the demurrer stage and the Court will take the truth of these
statements at the pleading stage.
At the demurrer
and pleading stage, the Court finds that the allegations are sufficient to
allege a bad faith claim against Defendant.
As such, the demurrer to the 2nd cause of action is
overruled.
“[T]here are only two basic types of indemnity: express indemnity and
equitable indemnity.” (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157.) “Though not extinguished, implied contractual indemnity is now viewed
simply as ‘a form of equitable indemnity.’”
(Id.) “[T]raditional equitable indemnity requires no contractual relationship
between an indemnitor and an indemnitee. Such indemnity ‘is
premised on a joint legal obligation to another for damages,’ but it ‘does not
invariably follow fault.’ [Citation.] Although traditional equitable
indemnity once operated to shift the entire loss upon the one bound to
indemnify, the doctrine is now subject to allocation of fault principles and
comparative equitable apportionment of loss.”
(Id. at 1158.) Traditional equitable indemnity is not available in the
absence of a joint legal obligation to the injured party. (Id. at 1160.)
In the 3rd
cause of action, Plaintiffs allege that Defendant breached the insurance policy
by refusing the provide coverage. (FAC,
¶52.) Plaintiffs allege that pursuant to
the lease agreement with Aston Martin, they are liable for the residual value
of the vehicle if they return it in an undrivable condition. (Id., ¶54.) They alleges that their liability exposure to
Aston Martin has been proximately caused by Defendant’s breach of the insurance
policy. (Id., ¶55.)
Defendant
argues that the relationship between Defendant and Plaintiffs is based on the
insurance policy. Defendant argues that the policy expressly provides for
indemnity under certain express conditions, such that the terms of the written
policy control and not the principles of equity. The terms of the insurance policy are not
provided as an exhibit to the FAC, such that the Court cannot verify whether
the terms of the policy have express indemnity provisions. However, it appears that the policy is a
written agreement between the parties and thus a copy of the policy with its
indemnity terms, or lack thereof, or allegations regarding the insurance policy
should have been provided.
Defendant
also argues that Plaintiffs’ claims are not ripe. According to the allegations of the 3rd
cause of action Plaintiffs allege that they are liable for the residual value
of the vehicle “if” they return it in an undrivable condition. They allege that their lease term of the
automobile ends in December 2022. (FAC,
¶20.) As such, they have not suffered
any damage as of yet nor have they been exposed to liability from Aston
Martin. Thus, this cause of action is
premature as raised by Defendant.
The demurrer
to the 3rd cause of action is sustained. At this time, it appears that the 3rd
cause of action is premature as the lease on the vehicle has not yet come to an
end and Plaintiffs have not been exposed to liability. As such, the demurrer is sustained without
leave to amend. However, Plaintiffs may
file a motion for leave to amend the complaint in the future provided that
there are facts to support this cause of action showing Plaintiff’s actual
exposure to liability and damages following the expiration of the lease and a valid
basis for Defendant to owe a duty of implied indemnity in this action.
DISCUSSION RE MOTION TO STRIKE
Defendant
moves to strike allegations regarding punitive damages (FAC, ¶¶48 and 49,
Prayer for Damages at ¶6) and attorney’s fees (Prayer for Damages at
¶¶3-4).
A complaint including a request for punitive
damages must include allegations showing that the plaintiff is entitled to an
award of punitive damages. (Clauson
v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) A
claim for punitive damages cannot be pleaded generally and allegations that a
defendant acted "with oppression, fraud and malice" toward plaintiff
are insufficient legal conclusions to show that the plaintiff is entitled to an
award of punitive damages. (Brousseau
v. Jarrett (1977) 73 Cal.App.3d 864, 872.) Specific factual
allegations are required to support a claim for punitive damages. (Id.)
Civil Code § 3294
authorizes a plaintiff to obtain an award of punitive damages when there is
clear and convincing evidence that the defendant engaged in malice, oppression,
or fraud. Section 3294(c) defines the terms in the following manner:
(1)
"Malic
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.
(2)
"Oppressio
means despicable conduct that subjects a person to cruel and unjust hardship in
conscious disregard of that person's rights.
(3)
"Frau
means an intentional misrepresentation, deceit, or concealment of a material
fact known to the defendant with the intention on the part of the defendant of
thereby depriving a person of property or legal rights or otherwise causing
injury.
“To support punitive damages, the
complaint asserting one of those causes of action must allege ultimate facts of
the defendant's oppression, fraud, or malice.” (Cyrus v. Haveson
(1976) 65 Cal.App.3d 306, 316-17.) For example, the complaint in Brousseau
v. Jarrett, which the court held was “a patently insufficient statement of
‘oppression, fraud, or malice, express or implied’”, as it stated:
Defendant
engaged in the conduct described in the second count ‘intentionally, wilfully,
fraudulently, and with a wanton, reckless disregard for the possible injuries
[sic] consequences ... and as a result of ... said intentional, wilful, wanton,
reckless, oppressive, and fraudulent conduct, plaintiff is entitled to
exemplary damages. . . .
(Brousseau
v. Jarrett (1977) 73 Cal.App.3d 864, 869, 872.)
Paragraphs 48
and 49 are made in connection with the 2nd cause of action. Plaintiffs allege that Defendant’s conduct
was deceitful, fraudulent, and malicious and, thus, Plaintiffs are entitled to
punitive damages. (FAC, ¶¶48-49.) The allegations for punitive damages are
conclusory. Punitive damages must be
pleaded with the requisite particularity and the allegations in the FAC fail to
rise to the level of showing how Defendant acted fraudulently or maliciously in
such a way that punitive damages would be warranted.
The motion to
strike the allegations for punitive damages is granted with leave to amend.
CCP § 1021 states that attorney’s fees are
recoverable if allowed under statute and/or by agreement.
Defendant argues that Plaintiffs have not
cited to any statute or contractual provision authorizing attorney’s fees. In opposition, Plaintiff argues that they can
seek fees pursuant to CCP § 1021.6 as a prevailing party on a claim for implied
indemnity. However, as discussed above,
the claim for implied indemnity is premature and the demurrer to the 3rd
cause of action was sustained without leave to amend.
Thus, the motion to strike the allegations
for attorney’s fees is granted with leave to amend so that Plaintiffs may
assert another basis for attorney’s fees, if any.
CONCLUSION AND
ORDER
Defendant State Farm Mutual Automobile
Insurance Company’s demurrer to the 2nd cause of action in the first
amended complaint is overruled. The
demurrer to the 3rd cause of action is sustained without leave to
amend.
Defendant State Farm Mutual Automobile
Insurance Company’s motion to strike is granted with 20 days leave to amend.
Defendant shall provide notice of this
order.