Judge: Joseph Lipner, Case: 23STCV29653, Date: 2024-05-02 Tentative Ruling

Case Number: 23STCV29653    Hearing Date: May 2, 2024    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendants Infinity Insurance Company (“Infinity”) and Infinity Select Insurance Company (“Infinity Select”) (collectively, the “Infinity Parties”) second cause of action in the First Amended Complaint (“FAC”) filed by Plaintiffs David Sanchez and Apple Markets, Inc. (“Apple Markets”) (collectively, “Plaintiffs”).

The Court OVERRULES the demurrer.

Background

            This is an insurance case. The following facts are taken from the FAC.

            In January 2017, Infinity Select issued a commercial auto liability policy (the “Policy”) to “David Sanchez dba Apple Market.”

            While the Policy was in effect, an employee of Apple Markets, Jose Carranza Umberto Lopez, was involved in an automobile accident with Benjamin Martinez.

            Martinez filed a lawsuit against Lopez and Plaintiff Apple Markets, alleging personal injuries resulting from the accident. Martinez did not name Plaintiff Sanchez as a defendant. Sanchez was neither the driver nor the owner of the vehicle involved in the accident. The Infinity Parties retained Ford Walker Haggerty & Behar LLP (“Ford Walker”) to represent Lopez and Apple Markets in the personal injury suit.

            Plaintiffs allege that Martinez made at least five separate offers to settle his claim within the limits of the Policy, which the Infinity Parties rejected. Plaintiffs allege that Infinity had sufficient information to understand that if Martinez’s claims were tried to a jury, there was a substantial likelihood that Martinez would obtain a judgment far in excess of the Policy’s coverage.

            After a jury trial in the personal injury action, the court entered judgment in favor of Martinez in the amount of $7,261,457.67. The judgment states that it is against “Defendants Jose Humberto Carranza Lopez and David Sanchez dba Apple Markets, Inc. jointly and severally.” Apple Markets and Lopez appealed the judgment.

            While appeal was still pending, Plaintiff filed this action on December 5, 2023. The operative complaint is now the FAC, filed against Ford Walker, the Infinity Parties, and Kemper Corporation (“Kemper”). The FAC raises claims for (1) breach of the covenant of good faith and fair dealing (against the Infinity Parties and Kemper); (2) violation of Civil Code, section 2860 (against the Infinity Parties); and (3) negligence (against Ford Walker”).

            The Infinity Parties demurred to the first and second causes of action in the FAC on March 22, 2024. Plaintiff filed an opposition. The Infinity Parties filed a reply.

            During the pendency of the demurrer, the Infinity Parties reached a settlement with the plaintiff in the underlying action. As a result of this, the Infinity Parties in their reply withdrew the demurrer as to the first cause of action.

Request for Judicial Notice

The Court grants Plaintiffs’ requests for judicial notice as public records. The Court denies the Infinity Parties’ request for judicial notice of the Policy. The Court grants the Infinity Parties’ remaining requests for judicial notice as public records.

Legal Standard

As a general matter, in a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleading alone, and not the evidence or facts alleged.” (E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315.) The court assumes the truth of the complaint’s properly pleaded or implied factual allegations. (Ibid.) The only issue a demurrer is concerned with is whether the complaint, as it stands, states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)

Where a demurrer is sustained, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Ibid.; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) However, “[i]f there is any reasonable possibility that the plaintiff can state a good cause of action, it is error to sustain a demurrer without leave to amend.” (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245).

Discussion

Breach of the Covenant of Good Faith and Fair Dealing – First Cause of action

As noted above, the Infinity Parties withdrew their demurrer as to the first cause of action.  Accordingly, this demurrer is moot.

Violation of Civil Code, Section 2860 – Second Cause of action

“If the provisions of a policy of insurance impose a duty to defend upon an insurer and a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel to the insured, the insurer shall provide independent counsel to represent the insured unless, at the time the insured is informed that a possible conflict may arise or does exist, the insured expressly waives, in writing, the right to independent counsel. An insurance contract may contain a provision which sets forth the method of selecting that counsel consistent with this section.” (Civ. Code, § 2860, subd. (a).)

“For purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim, a conflict of interest may exist. No conflict of interest shall be deemed to exist as to allegations of punitive damages or be deemed to exist solely because an insured is sued for an amount in excess of the insurance policy limits.” (Civ. Code, § 2860, subd. (b).)

Here, Plaintiff does not merely allege a failure to settle within policy limits. Plaintiff alleges that the Infinity Parties directed Ford Walker to appeal the judgment in the underlying action without consent from Sanchez. The Infinity Parties then allegedly instructed Ford Walker to seek a stay of the appeal without consent from Sanchez. A stay of the appeal would potentially increase the interest Sanchez would eventually have to pay on the judgment. Furthermore, the Infinity Parties took the position in the demurrer that the filing of this action was improper while the appeal was pending. Without addressing the merits of that argument, it is clear that, if it were true, the stay of the appeal would further delay Plaintiff’s ability to seek relief in this case. These facts, as alleged, sufficiently indicate that a conflict of interest exists between Plaintiff and the Infinity Parties, at least at the pleading stage.

The Infinity Parties advance a three-line argument at the end of their demurrer that there is no private cause of action under Civil Code section 2860.  This argument is insufficiently supported to be a basis to sustain the demurrer. 

The Court therefore overrules the demurrer.