Judge Kerry Bensinger, Case Number: 24STCV15115, Date: 2025-02-11 Tentative Ruling

DEFENDANT UNITED AGENCIES, INC.’S DEMURRER WITH MOTION TO STRIKE TO PLAINTIFF’S FIRST AMENDED COMPLAINT

DEFENDANT GREAT AMERICAN E&S INSURANCE COMPANY’S DEMURRER WITHOUT MOTION TO STRIKE TO PLAINTIFF’S FIRST AMENDED COMPLAINT

Plaintiff 522 Wilshire Blvd., LLC[1] (Plaintiff) brings this bad faith insurance action against its longtime insurance broker, defendants United Agencies, Inc. (UA) and UA’s errors and omissions insurance carrier, Great American E & S Insurance Company (Great American).[2]

According to the operative pleading, Plaintiff manages commercial real property located at 518, 520, and 522 Wilshire Blvd., Santa Monica, CA 90401 (the Property). In 2021, UA procured insurance for the Property on Plaintiff’s behalf. In 2024, a fire caused significant damage to the Property. At Plaintiff’s request, UA President Daniel Wakely (Wakely) filed an insurance claim. The insurance carrier, Nationwide, denied the claim on the basis that the Property did not have an automatic fire sprinkler system which contradicted representations made in Plaintiff’s application for property insurance. Plaintiff discussed the claim denial with Wakely. Wakely admitted UA made a mistake in the application and promptly submitted the claim to Great American. At that point, all accountability stopped. UA retained counsel and have done nothing but stonewall, deny liability, refuse to cooperate, refuse to provide information, refuse to process reimbursement requests for repairs Plaintiff completed, refuse to provide their insurance information or even identify the name of their Errors & Omissions Insurance Carrier, and refuse to accept any liability or responsibility for the loss or repairs. Further, despite its knowledge of its insured’s obvious and admitted fault and liability as well as Plaintiff’s substantial damages and the fact that its damages are accruing daily, which have been tendered and submitted to Defendants’ counsel with repeated requests for payment, Great American refuses to or has unreasonably delayed providing payment of policy benefits and/or refuses to indemnify UA for its admitted negligence, for which Plaintiff is an intended third-party beneficiary.

On June 17, 2024, Plaintiff commenced this action against defendants UA and Great American (collectively, Defendants). On August 13, 2024, Plaintiff filed the operative First Amended Complaint (FAC) against Defendants for (1) professional negligence, (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing, (4) tortious breach of implied covenant of good faith and fair dealing, and (5) violation of California’s Unfair Competition Law.

Before the court are three filings: (1) UA’s Demurrer to the Fourth Cause of Action; (2) UA’s Motion to Strike punitive damages from the FAC; and (3) Great American’s Demurrer to the Third, Fourth, and Fifth Causes of Action. The court addresses them in turn.

On October 16, 2024, UA filed this Demurrer to the Fourth Cause of Action and concurrently filed a Motion to Strike punitive damages from the FAC.

On November 27, 2024, Plaintiff filed oppositions to the Demurrer and Motion to Strike.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context, accepting the alleged facts as true. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.) “Because a demurrer challenges defects on the face of the complaint, it can only refer to matters outside the pleading that are subject to judicial notice.” (Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4th 471, 556.)

UA demurs to the Fourth Cause of Action for Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing on two grounds: (1) Plaintiff’s allegations generally concern refusal of Great American, as opposed to UA, to provide coverage, and (2) under Foley v. Interactive Data Corp. (1998) 47 Cal.3d 654 (Foley), for a variety of policy reasons, recovery for tortious breaches of the implied covenant of good faith and fair dealing is generally limited to insurer versus insured.

The first issue is dispositive.[3] Specifically, Plaintiff, as a third party beneficiary, may be entitled to sue Great American for Great American’s tortious breach, but not UA. This is so because UA is not the insurer. “While an action for breach of the covenant of good faith and fair dealing sounds in tort, the duty of good faith and fair dealing arises from and exists solely because of the contractual relationship between the parties. [Citation.] Thus, someone who is not a party to the contract has no standing to enforce it or to recover extra-contractual damages for the wrongful withholding of benefits to the contracting party. [Citation.] However, in the context of insurance policies, “[a] non-party who is nevertheless entitled to policy benefits, such as an ‘insured’ person under the terms of the policy or an express beneficiary, has standing only if [he or] she is the claimant whose benefits are wrongfully withheld.” (Jones v. Aetna Cas. & Sur. Co. (1994) 26 Cal.App.4th 1717, 1722.) “Certainly a non-contracting party is entitled to sue an insurer for breach of the implied covenant if that non-contracting party is a third party beneficiary of the insurance contract. (Fireman's Fund Ins. Co. v. Maryland Cas. Co. (1994) 21 Cal.App.4th 1586, 1599, emphasis in original.)

Here, UA is a party to the UA-Great American insurance contract. Great American is the insurer. UA is the insured. And, as alleged, UA submitted the claim to Great American. (FAC, ¶ 18.) Therefore, the ball is in Great American’s court to process UA’s claim. Framed in this way, UA’s alleged bad faith conduct has no bearing on whether policy benefits from the UA-Great American insurance contract are being withheld from Plaintiff.

Plaintiff argues it has sufficiently pled that UA and Great American acted jointly to delay and deprive Plaintiff of the third-party benefits of UA and Great American’s contract. In support, Plaintiff cites Navarrete v. Meyer (2015) 237 Cal.App.4th 1276, 1286, for the proposition that concert of action theory imposes liability where the defendant did not personally cause the harm, but encouraged or assisted the other tortfeasor, knowing the conduct to be tortious, and which is a substantial factor in causing the resulting tort. Navarrete does not apply here. That case discussed the concert of action theory in an entirely different context. There, the passenger of a vehicle willfully interfered with the driver of a vehicle by encouraging the driver to exceed the speed limit on a residential street. By contrast, this case concerns contractual duties and the implied covenants arising from an insurance contract. Further, the paragraphs Plaintiff cites which purportedly establish joint liability—paragraphs 7, 8, and 82-94—do not establish joint liability. (Navarrete, at pp. 1288-89.) Absent from those paragraphs are any allegations showing UA encouraged or assisted Great American to withhold coverage.

Accordingly, the demurrer to the Fourth Cause of Action is SUSTAINED. Leave to amend is DENIED.

UA moves to strike the request for punitive damages from the FAC. The request for punitive damages is made in connection to the Fourth Cause of Action. Because the court has sustained the Demurrer to the Fourth Cause of action, the Motion to Strike is MOOT.

On November 21, 2024, Great American filed this Demurrer to Plaintiff’s third, fourth, and fifth causes of action in the FAC.

Plaintiff objects to Great American’s reliance on and inclusion of language from the purported UA-Great American policy. The objection is well-founded. The policy was not attached to Plaintiff’s FAC and is extrinsic. The objection is SUSTAINED.

Plaintiff also objects to Great American’s reliance on new arguments raised for the first time in reply. Plaintiff does not identify the new arguments. The objection is OVERRULED.

Great American advances two general arguments: (1) Plaintiff lacks standing to bring the third, fourth, and fifth causes of action because it is not a third-party beneficiary of the UA policy, and (2) the third, fourth, and fifth causes of action are insufficiently pleaded.

Great American argues that Plaintiff lacks standing because Plaintiff is a third-party claimant. ‘ “[G]enerally, an insurer may not be joined as a party-defendant in the underlying action against the insured by the injured third party. The fact that an insurer has agreed to indemnify the insured for any judgment rendered in the action does not make the insurer a proper party. Liability insurance is not a contract for the benefit of the injured party so as to allow it to sue the insurer directly.” ’ ” (Royal Indemnity Co. v. United Enterprises, Inc. (2008) 162 Cal.App.4th 194, 205; see Shaolian v. Safeco Ins. Co. (1999) 71 Cal.App.4th 268, 271 [“Because the insurer's duties flow to its insured alone, a third-party claimant may not bring a direct action against an insurance company”].) “Thus, ... a third party who is not in privity of contract with the liability insurer (nor named as an express beneficiary of the policy) ... normally lack[s] standing to sue the insurer to resolve coverage questions about a tortfeasor, such as where there has been a failure to settle a claim under the policy.” (Royal Indemnity Co., supra, at p. 205.)

Here, Plaintiff alleges it is a third-party beneficiary of the UA-Great American policy. Royal Indemnity Co. discussed whether a third-party claimant has standing to sue an insurer. Great American argues the allegations of the FAC show Plaintiff is a third-party claimant in an effort to bring Plaintiff’s claims within the preclusive net of Royal Indemnity Co. However, to do so, the court would have to ignore the allegations that Plaintiff is a third-party beneficiary. The court declines to do so.

Great American next argues there are no facts to support the legal conclusion that Plaintiff is a third-party beneficiary. The allegations on this point are admittedly light. However, Great American overlooks the allegation that “[t]he errors and omissions policy is intended to benefit a class of insured members such as [Plaintiff].” (FAC, ¶ 66.) The court finds this allegation is sufficient at this stage to establish Plaintiff’s third-party beneficiary status.

“Civil Code section 1559 provides: ‘A contract, made expressly for the benefit of a third person, may be enforced by him [or her] at any time before the parties thereto rescind it.’ Because third party beneficiary status is a matter of contract interpretation, a person seeking to enforce a contract as a third party beneficiary ‘ “must plead a contract which was made expressly for his [or her] benefit and one in which it clearly appears that he [or she] was a beneficiary.” (The H.N. & Frances C. Berger Found. v. Perez (2013) 218 Cal.App.4th 37, 43.) It is not “necessary that the beneficiary be named and identified . . . a third party may enforce a contract if he can show he is a member of a class for whose benefit it was made.” (LaBarbera v. Sec. Nat’l Ins. Co. (2022) 86 Cal.App.5th 1329.)

In reply, Great American insists the court can and should determine at the pleadings stage whether Plaintiff is a third-party beneficiary. However, the policy at issue is not attached to the FAC. Although Plaintiff could have included it (assuming Plaintiff obtained the policy), there is no requirement a written contract, which serves as the basis of a plaintiff’s claims, be attached to the pleading. At this point, all that is before the court are Plaintiff’s allegations. Absent authority that a third-party beneficiary may not directly sue an insurer, Great American fails to demonstrate the demurrer should be sustained for lack of standing.

2. Breach of the Implied Covenant of Good Faith and Fair Dealing (3^rd Cause of Action)

Great American argues the Third Cause of Action fails to allege facts sufficient to state a cause of action. The court agrees. In the cause of action, Plaintiff does not mention Great American or the Doe defendants once. (See FAC, ¶¶ 73-81.) Plaintiff does not address this argument and therefore concedes the point.

Accordingly, Great American’s demurrer to Third Cause of Action is SUSTAINED. Leave to Amend is GRANTED.

3. Tortious Breach of Implied Covenant of Good Faith and Fair Dealing (4^th Cause of Action)

Great American next argues the Fourth Cause of Action fails because it lists boilerplate conduct in which UA and Great American allegedly engaged, including withholding coverage under the policy. (See FAC, ¶ 87.) Great American also complains that Plaintiff’s allegations are inconsistent because Plaintiff admits not knowing Great American’s coverage position which contradicts the allegations that Great American wrongfully and unreasonably denied coverage.

The court disagrees. To plead a cause of action, “what is important is that the complaint as a whole contain sufficient facts to apprise the defendant of the basis upon which the plaintiff is seeking relief.” (Thompson v. Spitzer (2023) 90 Cal. App. 5th 436, 452.) The court has reviewed the FAC and is satisfied Plaintiff apprised Great American of the basis upon which relief is sought. Further, it is well-settled that a claim may be based upon inconsistent theories. (See Batta v. Hunt (2024) 106 Cal.App.5th 295, 304.)

Accordingly, Great American’s Demurrer to the Fourth Cause of Action is OVERRULED.

Great American argues the Fifth Cause of Action fails because there are no factual allegations to show that Great American has engaged in unlawful, fraudulent, or unfair business practices. The court is not persuaded. Plaintiff alleges unfair and wrongful business practices of UA and Great American. (See FAC, ¶ 96.)

Accordingly, Great American’s Demurrer to the Fifth Cause of Action is OVERRULED.

1. UA’s demurrer to the Fourth Cause of Action is Sustained. Leave to amend is Denied. UA’s motion to strike is Moot. UA is ordered to file and serve its Answer to the First Amended Complaint within 20 days of the date of service of the First Amended Complaint (FAC.).

2. Great American’s demurrer to the Third Cause of Action is Sustained. Leave to Amend is Granted. Great American’s demurrer to the Fourth and Fifth Causes of Action is Overruled. Plaintiff has 20 days to file a First Amended Complaint. Great American is ordered to file its responsive pleading within 20 days of service of the FAC.

Kerry Bensinger

Judge of the Superior Court

[1] On December 30, 2024, Plaintiff filed an amendment to the FAC correcting its name from “Plaintiff Property Management d/b/a 522 Wilshire Blvd LLC” to “522 Wilshire Blvd., LLC.”

[2] Great American was named as Doe 1.

[3] As to UA’s second point, UA pushes hard to apply Foley and the policy reasons discussed therein to this case. However, the court is doubtful Foley helps or hurts either party. Foley was principally concerned with whether tortious breach claims should be extended to the employment context. This case does not arise from an employer-employee dispute.