Judge: Kristin S. Escalante , Case: 22STCV21970, Date: 2023-06-29 Tentative Ruling
Case Number: 22STCV21970 Hearing Date: June 29, 2023 Dept: 24
NATURE OF PROCEEDINGS: Hearing on Demurrer - without
Motion to Strike to Plaintiff's Complaint by Defendants Liberty Mutual Fire
Insurance Company and Liberty Mutual Group, Inc.
The
above-captioned matters are called for hearing.
The Court has
read the motion papers in the above-captioned demurrer and announces its
tentative rulings in open Court.
The Demurrer to Plaintiff's Complaint by Defendants Liberty
Mutual Fire Insurance Company and Liberty Mutual Group, Inc. ID: 883363127428
filed by Defendants Liberty Mutual Fire Insurance Company and Liberty Mutual
Group, Inc., on 05/05/2023 is SUSTAINED in part and OVERRULED in
part.
The demurrer to the first (breach of contract) cause of
action is OVERRULED. The demurrer to the fifth (negligent infliction of
emotional distress) cause of action is SUSTAINED with leave to amend. Plaintiff
has 30 days to file an amended pleading addressing the issues set forth below.
Defendants Liberty Mutual Fire Insurance Company and Liberty Mutual Group, Inc. (collectively “Liberty Defendants”) demurer to the first (breach of contract) and fifth (negligent infliction of emotional distress) causes of action in the complaint filed by Plaintiff Kip Martin (“Plaintiff”). (Notice of Dem., at p. 2.)
This is breach of contract case against an insurer and insurer’s counsel, arises from an underlying tort lawsuit. On July 7, 2022, Plaintiff filed suit against Liberty Mutual Fire Insurance Company (“Liberty Fire”), Liberty Mutual Group, Inc (“Liberty Mutual”), Kenneth Vierra Jr. (Vierra), the Law Offices of Santana & Vierra (“Vierra Law”), Bryan Stofferahn (“Stofferahn”), and Bremer Whyte Brown O’Meara LLP (“Bremer LLP”) alleging six causes of action. The court previously denied the motion of Liberty Fire, Liberty Mutual, Stofferahn and Bremer LLP to change venue. The court also overruled the demurrer by Defendants Vierra and Vierra Law. Now the Liberty Defendants demurrer to Plaintiff’s complaint.
The underlying tort lawsuit arose when Plaintiff was backing out of a parking lot and struck Elva Wormley (“Wormley”). As a result of the collision, Wormley suffered a traumatic brain injury and sued Plaintiff. Plaintiff had an automobile insurance policy with a $250,000 limit with Liberty Defendants.
Liberty Defendants assigned their in-house counsel Vierra of Vierra Law to Plaintiff’s case. During the litigation, Plaintiff alleges Vierra committed malpractice through the following actions: (1) failing to inform Plaintiff that Wormley made a written demand of $750,000 which the Liberty Defendants rejected and (2) failing to notify Plaintiff that he was taking Wormley’s deposition.
Wormley then served a section 998 offer of $249,999 (“998”) in August of 2019. When Plaintiff learned of the 998, he requested the Liberty Defendants accept it, but they refused. In October 2019, Liberty Defendants retained Stofferahn of Bremer LLP. Plaintiff alleges Stofferahn did not review the file adequately, and did not communicate with Plaintiff, Plaintiff’s personal counsel, and the retained experts. Stofferahn requested an extension of Wormley’s 998 until November of 2019. However, Liberty Defendants let the offer expire after the extension and the case went to trial. In December 2021, a jury returned a verdict in favor of Wormley against Plaintiff for $2,500,313.41. The court awarded $837,472.17 in costs and prejudgment interest.
Liberty Defendants refused to pay any of the judgment beyond the policy limits. As a result, Plaintiff had to take out a loan to fund the portion of the judgment the Liberty Defendants refused to pay so he could avoid the daily interest accruing at 10%. Plaintiff alleges that Liberty Defendants’ failure to accept a reasonable policy limit demand was a breach of contract and the implied covenant of good faith and fair dealing. Plaintiff also alleges that Vierra and Stofferhan failed to communicate with him regarding settlement offers and other significant events in the case. This amounted to professional negligence and a breach of their fiduciary duties to Plaintiff.
1. Breach of Contract
The issue is whether Plaintiff can allege a breach of contract claim where Plaintiff simultaneously alleges Liberty Defendants undertook a contractual defense of the claims against him.
Liberty Defendants, relying on Archdale v. American Intern. Specialty Lines Ins. (2007) 154 Cal.App.4th 449, 465 (Archdale), argue that where an insurer provides a defense and has paid out the amount of the policy it cannot be liable for breach of any express policy provision.
In Archdale, plaintiff sued his insurance carrier for breach of contract after the insurer defended him in an underlying personal injury suit and refused to accept several reasonable settlement offers within the policy limit. After rejecting the offers, a trial resulted in a judgment against the Plaintiff well in excess of the policy limit. The court of appeal held, “where a liability insurer has provided a defense and, prior to the filing of the action by an insured (or assignee), has fully paid out the amount of its policy limit, it may not be liable for the breach of any express policy provision promising such benefits, but nonetheless could be liable for a breach of the implied covenant of good faith and fair dealing.” (Archdale, supra, 154 Cal.App.4th at p. 456.)
The court also held that “an insurer’s failure to accept a reasonable settlement offer to resolve a third party claim against its insured constitutes a breach of the covenant of good faith and fair dealing implied in a liability policy” and “such a breach, if it results in an excess judgment against the insured, will support a claim sounding in contract as well as tort. . .” (Ibid.) The court, after reviewing the language in the contract regarding the insurers’ obligations, found the insurer had “fully performed these express contractual promises made by the policy.” (Id. at p. 463.) Nevertheless, insurer had other implied obligations including “to accept a reasonable offer to settle the claim against its insured.” (Id. at p. 464.) This obligation arose not out of the breach of contract claim, but out of the implied covenant of good faith and fair dealing. (Id. at p. 466.) Having reached this conclusion, the court found the breach of contract claim had no factual or legal basis.
Here, as a preliminary matter, the court finds Archdale distinguishable. In Archdale the court had the benefit of a motion for summary judgment to analyze whether the insurer had fully complied with its express obligations under the policy contract and concluded it had. It then concluded the breach of contract claim had no basis in fact and affirmed summary judgment. In the present suit, the court does not have the benefit of the contract before it on this motion. Nor would such evidence be appropriate given the pleading standards for a demurrer. A review of the complaint reveals that Plaintiff alleges more than just failure to accept a reasonable offer as the basis of the alleged breach of contract.
Plaintiff alleges “Defendants breached the Policy when they unreasonable failed to accept a reasonable settlement offer within the policy limits, failed to indemnify Martin against the entire judgment, failed to properly communicate with Martin, failed to investigate and properly evaluate Ms. Wormley’s claim, and failed to protect Martin from execution of the entire amount of the judgment.” (Compl., ¶71.) Therefore, Archdale does not compel a dismissal of the breach of contract claim at this stage. Defendants argue Plaintiff “does not, and cannot, allege any other express promise in the policy that Liberty [Defendants] breached.” (Dem., at p. 11:02-05.) The court disagrees as this is a demurrer and the allegations in the complaint are deemed to be true.
Accordingly, the demurrer to the breach of contract claim is overruled.
2. Negligent Infliction of Emotional Distress (“NIED”)
The issue remains as to whether a Plaintiff may bring a NIED claim against an insurer and whether the economic loss rule bars Plaintiff’s claim. Plaintiff offers no opposition to Defendant’s argument that his negligence cause of action cannot stand.
“Negligent causing of emotional distress is not an independent tort but the tort of negligence. The traditional elements of duty, breach, causation, and damages apply.” (Eriksson v. Nunnink (2015) 233 Cal.App.4th 708, 729 [Internal citations, quotations, and ellipses omitted].) However, “there is no duty to avoid negligently causing emotional distress to another” (Friedman v. Merck & Co. (2003) 107 Cal.App.4th 454, 464.) Instead, damages are “recoverable only if the defendant has breached some other duty to the plaintiff.” (Ibid.) “The independent duty may be imposed by law, assumed by the defendant, or exist by virtue of a special relationship between the parties.” (Ibid.)
Generally, a plaintiff cannot allege negligence alone against an insurer; the plaintiff must also allege bad faith. (See Brown v. Guarantee Ins. Co. (1957) 155 Cal.App.2d 679, 689 [stating “only bad faith should be the basis of the insured’s cause of action. Bad faith may involve negligence, or negligence may be indicative of bad faith, but negligence alone is insufficient to render the insurer liable.”]; Sanchez v. Lindsey Modern Claims Servis., Inc (1999) 72 Cal.App.4th 249, 254 [finding no independent duty such that an insured could bring a claim against insurer’s claims adjustor for negligence].)
Bad faith occurs when a defendant’s conduct “demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes. . .” (State Farm Fire & Cas. Co. v. Superior Ct. (1996) 45 Cal.App.4th 1093, 1105 (State Farm), abrogated on other grounds by Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co. (1999) 20 Cal.4th 163.) “Just what conduct will meet these criteria must be determined on a case-by-case basis and will depend on the contractual purposes and reasonably justified expectations of the parties.” (Ibid.)
Here, Plaintiff has not alleged a claim for NIED. Plaintiff
has not alleged any bad faith conduct by Liberty Defendants. Instead,
Plaintiff’s allegations turn on Liberty Defendants’ failure to accept a
reasonable settlement offer, and their failure to effectively communicate with
Plaintiff about the case. (Compl., ¶¶16, 41-49, 51-54, 63.) There are no
allegations of Liberty Defendants engaging in a “conscious and deliberate act,
which unfairly frustrates the agreed common purpose” of the contract. (See
State Farm, supra, 45 Cal.App.4th at p. 1105.)
As the allegations are insufficient the court only briefly addresses Liberty Defendants’ second argument that the NIED claim fails due to the economic loss rule.
Normally a plaintiff may recover for all harm proximately cause by a defendant’s wrongful acts. (Civ. Code, § 3333; see also 6 Witkin, Summary of California Law, Torts §§ 1715-1719] .) However, “[i]n general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922.) “[T]he rule functions to bar claims in negligence for pure economic losses in deference to a contract between litigating parties.” (Ibid.)
“Quite simply, the economic loss rule prevents the law of contract and the law of tort from dissolving one into the other.” (Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal.4th 979, 988 [internal quotations and brackets omitted].) “Not all tort claims for monetary losses between contractual parties are barred by the economic loss rule. But such claims are barred when they arise from — or are not independent of — the parties’ underlying contracts.” (Sheen, supra, 12 Cal.5th at p. 923.)
Here, Plaintiff’s allegations appear to fall within the contractual economic loss rule. Plaintiff’s claims are not independent of the underlying policy contract and, instead relate directly to that contract. Thus, the economic loss rule provides a second independent ground for sustaining the demurrer. It is difficult to see how Plaintiff can amend around the issues identified here. Nevertheless, given the liberal amendment standard, the court will grant Plaintiff one opportunity to rectify the pleadings.
Accordingly, the demurrer is sustained with 30 days leave to amend.
Moving party is directed to give notice.