Judge Lon F. Hurwitz, Case 2022-01244379 2022-12-16 Tentative Ruling

Judge: Lon F. Hurwitz, Case: 2022-01244379, Date: 2022-12-16 Tentative Ruling

Demurrer to Complaint

RULING:

The demurrer is overruled in its entirety.

Court’s Consideration of Arguments

Liberty’s opening brief is 20 pages, which is over the page limit imposed by Cal. Rules of Court, rule 3.1113(d). Once pointed out by Plaintiff in its brief filed on August 8, 2022 (ROA 51), Defendant failed to immediately correct the error by filing an ex parte application or otherwise preparing and immediately filing a retroactive application to exceed the page limit. Instead, Defendant addressed the issue in a footnote on the last page of the Reply brief, stating that it mistakenly referred to the page limit for summary judgment motions, without supporting the statement with a declaration. Liberty then requests that the Court cherry-pick 15 pages of the opening brief under Defendant’s guidance, without citing any authority that allows the Court to do so. Therefore, the Court declines Liberty’s footnote request.

Under Rule 3.1113(g), the Court may disregard the brief. Therefore, the Court has only considered the arguments asserted in the first 15 pages of Defendant’s Memorandum of Points and Authorities and the corresponding arguments in the Opposition and Reply briefs. Specifically, the Court has disregarded Defendant’s Dual Services Exclusion argument beginning on page 16, line 1, Plaintiff’s response to this argument in its Opposition (ROA 51, Opp. to Dem. p. 12:23-13:25), and Defendant’s argument in Reply (ROA 61, Reply to Dem. p. 9:12-10:9.) Even if the Court had considered the argument, the argument itself had no bearing on the Court’s determination, as discussed below.

Standard for a Demurrer

“A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Redfearn v. Trader Joe’s Co. (2018) 20 Cal. App. 5th 989, 996.) The Court must determine “whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense.” (Id.) The Court assumes “the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken.” (Id.) “A demurrer must dispose of an entire cause of action to be sustained.” (Fremont Indem. Co. v. Fremont Gen. Corp. (2007) 148 Cal. App. 4th 97, 119.)

“As a general rule in testing a pleading against a demurrer the facts alleged in the pleading are deemed to be true, however improbable they may be,” unless the “complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts which are judicially noticed.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal. App. 3d 593, 604.) Courts “construe the complaint ‘liberally ... with a view to substantial justice between the parties[.]’” (Goncharov v. Uber Techs., Inc. (2018) 19 Cal. App. 5th 1157, 1165.)

Allegations Under the PEF Policy

In its Opposition, Plaintiff specifies Liberty is liable not for failing to provide it a defense under the PEF Policy, but only for failing to settle before the defense exhausted the policy limits of that policy. (ROA 51, Opp. p. 5:6-10.) Plaintiff specifically pleaded that Liberty breached the Side-A policy by failing to defend once the PEF Policy was exhausted. (RPA 2, ¶ 55.) Therefore, the demurrer to the breach of contract action for failure to defend (COA 1) is overruled.

As for the duty to indemnify (COA 2), Liberty argues that once the policy limits are exhausted, it owes no duty to defend or indemnify. (Aerojet-Gen. Corp. v. Transp. Indem. Co. (1997) 17 Cal. 4th 38, 76 n.29 [citing Croskey et al., Cal. Practice Guide: Insurance Litigation 2, P 7:656, p. 7B-34].) The footnote in Aerojet is specific that the duty to indemnify is terminated at the moment the policy did not retroactively exist if the policy limits are exhausted. Even if it had, Liberty cites a persuasive case from the United States District Court, which in turn cites a footnote from a California case, which is not binding on this Court. (See People v. Steele (2000) 83 Cal.App.4th 212, 220 [“[T]he footnote statement in Coffey is not binding authority.”].) Assuming the PEF policy had not yet been exhausted at the time the plaintiffs made their settlement demand(s) in the Underlying Action, arguably Liberty had a duty to indemnify Guerry. Courts “construe the complaint ‘liberally ... with a view to substantial justice between the parties[.]’” (Goncharov v. Uber Techs., Inc. (2018) 19 Cal. App. 5th 1157, 1165.) As the Complaint alleges that Liberty failed to accept settlement demands within policy limits, the Court overrules the demurrer as to the second cause of action under the PEF policy.

To the extent Liberty argues its arguments also extend to Plaintiff’s claims for breaching the implied duty of good faith for failing to defend and failing to indemnify (COAs 3 and 4), the demurrer is also be overruled.

As to the fourth cause of action only, Liberty argues it had no duty to settle within the policy limits of the PEF policy because the insured’s right to recover hinges upon a trial judgment in excess of the policy limits. Under California law, an insurer has a “duty to settle a claim against its insured within policy limits whenever there is a substantial likelihood of a recovery in excess of those limits.” (Heredia v. Farmers Ins. Exch., (1991) 228 Cal.App.3d 1345, 1354.)

In Hamilton v. Maryland Casualty Co. (cited by both parties), the California Supreme Court concluded that even with a good faith settlement approval under CCP 877.6, an agreed judgment that the insured will never have to pay cannot determine the existence and extent of the insured’s liability. (Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718, 729.) A defending insurer cannot be bound by a settlement made without its participation and without any commitment on the insured’s part to pay the judgment. (Id. at 730.)

While similar facts are pleaded here, the Complaint is silent as to whether Liberty participated in the process and whether Guerry agreed to pay part of the judgment. As these facts are missing from the Complaint but not essential to the fourth cause of action, the Court overrules the demurrer.

Allegations Under the Side A Policy

“[A]n insurer [demurring] based on insurance policy language must establish conclusively that this language unambiguously negates beyond reasonable controversy the construction alleged in the body of the complaint. [Citation.] To meet this burden, an insurer is required to demonstrate that the policy language supporting its position is so clear that parol evidence would be inadmissible to refute it. [Citation.] Absent this showing, the court must overrule the demurrer and permit the parties to litigate the issue in a context that permits the development and presentation of a factual record, e.g., summary judgment or trial.” (Qualcomm, Inc. v. Certain Underwriters at Lloyd's, London (2008) 161 Cal.App.4th 184, 192 [citing Palacin v. Allstate Ins. Co. (2004) 119 Cal.App.4th 855, 862].)

Liberty’s arguments are based upon the language of the policy and who and/or what the policy insures. It was Liberty’s burden to demonstrate that the policy language is clear and Guerry is not insured under it. (Qualcomm, 161 Cal.app.4th at 192.) Liberty failed to do so. Therefore, the demurrer is overruled to the extent Plaintiffs make claims under the Side A Policy.