Judge: Mark H. Epstein, Case: 23SMCV04489, Date: 2024-01-30 Tentative Ruling

Case Number: 23SMCV04489    Hearing Date: January 30, 2024    Dept: I

The demurrers are SUSTAINED IN PART AND OVERRULED IN PART.  Plaintiffs filed this breach of insurance contract case against their carrier.  Plaintiffs allege that they had a policy that covered the period from February 13, 2023 to February 14, 2024.  And, sure enough, plaintiffs had an incident during that period (September 9, 2023) that was allegedly covered by the policy.  Of course, there’s a complication.  Plaintiffs had enrolled in an automatic renewal program the carrier had offered.  Under that program, plaintiffs had pre-authorized premium payments to be made so as to renew the policy without the need for plaintiffs to take any affirmative action.  Allegedly unbeknownst to plaintiffs, however, the carrier discontinued the program.  As a result, the carrier did not collect the premium and the policy lapsed.  Plaintiffs allege that they never received any notices warning them that the program had been discontinued, that the renewal premium had not been paid, or that the policy was about to lapse.  However, the carrier nonetheless denied coverage on the basis that the policy had lapsed.  Plaintiffs sue.  The carrier demurs to the third, fourth, and fifth causes of action.  The demurrers are SUSTAINED.

The third and fourth causes of action are for fraud and negligent misrepresentation, respectively.  The alleged fraud seems to be that defendants had no intention of honoring the automatic renewal program and intended to discontinue the program so that they could reject claims when made.  The court simply cannot accept that chain of reasoning, at least as to intentional fraud.  While it is true that the specificity standards are somewhat lax for purposes of alleging scienter than for alleging the details of the mis-statement, there still have to be facts alleged that, if true, would lead to a reasonable inference that the statement was knowingly false when made.  Otherwise, while the statement might turn out to be false, it is not fraud.  Here, under plaintiff’s logic, the carrier’s intent was to create a program whereby premiums would be automatically collected, but all along planned to discontinue the policy and not collect premiums so that they could reject any claims that might be made.  That just makes no sense.  Insurance companies are in the business of collecting premiums.  That is how they make money.  It simply beggars reason to believe that a carrier would lie about collecting money because it secretly had no intention of collecting premiums.  That might make sense if there were an allegation that plaintiffs posed some kind of unusual risk but that there was some reason that the carrier was legally obligated to renew the policy without a premium increase.  But there are no such facts alleged and the court is aware of no law that would required the carrier to renew a policy with no increase based upon an unusual risk.  The court would feel differently if the carrier had allegedly collected the premium and then attempted to disclaim the policy after the claim was made, but that, too, is not alleged.  The bottom line is that plaintiffs’ inference is counter-logical.  Another problem is that plaintiffs do not allege when the promise was made.  If the promise was made on day one and on day two the program was terminated, the court might be able to at least draw some inference of some kind (although even that would be somewhat problematic).  However, it could well be that the automatic renewal policy was in effect for years before it was terminated, which would lead almost inexorably to the conclusion that there was no fraud.

Because plaintiffs have not alleged facts that, if true, would give rise to a reasonable inference of scienter, the demurrer to the third cause of action is SUSTAINED.  The question is harder as to the fourth cause of action, as intent is not required.  However, without knowing when the promise was made regarding the automatic renewal, it is impossible to say whether even a reasonable inference of negligence is proper.  As stated above, if the program was terminated a very short time after the promise was made, it could well be that even making the promise was negligent—at least an inference could be drawn.  But if the program had been in effect for years after the promise was made, then even a reasonable inference of negligence would not lie.  Because negligent misrepresentation requires specific pleading, the demurrer as to this cause of action is also SUSTAINED.  In both cases the court will give plaintiff leave to amend, but as to the third cause of action the court really cannot see how the fault can be cured.

The fifth cause of action is for declaratory relief.  Plaintiffs contend that there is an actual controversy over whether the policy is (or was) in force.  Frankly, the court has its doubts as to this cause of action given that the question will almost certainly be decided in deciding the first two causes of action—neither of which is challenged in the demurrer.  (Actually, the demurrer says it attacks the second cause of action, but in reading the memorandum, it is plain that this is a clerical error.)  While the court is of the view that this cause of action will become moot, it does no harm at this time and the court will therefore OVERRULE the demurrer.  In the event it is really superfluous, then no one need worry about it.  If for some reason it is not, then it is a good thing it is still in the case.

Plaintiffs have 30 days’ leave to amend.