Judge: Maurice A. Leiter, Case: 21STCV22625, Date: 2023-02-03 Tentative Ruling

Case Number: 21STCV22625    Hearing Date: February 3, 2023    Dept: 54

Hearing Date: February 3, 2023

Department 54, Judge Maurice A. Leiter

Demurrer to Second Amended Complaint

Moving Party: Defendant Old Republic General Insurance Corporation

Responding Party: Plaintiff S.R. Bray LLC

T/R:     DEFENDANTS’ DEMURRER IS OVERRULED.

DEFENDANTS TO FILE AND SERVE AN ANSWER TO THE SECOND AMENDED COMPLAINT WITHIN 15 DAYS OF NOTICE OF RULING.

DEFENDANTS TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at¿SMCdept54@lacourt.org¿with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing. 

The Court considers the moving papers, opposition, and reply.

BACKGROUND

On December 16, 2022, Plaintiff S.R. Bray LLC filed the operative second amended complaint against Defendants Jessica R. Chow, Karlin Hiura & Lasota LLP, and Old Republic General Insurance Corporation, asserting causes of action for (1) breach of contract; (2) professional negligence; and (3) respondeat superior.

Defendant Old Republic is Plaintiff’s worker’s compensation insurer. In March 2018, Plaintiff tendered to Old Republic a worker’s compensation claim made by an employee, Edward Salgado. Old Republic contracted with Gallagher Bassett for claims adjustment services. Gallagher Bassett hired Karlin Hiura & Lasota LLP as defense counsel.

In May 2020, the parties settled the worker’s compensation claim and Salgado executed a Separation Agreement. Plaintiff alleges Defendants did not notify Plaintiff of the separation agreement until 21 days after it had been executed. Because Plaintiff was unaware of the agreement, Plaintiff did not pay Salgado’s remaining wages within the 72-hour timeframe prescribed in the Labor Code. Salgado subsequently filed a lawsuit alleging that Plaintiff had engaged in various Labor Code violations, including failure to timely pay wages. Plaintiff alleges here that Defendants’ failure to notify Plaintiff of Salgado’s separation agreement caused Salgado to file suit.

REQUEST FOR JUDICIAL NOTICE

            Defendants’ request for judicial notice is GRANTED.

ANALYSIS

A demurrer to a complaint may be taken to the whole complaint or to any of the causes of action in it.  (CCP § 430.50(a).)  A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff's ability to prove those allegations.  (Picton v. Anderson Union High Sch. Dist. (1996) 50 Cal. App. 4th 726, 732.)  The court must treat as true the complaint's material factual allegations, but not contentions, deductions or conclusions of fact or law.  (Id. at 732-33.)  The complaint is to be construed liberally to determine whether a cause of action has been stated.  (Id. at 733.)

A. First Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing

The Court of Appeal has discussed breach of the implied covenant of good faith and fair dealing as follows,

To establish bad faith, a policy holder must demonstrate misconduct by the insurer more egregious than an incorrect denial of policy benefits. “The law implies in every contract, including insurance policies, a covenant of good faith and fair dealing.” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720, 68 Cal.Rptr.3d 746, 171 P.3d 1082 (Wilson ).) The obligation imposed on the insurer under the covenant “ ‘is not the requirement mandated by the terms of the policy itself .... It is the obligation ... under which the insurer must act fairly and in good faith in discharging its contractual responsibilities.’ ” (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 54, 221 Cal.Rptr. 171], italics omitted, quoting Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573-574, 108 Cal.Rptr. 480, 510 P.2d 1032].) In the context of a bad faith claim, “an insurer's denial of or delay in paying benefits gives rise to tort

damages only if the insured shows the denial or delay was unreasonable.” (Wilson, supra, 42 Cal.4th at p. 723, 68 Cal.Rptr.3d 746, 171 P.3d 1082.)

(Case v. State Farm Mut. Auto. Ins. Co. (2018) 30 Cal. App. 5th 397, 402.)

Defendant Old Republic demurs to the first cause of action on the ground that Plaintiff has failed to allege a breach of the insurance policy. Defendants assert that Old Republic fulfilled its obligations under the policy by defending and paying out benefits in the Salgado matter. In opposition, Plaintiff argues that an insurer may be liable for torts despite fulfilling its obligations to defend and indemnify. Plaintiff asserts that Gallagher Basset and defense counsel, working as agents of Old Republic, harmed Plaintiff in the course of settling the Salgado matter.

Plaintiff has added allegations to the SAC stating Gallagher knew Salgado executed the Separation Agreement within “within a day or two of the May 7, 2020 date of Salgado's signature” and knew Chow executed the C&R Agreement “no later than the May 12, 2020 date of Chow’s signature.” (SAC ¶ 17.) Plaintiff asserts Gallagher’s knowledge is imputed Old Republic and Old Republic is liable for Gallagher’s acts as Old Republic’s agent.

Plaintiff argues Defendants’ failure to immediately notify Plaintiff of the execution of the settlement agreements was unreasonable, opening Plaintiff up to additional liability. This is sufficient to state a cause of action for breach of the implied covenant of good faith and liability. Gallagher, as claims adjuster, is Old Republic’s agent. A jury could find that Gallagher, acting on behalf of Old Republic, unreasonably delayed in notifying Plaintiff of the settlement execution.

The demurrer to the first cause of action is OVERRULED.

B. Third Cause of Action for Respondeat Superior

An employer is vicariously liable for an employee’s tort under the doctrine of respondeat superior if the tort was committed within the scope of the employment. (See Montague v. AMN Healthcare, Inc. (2014) 223 Cal.App.4th 1515, 1520; Lisa M. v. Henry Mayo Newhall Memorial Hospital (1995) 12 Cal.4th 291, 296.)

            Old Republic demurs to third cause of action on the grounds that it cannot be held liable for the acts of defense counsel under respondeat superior and any negligence claims against Gallagher are barred by res judicata.

Courts have held that the relationship between an insurer and outside counsel is not a standard employment relationship. Rather, outside counsel is an independent contractor. (See Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 881-2.) Generally, entities are not liable for the acts of independent contractors under respondeat superior.

Employers are, however, vicariously liable for the torts of employees and principals are liable for the torts of agents. Unlike the previous iterations of the complaint, Plaintiff now alleges Gallagher knew of the execution of the contracts “within a day or two” of their execution but failed to timely inform Plaintiff. This is sufficient to state a cause of action for negligence against Old Republic under a respondeat superior theory.

Old Republic asserts Plaintiff cannot allege Gallagher was negligent because the Court previously sustained Gallagher’s demurrer to the cause of action for negligence without leave to amend. The Court found that Gallagher itself cannot be directly liable for negligence against an insured. (See Sanchez v. Lindsey Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249, 253-7.) The Court did not find Gallagher was not negligent.

            The demurrer to the third cause of action is OVERRULED.