Judge: Michael P. Linfield, Case: 22STCV38715, Date: 2023-08-31 Tentative Ruling

Case Number: 22STCV38715    Hearing Date: August 31, 2023    Dept: 34

SUBJECT:        Demurrer to Complaint

Moving Party: Defendants Spinnaker Insurance Company and Hippo Analytics, Inc.

Resp. Party:    Plaintiffs Raymond Kelso and Adriana Rodriguez

The Demurrer is SUSTAINED in part. The Demurrer is SUSTAINED to the seventh cause of action for conversion and the ninth cause of action for declaratory relief, without leave to amend the Complaint. The Demurrer is OVERRULED to the first through sixth and eighth causes of action in the Complaint.

The Motion to Strike is DENIED.

BACKGROUND:

        On December 12, 2022, Plaintiffs Raymond Kelso and Adriana Rodriguez filed their Complaint against Defendants Hippo Analytics, Inc., Spinnaker Insurance Company, and Nicole Aurich on causes of action arising from an insurance contract.

        On July 21, 2023, Defendants Spinnaker Insurance Company and Hippo Analytics, Inc. (“Defendants”) filed: (1) Demurrer; and (2) Motion to Strike. In support of each filing, Defendants concurrently filed: (1) Declaration of Rebekah E. Yanni; and (2) Proposed Order. Defendant also filed a Request for Judicial Notice regarding the Demurrer.

        On August 18, 2023, Plaintiffs filed their Oppositions to the Demurrer and the Motion to Strike.

        On August 24, 2023, Defendants filed their Replies regarding the Demurrer and the Motion to Strike.

ANALYSIS:

I.          Demurrer

A.      Request for Judicial Notice

Defendants request that the Court take judicial notice of:

(1)       Homeowners Insurance Application dated June 1, 2021;

(2)       Homeowners’ Insurance Policy, policy number HCA-5754739-00, effective June 1, 2021 to June 1, 2022; and

(3)       California Department of Insurance’s website license search for Defendant Hippo Analytics, Inc.

The Court DENIES judicial notice to the first two items. These items are not judicially noticeable.

The Court GRANTS judicial notice to the third item.

B.      Legal Standard

A demurrer is a pleading used to test the legal sufficiency of other pleadings. It raises issues of law, not fact, regarding the form or content of the opposing party’s pleading. It is not the function of the demurrer to challenge the truthfulness of the complaint; and for purpose of the ruling on the demurrer, all facts pleaded in the complaint are assumed to be true, however improbable they may be. (Code Civ. Proc., §§ 422.10, 589.)¿

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A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311.) No other extrinsic evidence can be considered (i.e., no “speaking demurrers”). A demurrer is brought under Code of Civil Procedure section 430.10 (grounds), section 430.30 (as to any matter on its face or from which judicial notice may be taken), and section 430.50(a) (can be taken to the entire complaint or any cause of action within).¿¿

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A demurrer may be brought under Code of Civil Procedure section 430.10, subdivision (e) if insufficient facts are stated to support the cause of action asserted. A demurrer for uncertainty (Code of Civil Procedure section 430.10, subdivision (f)), is disfavored and will only be sustained where the pleading is so bad that defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her. (Khoury v. Maly's of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Id.)¿¿¿

C.      Discussion

Defendants demur as follows: (1) that the Complaint does not allege a breach of contract (implicating the first and second causes of action); (2) that the Complaint does not state any cause of action for bad faith (implicating the third, fourth, and eighth causes of action); (3) that the Complaint does not allege fraud (implicating the fifth and sixth causes of action); (4) that the Complaint does not state a cause of action for conversion (implicating the seventh cause of action); and (5) that the Complaint does not establish entitlement to declaratory relief (implicating the ninth cause of action).

1.      Breach of Contract

The causes of action involving breach of contract are: (1) the first cause of action for breach of contract; and (2) the second cause of action for breach of contractual duty to pay a covered claim.

a.       Legal Standard

To state a cause of action for breach of contract, a plaintiff must be able to establish “(1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Oasis W. Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.)

If a breach of contract claim “is based on alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.)

“In an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language.” (Constr. Protection Servs., Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198–99.)

b.       Discussion

Defendants argue: (1) that Defendant Hippo Analytics, Inc. did not and could not breach the insurance policy because Defendant Hippo Analytics, Inc. was not a contracting party to the insurance policy; (2) that Plaintiffs did not attach the insurance policy or set forth all of its relevant terms in the Complaint; and (3) that Plaintiffs allegations establish that they made material misrepresentations in their application for the insurance policy, warranting denial of their insurance claim. (Demurrer, p. 15:10–16.)

Plaintiffs disagree, arguing: (1) that Defendant Hippo Analytics, Inc. is effectively a party to the insurance policy because it is the agent of Defendant Spinnaker Insurance Company and the program administrator for the insurance policy; (2) that the Complaint sufficiently alleges the material terms of the subject insurance policy; and (3) that Defendants ignore the allegations that Plaintiffs did not make any misrepresentation in their insurance application. (Opposition to Demurrer, p. 7:1–2, 8:17–18, 9:15–16.)

Defendants reiterate their arguments in their Reply.

The Court agrees with Plaintiffs’ arguments.

Among other things, Plaintiffs allege: (1) that each Defendant was a principal, agent, master, employer, employee, partner, or joint venturer of every other Defendant, and every Defendant was acting within the scope of said agency authority, employment, partnership, or joint venture; (2) that the insurance policy is for a homeowners insurance policy regarding the real property at issue in this matter; and (3) that Plaintiffs’ made truthful assertions in the insurance application, and their responses in their insurance application were truthful based upon the circumstances at the time of the policy inception, Plaintiffs’ knowledge at that time, and Plaintiffs’ reasonable understanding of the questions posed to them in the insurance application. (Complaint, ¶¶ 23, 27, 34–36, 73.a., 74.a.)

For the purposes of a demurrer, the Court assumes that the truth of the allegations made in the pleading. These allegations are sufficient to withstand the arguments made against the causes of action involving breach of contract.

        The Court OVERRULES the Demurrer to the first, second, and fourth causes of action.

2.      “Bad Faith” Causes of Action

The causes of action involving bad faith are: (1) the third cause of action for breach of implied covenant of good faith and fair dealing; (2) the fourth cause of action for breach of implied obligation of good faith and fair dealing by failure of payment by insurance company; and (3) common law bad faith insurance practices.

a.       Legal Standard

i.            Breach of the Implied Covenant of Good Faith and Fair Dealing

“A breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself and it has been held that bad faith implies unfair dealing rather than mistaken judgment.” (Careau & Co. v. Sec. Pac. Bus. Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394.)

“If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated. . .  . [T]he only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.” (Id. at pp. 1394–95.)

To recover in tort for breach of the implied covenant, the defendant must “have acted unreasonably or without proper cause.” (Id. at p. 1395, citations and italics omitted.)

ii.          Common Law Bad Faith Insurance Practices

“Insurance is initially obtained for the protection of the insured, and the insurer's primary duty is to protect the interests of its own insured.” (Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 312.)

“The distinction between tort and contract is well grounded in common law, and divergent objectives underlie the remedies created in the two areas. . . . Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. . . . Because the covenant is a contract term, however, compensation for its breach has almost always been limited to contract rather than tort remedies. . . . An exception to this general rule has developed in the context of insurance contracts where, for a variety of policy reasons, courts have held that breach of the implied covenant will provide the basis for an action in tort. California has a well-developed judicial history addressing this exception. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.” (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683–84, citations and paragraph breaks omitted.)

“[B]ad faith insurance practices may qualify as any of the three statutory forms of unfair competition. They are unlawful; the insurer's obligation to act fairly and in good faith to meet its contractual responsibilities is imposed by the common law, as well as by statute. They are unfair to the insured; unfairness lies at the heart of a bad faith cause of action. They may also qualify as fraudulent business practices.” (Zhang v. Super. Ct. (2013) 57 Cal.4th 364, 380, citations omitted, emphases in original.)

“[T]here is no bar to common law fraud and bad faith actions.” (Zhang, supra, at p. 380, citation omitted.)

b.       Discussion

Defendants argue that the Complaint fails to state any cause of action for “bad faith” because the Complaint fails to state any cause of action for breach of contract. (Demurrer, p. 18:24–26.)

As the Court has overruled the Demurrer to the causes of action involving breach of contract, the Court also overrules the Demurrer to the bad faith causes of action.

The Court OVERRULES the Demurrer to the third, fourth, and eighth causes of action.

3.      Fraud

a.       Legal Standard

“The elements of fraud are (a) a misrepresentation (false representation, concealment, or nondisclosure); (b) scienter or knowledge of its falsity; (c) intent to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Hinesley v. Oakshade Town Ctr. (2005) 135 Cal.App.4th 289, 294.)

The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Lazar v. Super. Ct. (1996) 12 Cal.4th 631, 645.)

To properly allege fraud against a corporation, the plaintiff must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.)

b.       Discussion

Defendants argue: (1) that the Complaint does not allege fraud with the required specificity; (2) that the Complaint does not allege Defendants made a false statement of material fact but rather that Defendants did not abide by the promises made in the policy language; and (3) that the Complaint does not sufficiently allege reliance on Defendants’ representations. (Demurrer, pp. 20:3, 20:7–8, 21:13–14.)

        Plaintiffs disagree, pointing to multiple allegations in the Complaint.

        The Court agrees with Plaintiffs.

        Among other things, Plaintiffs allege: (1) that Defendants made false representations that they would provide payment to Plaintiffs for losses insured by the terms of the insurance policy the Parties entered into; (2) that Defendants knew these representations were false when they made them, or made the representations recklessly and without regard for their truth; and (3) that Plaintiffs reasonably relied on Defendants’ false representations. (Complaint, ¶¶ 114–119.)

        For the purposes of a demurrer, the Court assumes that the allegations made in the pleading are true. These allegations are sufficient to withstand the demur to the causes of action involving fraud.

        The Court OVERRULES the Demurrer to the fifth and sixth cause of action. 

4.      Conversion

a.       Legal Standard

“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1240.)

b.       Discussion

Defendants argue that the seventh cause of action for conversion fails because: (1) Plaintiffs cannot establish that they are entitled to be paid for the vandalism claim because they do not sufficiently allege a breach of contract; (2) Plaintiffs do not allege they were deprived of any tangible property outside of their breach of contract claim; and (3) Plaintiffs do not allege that Defendants misappropriated or otherwise took anything from Plaintiffs. (Demurrer, p. 22:3–10.)

Plaintiffs argue that they have the legal and contractual right to the wrongfully retained funds, which is conversion. (Opposition, p. 13:10–18.)

Although the Court overruled the Demurrer regarding the breach of contract causes of action, the Court agrees with Defendants’ other arguments.

“It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use. Money can be the subject of an action for conversion if a specific sum capable of identification is involved. Neither legal title nor absolute ownership of the property is necessary. A party need only allege it is entitled to immediate possession at the time of conversion. However, a mere contractual right of payment, without more, will not suffice.” (Farmers Ins. Exch. v. Zerin (1997) 53 Cal.App.4th 445, 451–52 [cleaned up].)

The allegations are not that Defendants converted Plaintiffs’ property but rather that Defendants have not paid out property to Plaintiffs pursuant to the contract. That is merely a contractual right of payment, and thus it is not a suitable object for a cause of action of conversion.

The Court SUSTAINS the Demurrer to the seventh cause of action for conversion, without leave to amend the Complaint.

5.      Declaratory Relief

a.       Legal Standard

“To qualify for declaratory relief, a party would have to demonstrate its action presented two essential elements: (1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the party’s rights or obligations.” (Jolley v. Chase Home Fin., LLC (2013) 213 Cal.App.4th 872, 909, quotation marks and brackets omitted.)

A cause of action for declaratory relief should not be used as a second cause of action for the determination of identical issues raised in another cause of action. (Gen. of Am. Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 470.) “The availability of another form of relief that is adequate will usually justify refusal to grant declaratory relief” (Cal. Ins. Guar. Ass’n v. Super. Ct. (1991) 231 Cal.App.3d 1617, 1624), and a duplicative cause of action is subject to demurrer (Palm Springs Villas II Homeowners Ass’n, Inc. v. Parth (2016) 248 Cal.App.4th 268, 290).

Further, “there is no basis for declaratory relief where only past wrongs are involved.” (Osseous Tech. of Am., Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 366, quotation marks omitted.)

b.       Discussion

Defendants argue that the Complaint does not sufficiently allege a cause of action for declaratory relief because Plaintiffs made material misrepresentations in their insurance application. (Demurrer, p. 22:24–27.)

        Plaintiffs do not make any arguments about declaratory relief in their Opposition.

        As previously stated above regarding the fraud causes of actions, the Court assumes the truth of the allegations, and Plaintiffs have alleged that they made truthful representations. This is not a sufficient ground for sustaining the demur to this cause of action.

        However, Plaintiffs appear to have abandoned this cause of action.

Further, the Court notes that the object for the declaratory relief is “a declaratory judgment determining that coverage is provided under the Policy for the Incident, and an order that such coverage is owed, which will prevent Plaintiffs from being wrongfully left without vital coverage required to ensure the protection of the Subject Property.” (Complaint, ¶ 159.) Yet there are no allegations that indicate there is anything but a past contract at issue. Indeed, Plaintiffs have only alleged that they entered into the contract on June 1, 2021 and that they renewed their contract on June 1, 2022. (Id. at ¶¶ 2, 63.) There are no allegations that they renewed their contract again on June 1, 2023 or that the initial renewal was for a period of more than one year.

        As Plaintiffs have abandoned this cause of action, and there is no basis for declaratory relief where only past wrongs are involved, the Court must sustain the Demurrer to this cause of action.

        The Court SUSTAINS the Demurrer to the ninth cause of action for declaratory relief, without leave to amend the Complaint.

D.      Conclusion

The Demurrer is SUSTAINED in part. The Demurrer is SUSTAINED without leave to amend as to the seventh cause of action for conversion and the ninth cause of action for declaratory relief. The Demurrer is OVERRULED to the first through sixth and eighth causes of action in the Complaint.

II.       Motion to Strike

A.      Legal Standard

Any party, within the time allowed to respond to a pleading, may serve and file a notice of motion to strike the whole or any part thereof. (Code Civ. Proc., § 435, subd. (b)(1)). The notice of motion to strike a portion of a pleading shall quote in full the portions sought to be stricken except where the motion is to strike an entire paragraph, cause of action, count or defense. (Cal. Rules of Court Rule 3.1322.)

The grounds for a motion to strike shall appear on the face of the challenged pleading or form any matter of which the court is required to take judicial notice. (Code Civ. Proc., § 437, subd. (a).) The court then may strike out any irrelevant, false, or improper matter inserted in any pleading and strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc., § 436.)

When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend. (Perlman v. Mun. Ct. (1979) 99 Cal.App.3d 568, 575.)

B.      Discussion

Defendants move the Court to strike various portions of the Complaint that involve punitive damages, arguing that they are improper. (Motion to Strike, pp. 9:15, 9:25, 11:16–17.)

The Court disagrees with Defendants’ argument.

It is not appropriate for the Court to strike these references to punitive damages. Plaintiffs are entitled to allege that Defendants acted with oppression, fraud, or malice. It will ultimately be Plaintiff’s burden to prove with admissible evidence that they are entitled to the relief they seek.

        The Court DENIES the Motion to Strike.

C.      Conclusion

The Motion to Strike is DENIED.