Judge: Michael Shultz, Case: 24STCV16732, Date: 2025-01-21 Tentative Ruling
Case Number: 24STCV16732 Hearing Date: January 21, 2025 Dept: 40
[TENTATIVE]
ORDER OVERRULING DEMURRER TO FIRST AMENDED COMPLAINT
[TENTATIVE]
ORDER DENYING MOTION TO STRIKE
I. BACKGROUND
The first amended complaint (“FAC”) alleges that Plaintiff is a
commercial developer, who engaged Defendants, insurance brokers, to procure an insurance
policy for Plaintiff’s construction project (“Project”). Defendants finalized an insurance policy (“Policy”)
from non-party, Ironshore Specialty Insurance Company (“Insurer”) and
subsequently obtained a risk binder (“Binder”) until the policy was issued. Defendants
represented that the Policy coverage matched the Binder coverage which was not
true.
Plaintiff subsequently tendered a claim to the Insurer after the
Project sustained damage as a result of rainstorms. Defendants discovered an
error in that the Binder coverage did not match the Policy coverage. Defendants
undertook to represent Plaintiff to resolve this error with the Insurer and
charged Plaintiff $351,205.11 for its services. Plaintiff alleges Defendants
breached their fiduciary duty by engaging in self-dealing and charging
excessive fees among other things. Plaintiff alleges claims for breach of
contract, negligence, negligent misrepresentation, breach of fiduciary duty and
for violation of Business & Professions Code § 17200.
II. ARGUMENTS
Defendants demur to the fourth cause of action for breach of
fiduciary duty on grounds that insurers brokers do not owe a fiduciary duty as
a matter of law. Defendants argue that Plaintiff lacks standing to assert its
breach of fiduciary duty claim because another entity, Hope on Hyde Park, LP,
engaged Defendants to handle the alleged claims resolution process. Defendants
separately move to strike portions of the FAC that assert facts in support of a
fiduciary relationship that does not exist.
Plaintiff objects to Defendants’ request for judicial notice of
the contract on which Defendants rely to support their argument because it is
outside the pleading. The FAC does not allege that Plaintiff contracted with
Defendants to represent Plaintiff in the claims resolution process. Plaintiff argues
that the claim for breach of fiduciary duty rests on Defendants’ interpretation
of the Policy that Defendants claimed matched the terms of the Binder, when the
Policy materially differed from the Binder. The fourth cause of action is also
based on Defendants’ self dealing and overcharging for its services.
In reply, Defendants argue that Plaintiff relies on dicta to
support its argument and rests on facts not alleged in the pleading. An
insurance agent owes a fiduciary duty only where it misappropriates an
insured’s premium payments. There is no authority that expands the duties of an
insurance broker in the way that Plaintiff contends.
III. LEGAL
STANDARDS
A demurrer tests the
sufficiency of a complaint as a matter of law and raises only questions of law.
(Schmidt
v. Foundation Health (1995) 35
Cal.App.4th 1702, 1706.) The court must assume the truth of (1) the properly
pleaded factual allegations; (2) facts that can be reasonably inferred from
those expressly pleaded; and (3) judicially noticed matters. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The court may not consider contentions,
deductions, or conclusions of fact or law. (Moore
v. Conliffe (1994) 7 Cal.4th
634, 638.)
Plaintiff must allege facts sufficient to
establish every element of each cause of action. (Rakestraw
v. California Physicians Service
(2000) 81 Cal.App.4th 39, 43.) Where the complaint fails to state facts
sufficient to constitute a cause of action, courts should sustain the demurrer.
(Code Civ. Proc., § 430.10(e); Zelig
v. County of Los Angeles
(2002) 27 Cal.4th 1112, 1126.) The Plaintiff is required to allege facts
"with reasonable precision and with particularity sufficiently specific to
acquaint the defendant with the nature, source, and extent of his cause of
action.” (Gressley
v. Williams (1961) 193
Cal.App.2d 636, 643-644.) Whether the Plaintiff will be able to prove the
pleaded facts is irrelevant. (Stevens
v. Superior Court (1986) 180
Cal.App.3d 605, 609–610.)
IV. DISCUSSION
A.
Defendants’ request for judicial notice is
DENIED.
Generally, the court can take judicial notice of “[f]acts and
propositions that are not reasonably subject to dispute and are capable of
immediate and accurate determination by resort to sources of reasonably
indisputable accuracy." (Evid.
Code, § 452.) While the court can take judicial notice
of the existence of a document, “the truth of statements contained in the
document and its proper interpretation are not subject to judicial notice if
those matters are reasonably disputable. (Fremont
Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97,
113.)
Defendants assert that the court can take judicial notice of
the Advisory Services Agreement (“ASA”) between other entities because the FAC
relies on the ASA, and it is incorporated in the pleading citing Total
Call Internat. Inc. v. Peerless Ins. Co. (2010) 181 Cal.App.4th 161,
166,
[“ … because the policy and the competitors' complaint constitute the ‘foundation’
of TCI's claims and are incorporated into TCI's complaint, we may properly rely
on these documents in assessing whether TCI's claims are legally tenable.”].)
The fourth cause of action does not reference the ASA, nor has
Plaintiff alleged it as a basis for any of Plaintiff’s claims. That is an
interpretation asserted by Defendants, which is not subject to judicial notice
as it is a fact that goes beyond the pleading. The FAC alleges the existence of
an oral contract between the parties. (FAC, ¶ 23.) Plaintiff alleges “Marsh
undertook to represent Plaintiff in the claims resolution process” but does not
allege that the undertaking was pursuant to the ASA. (FAC, ¶ 19.) Defendants
contend that Marsh invoiced Plaintiff for its services pursuant to that
contract. (Dem, 3:12-13.) This is a fact that falls outside of the pleading, as
there is no allegation that Plaintiff’s claims are based on the ASA.
B.
Demurrer to the claim for breach of fiduciary
duty is OVERRULED.
Whether a defendant owes a duty of care in a particular
situation is a question of law for the court. (Wilson
v. All Service Ins. Corp. (1979) 91 Cal.App.3d 793, 796.) Defendants
contend that the relationship between an insurance broker and client is not
fiduciary in nature. (Hydro-Mill
Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc.
(2004) 115 Cal.App.4th 1145, 1158 (“If an insurer is not a
fiduciary, then arguably, neither is a broker.") This, however, is not an
absolute rule. Hydro-Mill recognizes that a broker has a fiduciary duty
when it receives and holds premiums for the insured. Although Plaintiff has not alleged this type
of fiduciary duty, Plaintiff’s case authority supports the proposition that a
“special relationship” between a broker and client can give rise to a fiduciary
duty.
Plaintiff relies on Fitzpatrick
v. Hayes (1997) 57 Cal.App.4th 916
which cited Paper
Savers, Inc. v. Nacsa (1996) 51 Cal.App.4th 1090 for
the proposition that an insurance agent can assume a “special” or “greater” duty
(beyond the general duty of due care) toward his insured by misrepresenting the
policy terms. (Id. at 1096.) More
recently in Murray v. UPS Capital Insurance Agency, Inc. (2020) 54 Cal.App.5th 628
(which neither party cited), in a case of first impression and after adopting a
“totality of circumstances” approach, the court held “[i]n light of all the
above, we conclude evidence of specialization at a minimum creates a reasonable
inference the agent/broker anticipates their clients will rely on their
acknowledged expertise and supports courts imposing an extended duty." (Murray at 649.)
Murray described three circumstances in which a
special duty may arise: “‘(a) the agent misrepresents the nature, extent or
scope of the coverage being offered or provided ..., (b) there is a request or inquiry
by the insured for a particular type or extent of coverage ..., or (c) the
agent assumes an additional duty by either express agreement or by ‘holding
himself out’ as having expertise in a given field of insurance being sought by
the insured.” (Murray at 639.)
Paper Savers also cites Eddy
v. Sharp (1988) 199 Cal.App.3d 858 for
the proposition that "an insurance broker had a special duty toward the insureds
because he deliberately undertook responsibility for finding an insurance
policy to specifically suit the insured's needs." (Paper
Savers, at 1098.)
Eddy observed that “[in] this case it is an undisputed
fact that James Sharp is an independent insurance agent. He represents several
insurance companies including the Great American. If an insurance agent is the
agent for several companies and selects the company with which to place the
insurance or insures with one of them according to directions, the insurance
agent is the agent of the insured. (3 Couch on Insurance (2d ed. 1984) §
25:112, p. 477; Robinson v. Franwylie (1978) 145 Ga.App. 507, 512–513,
244 S.E.2d 73.) Where the agency relationship exists there is not only a
fiduciary duty but an obligation to use due care.” (Eddy at
865.)
The foregoing case authority supports Plaintiff’s proposition
that a fiduciary duty can arise between a broker and client, depending on the
circumstances. Here, Plaintiff alleges facts
that are analogous to the facts in Murray, Paper Savers, and Eddy.
The FAC alleges that Marsh holds itself out to have a particular expertise in
construction matters and “combine[s] deep construction industry expertise with industry-leading
analytics and predictive modeling engines” to help determine “how to
strategically embrace or allocate risk." (FAC, 2:6-8.)
Plaintiff alleges it first engaged Defendants as a broker to
procure insurance in 2015. (FAC, ¶ 12.) Defendants understood the nature of
Plaintiff’s business and “knew or should have known of the coverages necessary
for the risks of loss attendant to the projects being developed.” (FAC, ¶12.) The
parties’ “arrangement” was that Plaintiff would describe its particular
development project, and Defendants would negotiate with insurers to obtain a
policy to cover the risks of the project, among other things. (¶ 12.)
Plaintiff argues that Defendants assumed an additional duty. After
Plaintiff tendered a damage claim to the insurer, Defendants contacted
Plaintiff noting the error that the coverage under the Policy was different
from the Binder coverage. (FAC, ¶¶ 17.) Defendants “promised Plaintiff that
Marsh would rectify the Error with the Insurer so that Plaintiff would not be
prejudiced with respect to coverage of the Claim. Thereafter, for over a year
in response to inquiries by Plaintiff regarding the progress of Marsh’s efforts
to rectify the Error, Marsh representatives continued to assure Plaintiff that
Marsh would rectify the Error with Ironshore.” (FAC, ¶ 18.)
Plaintiff alleges that Defendants breached their fiduciary duty
by failing to advise Plaintiff of the significant coverage differences between
the Policy and Binder, assuring Plaintiff’s losses would be covered, and by
charging excessive fees to “rectify the Error by undertaking to represent Plaintiff
in negotiations with the Insurer.” (FAC, ¶ 44-45.)
Based on the alleged factual circumstances, the court cannot
conclude as a matter of law that Defendants do not owe a fiduciary duty to
Plaintiff.
Whether Plaintiff has standing to pursue the claims cannot be
determined at this stage because the court declines to take judicial notice of
the ASA, and Defendants’ conclusion that the agreement forms the basis of
Plaintiff’s claims. This contention is disputed by the allegations of the FAC
which the court must accept as true.
C.
The motion to strike is DENIED.
Defendants request an order striking various portions of the
pleading that purport to support the fiduciary duty claim, as the allegations
are false, irrelevant, and improper for the same reasons stated in the
demurrer. Defendants have not
persuasively established that Plaintiff is precluded from asserting a claim for
breach of fiduciary duty for the reasons previously set forth.
V. CONCLUSION
Accordingly, the demurrer to the fourth cause of action alleged
in the first amended complaint is OVERRULED. Defendant’s motion to strike is
DENIED. Defendants are ordered to file their answer within 30 days.