Judge Ralph C. Hofer, Case Number: 23GDCV02022, Date: 2024-04-12 Tentative Ruling

Plaintiff alleges that the adjacent property sits approximately twelve feet higher than plaintiff’s property, with its southeast yard sloping steeply toward plaintiff’s property, and that since defendants obtained the adjacent property in 2021, they have performed extensive yardwork, including tree removal, as a result of which plaintiff began to experience wet soil conditions and damage to her house and yard.

In May of 2023, plaintiff observed plumbers working on the adjoining property near plaintiff’s pool, and also observed uncapped pipes leaking liquid underground, and excessive water leakage coming from the adjoining property onto the street. The FAC alleges that defendants have been cited by the County for the water leak, and that plaintiff made efforts to resolve the problem with defendants, but they have failed and refused to hire a competent plumber to remediate the problem. Plaintiff has since noticed that after an extended spell of dry weather, in the mornings her patio and pool area adjacent to the sloping adjoining property would be wet. Plaintiff alleges that the wet conditions, which are pervasive underground, have caused extensive damage to plaintiff’s home and to her drought-resistant landscaping.

The FAC also alleges that in May of 2023 plaintiff filed a claim with her homeowner’s insurance company, defendant Hippo Analytics, Inc. (Hippo), which informed plaintiff it was closing her case at her request, forcing plaintiff to reopen the case. Plaintiff alleges that in June of 2023, Hippo denied plaintiff’s claim on the basis that the water damage was the result of ongoing seepage from an unknown source, quoting language from the insurance policy excluding such losses, when the language relied upon does not appear in the policy, which includes contrary language. Plaintiff alleges that Hippo ignored certain endorsements in the policy, closed plaintiff’s case to create a delay to qualify for an exclusion, failed and refused to conduct an adequate investigation of the claim, and based its denial of the claim on damage resulting from an unknown source. The FAC alleges that plaintiff’s homeowner’s insurance policy with defendant Hippo was underwritten by defendant Spinnaker Insurance Company (Spinnaker.) Both Hippo and Spinnaker are alleged to be subsidiaries of defendant Hippo Holdings, Inc. (HHI).

To plead a cause of action for breach of contract, plaintiff must plead the following elements: Contract formed, and terms alleged verbatim or according to legal effect; plaintiff’s performance or excuse for nonperformance; defendant’s breach; and damage to plaintiff. Walsh v. Standart (1917) 174 Cal. 807.

“Demurrer is SUSTAINED WITH LEAVE TO AMEND to the sixth cause of action for breach of contract and seventh cause of action for breach of the implied covenant of good faith and fair dealing on the ground the pleading fails to sufficiently allege that moving defendant is a party to the alleged contract, or is otherwise responsible for the alleged breaches of the subject contract.”

Specifically, with respect to this cause of action, defendant Hippo had previously argued by reference to the policy documents attached to the complaint that the insurance policy at issue was between plaintiff and Spinnaker Insurance Company, with Hippo designated as acting as the program administrator, not a party to the contract. Defendant argued that the contract here, the policy, is between the insured and insurer, plaintiff and Spinnaker, and that Hippo, as the program or claims administrator, cannot be liable for breach of a policy to which it is not a party. See Henry v. Associated Indemnity Corp. (1990) 217 Cal.App.3d 1405, 1416-1417.

Plaintiff in opposition to the previous demurrer pointed to mentions of Hippo in the policy provisions and argued that the policy documents include such seeming inconsistencies because Hippo and Spinnaker are one and the same company. Plaintiff went on to argue that there was a unity of interest and ownership between the two companies, and that Hippo is an undisclosed principal, in reliance on various documents such as Securities and Exchange Commission filings and other purported corporate documents.

In its previous minute order, the court found that such arguments went beyond what had been alleged in the complaint, which did not include alter ego allegations, or allegations concerning an undisclosed principal. The court also noted that arguments relied primarily on materials which could not be permissibly considered on demurrer, to which objections had been asserted and sustained.

“While this posture is a situation where the policy documents attached to the pleading itself could be construed to not strictly contradict the allegations of the complaint that Hippo is the insurer under the policy, the policy does affirmatively identify Hippo as the “Program Administrator,” and the policy is executed by representatives of “Spinnaker Insurance Company,” not by Hippo. [Ex. 1, pp. 003, 067].

Defendants argue that despite plaintiff being permitted leave to amend to allege facts supporting alter ego or undisclosed principal theories, the FAC continues to allege that Hippo entered into the policy with plaintiff and fails to allege facts supporting alter ego or undisclosed principal theories to overcome the court’s previous conclusion that the policy is a contract between plaintiff and Spinnaker.

Defendants argue that instead, the FAC adds Spinnaker and HHI as parties, and alleges that Hippo and Spinnaker are subsidiaries of the same parent company, HHI. [FAC, para. 5-6, 50]. Defendants argue that plaintiff has made a series of conclusory allegations that the parties were all acting as agents, employees and co-venturers acting within the scope of such agency or authority, but that this is insufficient to allege facts showing an undisclosed principal circumstance arose. Defendants also argue that although plaintiff has added a series of conclusory allegations that defendants generally are all the alter egos of each other, these allegations fail to allege sufficient facts to support alter ego liability on the part of Hippo or HII.

“Plaintiffs are informed, believe and thereupon allege that at all times herein relevant, each of the named defendants inclusive of Does 1 through 20 was an agent, servant, principal, employee, representative, co-venturer, joint-venturer, and/or other authorized entity with the power and authority of each of its/his/her co-defendants acting within the course and scope of his, her or its agency, employment, representation, hiring, retention, supervision and/or co-venture, and that all of their acts and omissions were carried out with the consent, knowledge, actual, ostensible or apparent authority, agency, ratification, adoption and/or approval of each of the other defendants herein. Plaintiffs are informed, believe and thereupon allege that the acts and omissions of each defendant herein were ratified and approved by each of the other defendants.”

Defendants argue with respect to these general agency allegations that the policy on its face is a contract between plaintiff and Spinnaker, and that under California law a non-party to a contract cannot be liable for breach of that contract, and specifically, an insurer’s third-party claims administrator, that is not a party to an insurance policy, is not liable to the insured for breach of the policy.

Under Civil Code section 2338, a “principal is responsible to third parties for the negligence of his agent in the transaction of the business of the agency, including wrongful acts committed by such agent in and as a part of the transaction of such business.”

Defendants rely on Henry v. Associated Indemnity Corp. (1990) 217 Cal.App.3d 1405, 1416-1417, cited previously by this court, in which the court of appeal affirmed a trial court order dismissing plaintiff’s causes of action for breach of fiduciary duty without leave to amend as against an insurance adjuster where “[t]here was no direct contractual relationship between [insured] and Underwriters from which either a breach of the covenant of good faith and fair dealing or a breach of contract action could properly spring.”

“Obviously, the non-insurer defendants were not parties to the agreements for insurance; therefore, they are not, as such, subject to an implied duty of good faith and fair dealing. Moreover, as agents and employees of the defendant insurers, they cannot be held accountable on a theory of conspiracy…. It is clear, therefore, that an agent cannot be held liable for breach of a duty which flows from a contract to which he is not party.

The causes of action in the instant case are for breach of contract and bad faith. The bad faith claim necessarily rests upon a contract. The only contract in the lawsuit is the insurance policy. Sun was a disclosed principal and subject to liability for its agent's actions and it is not disputed that McGee was the agent for Sun. Thus McGee cannot be held liable for Sun's breach of the contract and concomitant duty of good faith.”

Here, the court has already concluded that it appears from the policy documents attached to the FAC that the insurance policy was between plaintiff and Spinnaker. Spinnaker was a disclosed principal and subject to liability for its agent’s actions so that Spinnaker under these agency allegations would be subject to liability for its agent claim administrator’s actions. The FAC now names Spinnaker as a party defendant. Plaintiff has made no attempt to allege facts supporting an undisclosed principal theory pursuant to which moving defendants Hippo or HHI would be subject to contractual liability for any alleged breach of the contract between plaintiff and Spinnaker, or for conduct engaged in while acting as Spinnaker’s agent. It appears that plaintiff has abandoned this undisclosed principal theory of liability.

Plaintiff in opposition argues that it is well settled that an insurer, as a principal, may be vicariously liable for the torts of its agents if the insurer directed or authorized the agent to perform tortious acts, or if it ratifies acts it did not originally authorize, and that in this case it is not even necessary to make a grand leap from insurer to third party agent because defendants Hippo, HHI and Spinnaker are all one company. Even applying the standard urged by plaintiff, the FAC fails to allege facts which would show how this agency operated as to the subject defendants, such as under an undisclosed principal theory.

“10. At all times relevant herein, Defendants and each of them have been the primary obligor(s) on the above referenced performance or have been the alter ego of each primary obligor on such applicable duty to perform. A unity of interest and ownership has existed, at all times relevant herein, between the Defendants, and each of them, individually and collectively, as each such natural person has acted on behalf of themselves, as individuals, as well as within their respective capacities as authorized agents, trustees, partners, managing members, members, owners, founders, officers, and or directors of each such other natural person and or legal entity.

11. Such unity of interest and ownership exists between the Defendants, and each of them, that any individuality and separateness between the Defendants have ceased and such legal entities are each the alter ego of each individually named defendant herein.

12. Adherence to the fiction of the separate existence of each named Defendant as an entity distinct from each other named Defendant would permit an abuse of corporate and/or agency privilege and would sanction corruption and promote injustice in that these Defendants, and each of them, whose principles used both their individual capacities as well as their status as business entities to perpetrate an ongoing fraud on Plaintiff.”

It appears that the only specific facts alleged in the FAC which would be relevant to the analysis are allegations that Hippo is “a subsidiary of” HHI (FAC, para. 4), and that, “Both HIPPO and SPINNAKER are subsidiaries of HIPPO HOLDINGS, INC. (“HHI”).” [FAC, para. 50].

Defendants argue that these alter ego allegations are insufficient to overcome the presumption that corporate entities are recognized as separate entities in the absence of a showing that it would be appropriate to pierce the corporate veil and subject an entity to liability for the conduct of another it has treated as its alter ego.

Disregarding a corporate entity has two requirements: 1) There must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist; and 2) it must be demonstrated that “the facts are such that an adherence to the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice.” Minifie v. Rowley (1921) 187 Cal. 481, 487.

"The figurative terminology "alter ego" and "disregard of the corporate entity" is generally used to refer to the various situations that are an abuse of the corporate privilege. The equitable owners of a corporation, for example, are personally liable when they treat the assets of the corporation as their own and add or withdraw capital from the corporation at will (see Riddle v. Leuschner, 51 Cal.2d 574, 577-581 [335 P.2d 107]; Thomson v. L. C. Roney & Co., 112 Cal.App.2d 420, 429 [246 P.2d 1017]); when they hold themselves out as being personally liable for the debts of the corporation (Stark v. Coker, 20 Cal.2d 839, 847 [129 P.2d 390]); or when they provide inadequate capitalization and actively participate in the conduct of corporate affairs.

In Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, the court of appeal set out several factors to be considered in making an alter ego determination concerning a unity of interest and ownership, including, among many, the commingling of funds and assets, treating the corporate assets as the assets of the individual, the holding out by an individual that he is personally responsible for the corporate debts, the failure to maintain minutes or adequate corporate records, the disregard of legal formalities, and the failure to adequately capitalize a corporation. Associated Vendors, at 838-840. The court of appeal noted that in the cases in which alter ego liability has been found, “in all instances several of the factors mentioned were present.” Associated Vendors, at 840.

None of these factors or any other recognized factors have been alleged in these general allegations. With respect to the specific allegations that Spinnaker and Hippo are subsidiaries of HHI, it has long been recognized that a mere parent-subsidiary relationship is not sufficient to impose liability on the parent for the conduct of the subsidiary. See Walker v. Signal Companies, Inc. (1978) 84 Cal.App.3d 982, 1001 (“We conclude that more is required than solely a parent-subsidiary corporate relationship to create liability of a parent for the actions of its subsidiary.”).

“A complaint must set forth the facts with sufficient precision to put the defendant on notice about what the plaintiff is complaining and what remedies are being sought. To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.

Plaintiff in opposition argues that it is well settled that a parent corporation can be liable for the acts of its subsidiary under the alter ego doctrine. This conclusion is not disputed. Plaintiff argues that the demurrers here seek to have plaintiff establish in the pleading the applicability of the alter ego doctrine, when all that is required is that the FAC allege such application. This court does not expect that the alter ego liability be proved at the pleading stage, but that sufficient facts be alleged to support the application of such a theory in this matter, as required in connection with pleading an alter ego theory.

Defendants cite to Sonora Diamond Co. v. Superior Court (2000) 83 Cal.App.4th 523, 539, in which the court of appeal emphasized that even the fact that a creditor will be unsatisfied is not alone sufficient to establish injustice flowing from the recognition of a separate corporate identity:

“The alter ego doctrine does not guard every unsatisfied creditor of a corporation but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form. Difficulty in enforcing a judgment or collecting a debt does not satisfy this standard. (Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at p. 842; Alberto v. Diversified Group, Inc., supra, 55 F.3d at p. 207; Lowell Staats Min. Co. v. Pioneer Uravan, Inc. (10th Cir. 1989) 878 F.2d 1259.)”

Here, not even this allegation is made to establish an inequity or bad faith. The FAC continues to fail to sufficiently allege facts to support imposing liability on the non-parties to the insurance policy, and the demurrers are sustained to this cause of action for breach of contract.

The court will hear argument with respect to whether the demurrers to this cause of action will now be sustained without leave to amend, as a demurrer on this ground has been previously sustained, and plaintiff has failed to sufficiently amend the complaint despite being permitted leave to do so with the guidance of the court. It is not clear why plaintiff has failed to allege specific facts supporting its liability theories against the moving defendants. Plaintiff in opposition to these demurrers continues to argue that there is no practical mechanism aside from their titles that separates these three entities but has offered no more facts to support such claims. The court is concerned that the factual allegations are not asserted because plaintiff cannot in good faith make such allegations at this stage of the litigation. The court will discuss at the hearing whether the demurrer will be sustained without leave to amend, but expressly without prejudice to plaintiff seeking leave to file an amended pleading should facts supporting plaintiff’s theories be uncovered in discovery. The court’s inclination is to sustain the demurrer without leave to amend.

To plead a cause of action for breach of the implied convent of good faith and fair dealing, plaintiff must plead the existence of a contractual relationship, breach of an implied duty, and resulting damages. See, e.g. Smith v. City and County of San Francisco (1990) 225 Cal.App.3d 38, 49; CACI 325.

It is held that an essential element of a cause of action for a breach of the implied covenant of good faith and fair dealing is that a contract exists. Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 682. “Where there is no underlying contract there can be no duty of good faith arising from the implied covenant.” Horn v. Cushman & Wakefield Western, Inc. (1999) 72 Cal.App.4th 798, 819, citing Foley, at 684).

“Demurrer is SUSTAINED WITH LEAVE TO AMEND to the sixth cause of action for breach of contract and seventh cause of action for breach of the implied covenant of good faith and fair dealing on the ground the pleading fails to sufficiently allege that moving defendant is a party to the alleged contract or is otherwise responsible for the alleged breaches of the subject contract.”

As discussed above in connection with the sixth cause of action, plaintiff has again in the FAC failed to sufficiently allege that either moving party is a party to the contract, or subject to liability on some alternate theory. Therefore, the demurrer to this cause of action also again is sustained on this ground.

The court previously also addressed an argument by plaintiff in the prior opposition that this is a case where plaintiff has alleged that Hippos engaged in independent torts in the course of handling plaintiff’s insurance claims. Plaintiff had relied on Kelso v. Hippo Analytics (2023 USDC Central Dist. Cal) 2023 U.S. Dist. LEXIS 90272, in which the federal district court, in determining whether diversity of citizenship supported federal jurisdiction, addressed the question of whether plaintiffs in that case could “possibly state a claim” against parties who were not the insurers, but adjusters, noting:

"The insurer's agents and employees may have committed some independent tort in the course of handling the third party claims; e.g., misrepresentation or deceit, invasion of privacy, intentional infliction of emotional distress, etc. In such event, they can be held personally liable, even though not parties to the insurance contract."”

“The cause of action here does not clearly allege independent duties which were breached, such as the misrepresentation claim contemplated in Kelso, or such as those duties plaintiff alleges in this action in her eighth cause of action against Hippo. In any case, if the first cause of action is appropriately amended, defendant’s argument on this point will become moot.”

The court reasonably expected that if plaintiff intended to pursue this theory further, the cause of action would be amended to allege the requisite independent duties. A comparison of the FAC with the original complaint shows that the allegations have not been meaningfully changed other than to add reference to Spinnaker and HHI. [Compare Complaint, paras. 55-66 to FAC, paras. 55-66]. The demurrer again is sustained.

Defendant Hippo did not previously demur to this cause of action, and does not demur to its sufficiency in the FAC. Defendant HHI, which was first added to the action by the FAC, now demurs to the eighth cause of action for Violation of the Fair Housing Act.

Plaintiff alleges that Hippo, HHI and Spinnaker violated section 3605 of the Fair Housing Act, 42 U.S.C. section 3605 (b). [FAC, paras.68-71]. As pointed out in HHI’s moving papers, it appears that the section which applies to a homeowner’s insurer is actually Section 3604.

“It shall be unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.

(a) To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.

(b) To discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin.”

In any case, defendant HHI argues that plaintiff alleges that HHI violated the FHA because the claims processing method with respect to Plaintiff was discriminatory. [FAC ¶ 71]. HHI argues that it is also alleged that the claim was handled by Hippo, Spinnaker’s claims administrator, not HHI. [FAC ¶¶ 24-30, 71].

Defendant HHI argues that plaintiff alleges that it was Hippo, not HHI, that engaged in the conduct that Plaintiff alleges was discriminatory, that plaintiff again seeks to hold HHI liable for Hippo’s conduct on the basis of agency or alter ego liability, but because the FAC fails to sufficiently allege a basis for vicarious or alter ego liability, the FAC fails to state a cause of action for a violation of the FHA against HHI.

The cause of action alleges that defendants’ claims processing method was discriminatory, that Hippo engaged in discriminatory conduct, including changing the claims date, rewording the insurance policy with fictitious provisions, and failed to perform a proper investigation, at the direction of or ratification of Spinnaker and HHI. [FAC, para. 71].

As discussed above, the FAC fails to sufficiently allege alter ego allegations or a basis for subjecting HHI to liability on other grounds for the conduct of Hippo. The demurrer to this cause of action accordingly is sustained. Since this is the first demurrer to be filed by defendant HHI to plaintiff’s pleadings, the demurrer is sustained with one opportunity to amend.

Demurrer is SUSTAINED WITHOUT LEAVE TO AMEND to the sixth cause of action for breach of contract and seventh cause of action for breach of the implied covenant of good faith and fair dealing on the ground the FAC fails to sufficiently allege that moving defendant is a party to the alleged contract or is otherwise responsible for the alleged breaches of the subject contract. As a previous demurrer by the moving defendant was sustained to the original complain on the same grounds, and plaintiff has failed to correct the deficiencies despite being permitted leave to amend with the detailed input of the Court, the Court will hear argument concerning whether the demurrer will be sustained with further leave to amend or will be now be sustained without leave to amend. The Court will also hear argument with respect to whether if the demurrer is sustained without further leave to amend, the Court should issue an express order that the demurrer is sustained without prejudice to plaintiff bringing a motion for leave to file an amended pleading if during the course of the litigation plaintiff discovers facts supporting the subject causes of action against the moving defendant.

Demurrer is sustained WITHOUT LEAVE TO AMEND, but WITHOUT PREJUDICE to plaintiff bringing a motion for leave to file an amended pleading if during the course of the litigation plaintiff discovers facts supporting the subject causes of action against the moving defendant by way of agency, alter ego, aiding and abetting, or conspiracy.

Demurrer to the eighth cause of action for violation of the Fair Housing Act is SUSTAINED WITH LEAVE TO AMEND on the ground it is not sufficiently alleged how the moving defendant is subject to liability for the conduct of defendant Hippo.

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