5110 Washington, LLC, et al. v. Scottsdale Insurance Company, et al.

(1) DEMURRER TO COMPLAINT

(2) MOTION TO STRIKE 

 

MOVING PARTY: Defendant Scottsdale Insurance Company

RESPONDING PARTY(S): Plaintiffs 5110 Washington, LLC and Harma Hartouni

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff 5110 Washington, LLC, owned and operated an apartment building at 5110-5120 W. Washington Blvd, Los Angeles, CA. Plaintiff Harma Hartouni is the sole member of Plaintiff 5110. Plaintiffs allege they obtained an insurance policy on the property through Defendant Scottsdale Insurance Company. Defendant B&B Premier Insurance Solutions, Inc., and its manager, Defendant David Kern, obtained the policy for Plaintiffs. Plaintiffs allege they informed Defendants that 5110 needed insurance including liability from claims and risks inherent in owning an apartment business renting to tenants. 

In January 2021, a tenant sued 5110 for bodily injury and property damage, among other things. Despite timely tendering a defense and indemnity under the policy, Defendant Scottsdale denied coverage. Plaintiffs allege they were therefore forced to settle the action. Plaintiffs now bring this action asserting causes of action for (1) breach of liability insurance contract, (2) breach of covenant of good faith and fair dealing, (3) insurance malpractice, (4) breach of fiduciary duty, and (5) negligence.

Defendant Scottsdale Insurance Company now demurrers to the Complaint and moves to strike portions therein.  Plaintiffs opposed.

TENTATIVE RULING:

Defendant’s Demurrer to the First and Second Causes of Action is SUSTAINED WITH LEAVE TO AMEND.

Defendant’s Demurrer to the Fifth Cause of Action is SUSTAINED WITHOUT LEAVE TO AMEND.

Defendant’s Motion to Strike is MOOT.

Moving party is ordered to give notice.

DISCUSSION:

Demurrer

I. Judicial Notice

Pursuant to Defendant’s Request, the court takes judicial notice of Exhibit 1, the complaint filed in LASC Case No. 21STCV01066, Katheryne Alvarez Munoz et al. v. 5110 Washington LLC et al. (“Munoz Complaint”).

II. Objections to Evidence

In Reply, Defendant submits objections to the Declaration of Jeffrey A. Hacker. This Court is unaware of any legal authority which requires a court to rule on evidentiary objections on a motion, except as to a motion for summary motion/adjudication (CCP § 437c (q)] or a special motion to strike (CCP § 425.16 (b)(2)); see also, Sweetwater Union High School Dist. v. Gilbane Building Co. (2019) 6 Cal.5th 931, 947-949.)

As such, this court respectfully declines to rule on these objections.  This court is well aware of the rules of evidence, and to how much weight, if any, should be given to any of the proposed evidence.

III. Meet and Confer

IV. Legal Standard

A demurrer for sufficiency tests whether the complaint states a cause of action.  (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.)  When considering demurrers, courts read the allegations liberally and in context.  (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal. App. 4th 1216, 1228.)  In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice.  (CCP § 430.30(a).)  A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.  (SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.)  Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.  (Id.)  The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.  (Hahn, 147 Cal.App.4th at 747.)

V. Analysis

Defendant Scottsdale Insurance Company demurrers to Plaintiffs’ First Cause of Action for breach of contract, Second Cause of Action for breach of the covenant of good faith and fair dealing, and Fifth Cause of Action for negligence. Each is addressed in turn.

A. First Cause of Action for Breach of Contract; Second Cause of Action for Breach of the Covenant of Good Faith

Plaintiffs own or manage an apartment complex. (Compl. ¶ 2.) Plaintiffs, as insureds, allege they were “covered under a Comprehensive Commercial General Liability Insurance policy No. CPS3036104 – Effective 02/27/18 to 02/27/19 and its renewal, No. CPS2977558 – Effective 02/27/19 to 02/27/20,” issued by Defendant Scottsdale Insurance Company. (Id. ¶ 12.) 

In January 2021, Katherine Alvarez Munos and other tenants of the property brought an action against 5110 and its manager for habitability defects occurring at the property. (Id. ¶ 14.) In response to the lawsuit, Plaintiffs-insureds tendered their defense and indemnity to the insurer Scottsdale. (Id. ¶ 15.) Plaintiffs allege Scottsdale denied coverage on the grounds that “there was no habitability coverage because all claims were excluded by a Habitability Exclusion” in the Policies. (Id.) This action for failure to defend followed. 

In support of its demurrer to the Complaint, Defendant Scottsdale argues the First Cause of Action for failure to defend fails because Defendant properly denied coverage under the terms of the Policies.

“[W]hile insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. [Citation.] The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.) If possible, that intent is inferred “solely from the written provisions of the contract. [Citation.] The ‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ [citation], controls judicial interpretation. [Citation.] Thus, if the meaning a layperson would ascribe to contract language is not ambiguous, we apply that meaning.” ” (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821–822.) “An insurer ordinarily is free to limit the risks it assumes, and we do not rewrite any provision of any contract, including an insurance contract, for any purpose, including perceived public policy benefits. [Citations.] However, any ambiguity is generally resolved in favor of coverage.” (24th & Hoffman Invs., LLC v. Northfield Ins. Co. (2022) 82 Cal. App. 5th 825, 833.)

“The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy.” (24th & Hoffman Invs. LLC v. Northfield Ins. Co. (2022) 82 Cal. App. 5th 825, 834.)

The Court therefore begins with the terms of the Policies. Under the “Commercial General Liability Coverage From,” in the event of an “occurrence,” Scottsdale agreed to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” (Bernard Decl., Exh. 1, “Commercial General Liability Coverage Form, p. 1, ¶ 1(a).) Scottsdale had “the right and duty to defend the insured against any ‘suit’ seeking those damages.” (Id.)

As relevant here, the Policies also included a “Habitability Exclusion.” (Bernard Decl., Exh. 1, Form GLS-287s (6-16).) The Habitability Exclusion appears on a standalone page, headed with bold lettering stating: “THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.” (Bernard Decl., Exh. 1, Form GLS-287s (6-16).) 

The Habitability Exclusion provides:

This insurance does not apply to claims or allegations for "bodily injury," "property damage," or "personal and advertising injury" arising out of or in any way related to "habitability" of any premises, site or location. Such claims or allegations include, but are not limited to any alleged or actual violation(s) as they pertain to "habitability" including amendments thereto: [¶] (a) Civil Codes; [¶] (b) Health and Safety Codes; [¶] (c) Any Housing and Urban Development laws, ordinances or statutes…

…

We shall not have any duty to defend or indemnify for any claim, proceeding or "suit" in any way based on, attributed to, arising out of, resulting from or any manner related to that which is described above, including, but not limited to, the diminished value of property or mental, physical or emotional injuries alleged. This coverage limitation applies regardless of whether the "habitability" allegation or claim is the proximate cause of damage or injury.

For purposes of the exclusion, “habitability” is defined as “a living environment that is maintained in a sanitary, healthy, habitable, tenantable, livable or usable condition and is safe and/ or fit for occupancy by human beings.” (Id.) 

Turning to the underlying Munoz action, there, the plaintiffs alleged they resided at the property owned or managed by 5110 Washington and Hartouni. (See Defendant’s RJN, Exh. 1, ¶ 42.) They alleged “substantial habitability issues at the Premises, and in each respective Rental Unit, impacting each plaintiff’s health, safety, and well-being.” (Id. ¶ 60.) The substandard conditions allegedly included constantly clogged plumbing, lack of hot water, and pest infestations, among other things. (Id. ¶ 61.) As a result of the habitability violations, the Munoz Plaintiffs alleged they “sustained injuries and health problems caused by or exacerbated by the conditions and property damage.” (Id. ¶ 64.) The plaintiffs asserted claims for (1) Violation of Los Angeles Municipal Code, (2) Violation of Cal. Civ. Code 1942.4, (3) Tortious Breach of the Warranty of Habitability, (4) Private Nuisance, (5) Negligence, and (6) Violation of Cal. Bus. & Prof. Code 17200 et seq. (Id.)

Here, when “comparing the allegations of the complaint with the terms of the policy,” Defendant has met its burden to demonstrate that the underlying Munoz action fell within the Policies’ Habitability Exclusion. (See 24th & Hoffman Invs., supra, 82 Cal. App. 5th at 834.)

The gravamen of the Munoz Plaintiffs’ action was the breach of habitability, as all claims arise from 5110 Washington’s alleged failure to maintain the Property in a habitable condition. An action of this type falls within the Policies’ Habitability Exclusion, as it was certainly one “based on, attributed to, [or] arising out of” the habitability of the premises. (Bernard Decl., Exh. 1, Form GLS-287s (6-16).) 

Plaintiffs’ attempts to construe the underlying action as a “mixed” claim mandating coverage is unavailing. It also makes no difference that Plaintiffs may have alleged mental or physical injuries from the defects, because the Exclusion specifically excludes claims based on habitability as well as any “mental, physical or emotional injuries” resulting from same. (Id.) There is no interpretation that can construe the Munoz action as something other than what it was: a breach of habitability case. 

Therefore, the plain language of the exclusion, coupled with the fact that it occurred on a standalone document with the “all caps” indicator — makes the exclusion “conspicuous, plain and clear.” (24th & Hoffman Invs., LLC, supra, 82 Cal. App. 5th at 834.) Therefore, this court concludes that Defendant properly denied coverage based on the existence of the Habitability Exclusion, as it was plainly applicable to the Munoz action. Therefore, because Plaintiffs cannot establish a breach of the insurance contracts, the First Cause of Action must fail.

This also means Plaintiffs Second Cause of Action for breach of the implied covenant must fail. “It is clear that if there is no potential for coverage and, hence, no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer.” (Waller v. Truck Ins. Exch., Inc. (1995) 11 Cal. 4th 1, 36.) 

Accordingly, Defendant’s Demurrer to the First and Second Causes of Action is SUSTAINED. Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment.  (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) As currently pled, there are no allegations to support coverage. However, in some cases, “extrinsic facts known to the insurer may either give rise to a duty to defend or show conclusively there is no possibility a claim is covered by the policy…There may also be a duty to defend if ‘under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.’” (24th & Hoffman Invs., LLC, supra, 82 Cal. App. 5th at 834.) Plaintiffs are therefore granted leave to amend to allege facts supporting the possibility of coverage.

B. Fifth Cause of Action for Negligence

Defendant also demurrers to the Fifth Cause of Action for Negligence. Plaintiffs allege that Defendant Scottsdale, as principals, are vicariously liable for to Plaintiffs for damages caused by the co-Defendants Kern, B&B, and Brown. (Compl. ¶ 51.)

First, Defendant contends it cannot be held vicariously liable as an agent of co-Defendants Kern and B&B. Plaintiffs do not dispute this. “Put quite simply, insurance brokers [such as Defendants Kern and B&B], with no binding authority, are not agents of insurance companies, but are rather independent contractors....” (Rios v. Scottsdale Ins. Co. (2004)119 Cal. App. 4th 1020, 1026.)

Second, as to Defendant Brown—who is alleged to be a “a duly appointed general agent of” Scottsdale (Compl. 3)—there are no allegations that Brown was the “exclusive agent” for Scottsdale. (See Eddy v. Sharp (1988) 199 Cal. App. 3d 858, 865 [“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.”].) Plaintiffs do not dispute, much less address, these arguments or points of law in their Opposition. (See Trinity Risk Management, LLC v. Simplified Labor Staffing Solutions, Inc. (2021) 59 Cal.App.5th 995, 1009 [“failure to offer reasoned analysis of [an] issue constitutes a waiver”].)

Accordingly, Defendant’s Demurrer to the Fifth Cause of Action is SUSTAINED, without leave to amend.

Motion to Strike

I. Legal Standard

A motion to strike lies either (1) to strike any irrelevant, false or improper matter inserted in any pleading; or (2) to strike any pleading or part thereof not drawn or filed in conformity with the laws of this state, a court rule or order of court.  (CCP § 436.)

II. Analysis

Defendant moves to strike portions of the Complaint that seek punitive damages. Because Defendant’s Demurrer to the Complaint is SUSTAINED in its entirety, its Motion to Strike is MOOT.

Moving party is ordered to give notice.

IT IS SO ORDERED.

Dated:   April 10, 2024 ___________________________________