Judge: Robert S. Draper, Case: 21STCV38762, Date: 2022-09-22 Tentative Ruling

Case Number: 21STCV38762    Hearing Date: September 22, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Defendant Hawkeye Wholesale Insurance Services, Inc.’s Demurrer to the First Amended Complaint is OVERRULED. Hawkeye has thirty days to answer.

FACTUAL BACKGROUND

This is an action for Breach of Contract stemming from Defendants Continental Casualty Company and Northfield Insurance Company’s refusal to defend Plaintiffs Zonwei Shen, Zhong Xin and Sanyiweile, Inc. in an underlying tort claim. The Complaint alleges as follows.

Plaintiffs Toiah Gordon (“Gordon”), Morganne Mersadie Root (“Root”) and Karina Carrero (“Carrero”) were sexually assaulted by Defendant Zongwei Shen (“Shen”) while he gave them massages at Nobles Foot Massage Spa (“Nobles”). (Comp. Ex. 1 ¶¶ 2-4.) Shen and Plaintiff Zhong Xin (“Xin”) are spouses and owned and operated Nobles. (Id.) Plaintiff corporation Sanyiweile, Inc. (“Sanyiweile”) is the corporation that owns Nobles and is essentially an alter-ego for Plaintiffs Shen and Xin. (Id.)

Plaintiffs Gordon, Root, and Carrero brought a tort claim against Plaintiffs Shen, Xin and Sanyiweile following their alleged assaults. (Compl. ¶ 21.) Defendants Continental Casualty Co. (“Continental Casualty”) and Northfield Insurance Co. (“Northfield”) refused to defend Shen, Xin and Sanyiweile in this action. (Compl. ¶¶ 22-25.) Eventually, the parties entered into an arbitration agreement and Gordon, Root, and Carrero were awarded $6,778,231.48. (Compl. ¶ 28.) Gordon, Root, and Carrero agreed to not execute on their judgment; in exchange Shen, Xin, and Sanyiweile assigned to Plaintiffs all their assignable rights under both the Continental Casualty and Northfield insurance contracts. (Compl. ¶ 31.)

Now, Gordon, Root, and Carrero allege that the insurance companies’ refusal to defend Shen, Xin, and Sanyiweile in the initial tort claim was unreasonable and caused them significant damages. (Compl. ¶ 42.) Additionally, Plaintiffs allege that Defendants Topco Insurance Agency, Inc. (“Topco”) and Hawkeye Wholesale Insurance Services, Inc. (“Hawkeye”) negligently performed their duties as insurance brokers by failing to obtain insurance policies that would cover the incident. (Compl. ¶ 4.)

Gordon, Root, and Carrero file the instant action as Shen, Xin, and Sanyiweile’s assignees to recover these damages. (Compl. ¶¶ 42-44.)

PROCEDURAL HISTORY 

On October 20, 2021, Plaintiffs filed the Complaint alleging ten Causes of Action:

1.    Breach of contract against Continental Casualty;

2.    Breach of the implied covenant of good faith and fair dealing against Continental Casualty;

3.    Direct action for recovery of judgment against Continental Casualty under Insurance Code §11580 by Gordon, root, and Carrero;

4.    Negligence / professional malpractice against Topco by Shen;

5.    Breach of implied-in-fact covenant against Topco by Shen;

6.    Breach of contract by against Northfield by Gordon, Root, and Carrero;

7.    Breach of the implied covenant of good faith and fair against Northfield by all Plaintiffs;

8.    Direct action for recovery of judgment under Insurance Code § 11580 against Northfield by Gordon, Root, and Carrero;

9.    Negligence / professional malpractice against Hawkeye by Sanyiweile; and,

10.                   Breach of implied-in-fact contract against Hawkeye by Sanyiweile.

On April 18, 2022, Hawkeye filed a Demurrer to the Complaint

On June 13, 2022, this Court sustained Hawkeye’s Demurrer to the Complaint. Plaintiffs were granted twenty days leave to amend.

On July 5, 2022, Plaintiffs filed the operative First Amended Complaint asserting the same ten Causes of Action. 

On August 15, 2022, Hawkeye filed the instant Demurrer to the First Amended Complaint.

On September 9, 2022, Sanyiweile filed an Opposition.

On September 15, 2022, Hawkeye filed a Reply.

DISCUSSION 

                         I.          REQUEST FOR JUDICIAL NOTICE

In ruling on the Demurrer to the Complaint, the Court took Judicial Notice of Northfield’s Refusal to Defend Letter, sent on August 18, 2019. (RFJN Ex. A.) The Court takes judicial notice of same letter here.

                       II.          DEMURRER

Hawkeye demurs to the Ninth and Tenth Causes of Action. These are the only causes asserted against Hawkeye.

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) As is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)  

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.) 

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.) 

A.  Statute of Limitations

First, Hawkeye demurs on the grounds that both causes of action against Hawkeye are time-barred by the relevant two-year statute of limitations. (Code of Civ. Pro. § 339(1).) Sanyiweile does not contest that this is the applicable statute of limitations. (Opposition at p. 4.)

For a statute of limitations to bar a claim on demurrer, “the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.” (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42, internal quotation marks omitted.) In general, a statute of limitations begins to run “when the cause of action is complete with all of its elements,” namely, wrongdoing, causation, and resulting harm. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.)

Here, Hawkeye argues that the statute of limitations began accruing when Northfield sent Sanyiweile its refusal to defend letter on August 18, 2019. (RFJN Ex. A.) As the initial Complaint was filed on October 20, 2021, this would bar Sanyiweile’s causes of action against Hawkeye.

It was on this same basis that the Court sustained Hawkeye’s Demurrer to the Complaint, stating that “Plaintiffs cannot argue that they were not aware of the insurance companies’ refusal to defend them in the underlying action after appearing in that action with an attorney not provided by the insurance companies.”

In Opposition to that Demurrer, Sanyiweile did not make a substantive argument regarding the proper date of accrual, instead arguing that it was improper for the Court to judicially notice the letter of refusal.

Here, on the other hand, Sanyiweile argues that the statute of limitations was equitably tolled from the date Northfield notified the insured of its refusal to provide a defense to May 3, 2021, when judgment was entered in the underlying tort action. (Opposition at p. 4.)

Sanyiweile cites primarily to Lambert v. Commonwealth Land Title Ins. Co. (1991) 53 Cal.3d 1072, to support this contention.

In Lambert, the California Supreme Court found that “the limitation period for an action under a title insurance policy for failure to defend accrues when the insurer refuses the insured’s tender of defense, but is tolled until the underlying action is terminated by final judgment.” (Lambert at p. 1080.) As Sanyiweile notes, this equitable tolling policy has been extended to other types of insurers. (E.g., Eaton Hydraulics Inc. v. Continental Casualty Co. (2005) 132 Cal.App.4^th 966; Underwriters of Interest Subscribing to Policy Number A15274001 v. ProBuilders Specialty Ins. Co. (2015) 241 Cal.App.4^th 721, 735.)

On Reply, Hawkeye correctly notes that the aforementioned cases applied directly to insurers, rather than insurance brokers such as Hawkeye. Hawkeye argues that accordingly, the equitable tolling policy does not apply here.

Hawkeye’s argument is unavailing. In justifying equitable tolling between denial of coverage and final judgment, the Lambert Court reasoned that the insurer’s “duty commences upon tender of the defense, and continues until the underlying lawsuit is concluded. [Citation].” (Lambert at p. 1077.) Therefore, the Lambert Court found, equitable tolling must apply, otherwise “the statute of limitations on a lawsuit to vindicate the duty to defend [might expire] even before the duty itself expires.” (Ibid.)

Although the logic was applied to insurers in Lambert, the same logic applies to an insurance broker here. Northfield’s purported duty to defend Sanyiweile was ongoing throughout the course of the underlying action, and therefore the statute of limitations was tolled during that process. Just as it would be inequitable to require the Lambert plaintiff to file suit against its defendant insurer before the defendant insurer’s breach was finalized, it would be inequitable here to require Sanyiweile to file suit against Hawkeye for failing to provide Sanyiweile with adequate insurance coverage before it was finally determined that Northfield would not provide coverage in the underlying action.

Accordingly, Sanyiweile’s claims are not time-barred by the statute of limitations.

B.  Ninth Cause of Action – Negligence / Professional Malpractice

Hawkeye demurs to the Ninth Cause of Action for Negligence / Professional Malpractice.

The elements for negligence are: (1) a legal duty owed to the plaintiff to use due care; (2) breach of duty; (3) causation; and (4) damage to the plaintiff. (County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 318.)  

An insurance agent ordinarily “‘assumes only those duties normally found in any agency relationship.’” (Wallman v. Suddock (2011) 200 Cal.App.4th 1288, 1309 (quoting Jones v. Grewe (1987) 189 Cal.App.3d 950, 954).) “This includes the obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.” (Id.) “The mere existence of such a relationship imposes no duty on the agent to advise the insured on specific insurance matters,” including whether an insured should procure additional or different insurance coverage. (Id.; see Williams v. Hilb, Rogal & Hobbs Insurance Services of California, Inc. (2009) 177 Cal.App.4th 624, 635.) However, an insurance agent may assume a greater duty to the insured when: (1) the agent misrepresents the nature, extent or scope of the coverage being offered or provided; (2) there is a request or inquiry by the insured for a particular type or extent of coverage; or (3) 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. (See Wallman, supra, 200 Cal.App.4th at 1309-13; Williams, supra, 177 Cal.App.4th at 635-36.)  

Here, Hawkeye argues that the First Amended Complaint does not state forth any facts showing that Hawkeye reached any duties or did anything wrong. (Demurrer at p. 10.)

The First Amended Complaint states that Hawkeye “knew or should have known that Sanyiweile was relying on Hawkeye because of Hawkeye’s experience and expertise in insurance,” that “Sanyiweile suffered damages as a result of Hawkeye’s negligence,” and that “Hawkeye’s negligence is the proximate cause of Sanyiweile’s damages.” (FAC ¶¶ 88, 90-91.) This is sufficient for the pleading stage.

Accordingly, Hawkeye’s Demurrer to the Ninth Cause of Action is OVERRULED.

C.  Tenth Cause of Action – Breach of Implied-In-Fact Contract

Finally, Hawkeye demurs to the Tenth Cause of Action for Breach of Implied-in-Fact Contract.

“A cause of action for breach of implied contract has the same elements as does a cause of action for breach of contract, except that the promise is not expressed in words but is implied from the promisor’s conduct.” (Yari¿v. Producers Guild of America, Inc.¿(2008) 161 Cal.App.4th 172, 182.) “The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co.¿(2008) 164 Cal.App.4th 1171, 1178.) 

Hawkeye argues that the Tenth Cause of Action is plead with conclusory allegations and does not include information regarding what agents within Hawkeye Sanyiweile communicated with.

The First Amended Complaint alleges that “based on the conduct of Sanyiweile and Hawkeye and the relationship between them, when Sanyiweile contacted Hawkeye to obtain coverage for the spa, an implied-in-fact contract was created whereby Hawkeye promised Sanyiweile that it would procure appropriate insurance for the spa.” (FAC ¶ 94.) Next, the First Amended Complaint alleges that Sanyiweile performed all its obligations under the contract. (FAC ¶ 95.) Next, the First Amended Complaint alleges that “Hawkeye failed to obtain for Sanyiweile the appropriate coverage that Hawkeye knew was required under the contract, which constitute as breach of the implied-in-fact contract.” (FAC ¶ 96.) Finally, the First Amended Complaint alleges that Sanyiweile suffered damages due to Hawkeye’s breach. (FAC ¶ 97.)

These allegations are sufficient for the pleading stage.

Accordingly, Hawkeye’s Demurrer to the Tenth Cause of Action is OVERRULED.

DATED: September 22, 2022 

____________________________

Hon. Robert S. Draper 

Judge of the Superior Court