Judge Theresa M. Traber, Case 22STCV39646 2023-04-19 Tentative Ruling

Judge: Theresa M. Traber, Case: 22STCV39646, Date: 2023-04-19 Tentative Ruling

Case Number: 22STCV39646 Hearing Date: April 19, 2023 Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE: April 19, 2023 TRIAL DATE: NOT SET

CASE: 3BTech Inc. v. Liberty Mutual Ins. Co. et al.

CASE NO.: 22STCV39646

DEMURRER TO COMPLAINT

MOVING PARTY: Defendant West American Ins. Co.

RESPONDING PARTY(S): Plaintiff 3BTech, Inc.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is a breach of contract action that was filed on December 21, 2022. Plaintiff seeks coverage for the loss of inventory destroyed by a fire while in the care of the insured non-party Pro-Com Products, Inc.

Defendant West American Insurance Co. demurs to the Complaint in its entirety.

TENTATIVE RULING:

Defendant West American Insurance Co.’s Demurrer to the First Complaint is SUSTAINED.

Plaintiff shall have 30 days leave to amend the Complaint.

DISCUSSION:

Legal Standard

A demurrer 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 via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “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.” (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) “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, supra, 147 Cal.App.4th at p. 747.) The ultimate facts alleged in the complaint must be deemed true, as well as all facts that may be implied or inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403; see also Shields v. County of San Diego (1984) 155 Cal.App.3d 103, 133 [stating, “[o]n demurrer, pleadings are read liberally and allegations contained therein are assumed to be true”].) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

Meet and Confer

Before filing a demurrer, the demurring party shall meet and confer in person or by telephone with the party who has filed the pleading subject to the demurrer and file a declaration detailing their meet and confer efforts. (Code Civ. Proc., § 430.41(a).) However, an insufficient meet and confer process is not grounds to overrule or sustain a demurrer. (Code Civ. Proc., § 430.41(a)(4).)

The Declaration of Attorney Patricia A. Daza-Luu states that the parties met and conferred telephonically and by email on January 12, 2023 to attempt to informally resolve the issues presented in this demurrer. (Declaration of Patricia A. Daza-Luu ISO Demurrer.) The Court therefore finds that Defendant has satisfied its statutory meet-and-confer obligations.

Request for Judicial Notice

Defendant requests judicial notice of the Complaints in (1) 3BTech Inc. v. California Protection Ins. Co. et al, LASC Case No. 21STCV19142; (2) 3BTech Inc. v. Great Northern Ins. Co., LASC Case No. 21STCV44398; and (3) 3BTech Inc. v. Pro-Com Products Inc. et al., LASC Case No. 23PSCV00016; as well as (4) the pertinent portions of the Insurance Policy issued by West American to Pro-Com, Policy No. BKW (21) 59288577, effective from January 11, 2020 to January 11, 2021. With respect to the Policy in Request No. 4, Defendant’s request is GRANTED as a legally operative document referenced in and relied upon in the Complaint. (Complaint ¶ 2, Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 754; Salvaty v. Falcon Cable Television (1985) 165 Cal.App.3d 798, 800 n.1.) However, Defendant’s remaining requests are DENIED as irrelevant to the Court’s ruling. (Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [“[J]udicial notice . . . is always confined to those matters which are relevant to the issue at hand.”].)

Standing

Defendants demur to each of the three causes of action asserted in the Complaint on the grounds that Plaintiff lacks standing under the insurance policy purchased by non-party Pro-Com Products, Inc., from Defendant West American Insurance Company. The parties agree that each of the three causes of action survive or fail together.

A person who is not insured under an insurance policy generally does not have standing to bring an action for breach of the policy. (Republic Indemnity Company of America v. Schofield (1996) 47 Cal.App.4th 220, 227; see also Harper v. Wasau Ins. Co. (1997) 56 Cal.App.4th 1079, 1086.) That said, a third party may bring an action against an insurer as an intended third-party beneficiary if “an intent to make an obligation inure to the benefit of a third party . . . clearly appear[s].” (Rupley v. Huntsman (1958) 159 Cal.App.2d 307, 312.) “[T]hird party beneficiary status is a matter of contract interpretation.” (Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal.App.4th 949, 957.)

“When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is ‘reasonably susceptible’ to the interpretation urged by the party. If it is not, the case is over.” (S. Cal. Edison Co. v. Super. Ct., (1995) 37 Cal.App.4th 839, 847-48.) “If the court decides the language is reasonably susceptible to the interpretation urged, the court moves to the second question: what did the parties intend the language to mean? ... Thus, where contract language is clear and explicit and does not lead to absurd results, we ascertain intent from the written terms and go no further. If the contract is capable of more than one reasonable interpretation, it is ambiguous.” (Department of Forestry & Fire Protection v. Lawrence Livermore National Security, LLC (2015) 239 Cal.App.4th 1060, 1066 [internal quotation marks, ellipses, and citations omitted].) Interpretation of an ambiguous contract requires the consideration of extrinsic evidence, and is therefore not well-suited to resolution via demurrer. (See Brown v. Goldstein (2019) 34 Cal.App.5th 418, 432-33 [describing evidentiary considerations necessary for determination of the legal question of the meaning of a contract via motion for summary judgment].)

The California Supreme Court addressed the circumstances when a nonsignatory has standing to assert rights under a contract as a third-party beneficiary in Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817. Under Goonewardene, a non-party to a contract is a third party beneficiary if it demonstrates “not only (1) that it is likely to benefit from the contract, but also (2) that a motivating purpose of the contracting parties is to provide a benefit to the third party, and further (3) that permitting the third party to [assert rights under the contract] against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” (Id., at p. 821.)

The relevant provision of the Policy, as alleged in the Complaint and provided by Defendant in its Request for Judicial Notice states that property covered under the Policy includes:

Personal Property of Others that is:

(1) in your care, custody, or control; and

(2) Located in or on the building or structure described in the Declarations or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the premises described in the Declarations, whichever distance is greater.

However, our payment for loss of or damage to personal property of others will only be for the account of the owner of the property.

(Complaint ¶ 2, RJN Exh. E p. 2 § A.1.c.)

Although Plaintiff states in the Complaint that it brings this action not only “as a third party beneficiary of the policy issued by Defendants to PROCOM” but also as a party “directly entitled to benefits under the policy” (Complaint ¶ 31), the thrust of Plaintiff’s legal theory advanced in the Complaint and in its opposition is not that it is a party to the policy, but that it is an intended third-party beneficiary to the policy under the provision for Personal Property of Others. (See generally Opposition.)

Defendant contends that Plaintiff does not have standing under the Policy to bring this action because Plaintiff is neither a party to the Policy nor an intended third-party beneficiary of the Policy. Instead, it argues Plaintiff is merely an incidental beneficiary of the Policy. Defendant analogizes this case to a recent appellate opinion involving a construction contract in which the contractor agreed to indemnify the property owner with respect to certain claims brought against the owner, and the contractor’s insurance policy which included an indemnitee defense clause stating that the insurance company would provide a defense of both its insured and an indemnitee of the insured if they are both sued in the same lawsuit. (LaBarbera v. Security National Ins. Co. (2022) 86 Cal.App.5th 1329, 1339.) When the property owner in LaBarbera was sued, the defense of that action was tendered to the contractor’s insurance company, which denied coverage. The Court of Appeal in LaBarbera held that the contractor’s insurance policy did not confer standing on the named insured’s contractual indemnitee. (Id., at p. 1345.) To reach that conclusion, the Court of Appeal held that an indemnitee defense clause was principally for the benefit of the contracting parties, even though it also conferred an incidental benefit on the indemnitee. (Id. at 1343-44.) Specifically, the LaBarbera Court found that that it was in the insured party’s interest to have the insurance company pay for the defense of the indemnitee in litigation arising out of the underlying construction contract without reducing the insured party’s policy limits, and that it was in the interest of the insurer to minimize its obligation through the efficiency of a combined defense where feasible. (Id.) Thus, the Court of Appeal concluded that the plaintiff was not the intended beneficiary on the insurance policy and, therefore, did not have standing to sue the insurance company for failing to defend. (Id. at 1345.)

Here, Defendant argues that the purpose of the Personal Property of Others benefit is similar to the indemnitee defense clause at issue in LaBarbera, in that, as evidenced by the phrase “for the account of the owner of the property,” the purpose of the provision was to protect Pro-Com from harm by providing Pro-Com with funds to settle any account with a third party for loss of the personal property of others. Defendant also argues that this case is factually analogous to LaBarbera in that this provision, like the indemnitee defense provision, only provides coverage when certain conditions are satisfied, and does not provide general coverage with respect to the property of others. (See Complaint ¶ 2, LaBarbera, supra, 86 Cal.App.5th at 1334-35.)

In opposition, Plaintiff argues that the plain meaning of the phrase “for the account of the owner of the property” means that payment on claims for damage to the personal property of others are payable not to the policy holder, but to the injured third party directly, thereby creating standing to pursue this action. Plaintiff cites no California authority in support of this position, instead relying on out-of-state authorities while making no reference to Defendant’s reliance on LaBarbera. (See United Natl’ Ins. Co. v. Mundell Terminal Servs. (5th Cir. 2014) 740 F.3d 1022, 1030; Peters v. Employers Mut. Cas. Co. (Mo. 1993) 853 S.W.2d 300.)

What is more, Plaintiff’s out-of-state authorities are inapplicable and unpersuasive. As emphasized by Defendant in its reply, United National does not address whether a third party has standing to assert a claim under a similar “Personal Property of Others” provision, but rather whether the property at issue was excluded from coverage under that provision by a specific exclusion. (United Nat’l Ins. Co., supra, 740 F.3d at 1025.) Further, although the Supreme Court of Missouri stated in Peters that a provision with identical language to the one at issue here “clearly expresses an intent to benefit those whose personal property is in the care, custody, or control, of the insured,” it offered no explanation for that conclusion. (Peters, supra, 853 S.W.2d at 301.) The Court finds no justification from these authorities to depart from the analysis of the Court of Appeal set forth in LaBarbera. In addition, as Defendant states in its reply brief, if the Court were to adopt Plaintiff’s preferred interpretation of the contract, that interpretation would render the phrase “for the account of” mere surplusage, contrary to California rules of contract interpretation. (See Advanced Network Inc. v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054, 1063.) The Court agrees. Even drawing all inferences in favor of Plaintiff, as required on a demurrer, the interpretation advanced by Plaintiff of the contract is not valid under California law.

The Court therefore finds that Plaintiff has not advanced an interpretation of the Personal Property of Others provision to which the Policy is reasonably susceptible. Plaintiff therefore does not have standing to pursue this action as pled.

Leave to Amend

When a demurrer is sustained, the Court determines whether there is a reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318). When a plaintiff “has pleaded the general set of facts upon which his cause of action is based,” the court should give the plaintiff an opportunity to amend his complaint, since plaintiff should not “be deprived of his right to maintain his action on the ground that his pleadings were defective for lack of particulars.” (Reed v. Norman (1957) 152 Cal.App.2d 892, 900.) Accordingly, California law imposes the burden on the plaintiffs to demonstrate the manner in which they can amend their pleadings to state their claims against a defendant. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) “Denial of leave to amend constitutes an abuse of discretion unless the complaint shows on its face it is incapable of amendment. [Citation.] Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given." (Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.)

Here, Plaintiff has not set forth the manner by which the Complaint might be amended to cure the absence of standing. However, in light of the strong presumption in favor of permitting leave to amend, the Court will exercise its discretion to permit Plaintiff to amend the Complaint to advance a new theory of liability under which Plaintiff has standing to pursue this action.

CONCLUSION:

Accordingly, Defendant West American Insurance Co.’s Demurrer to the First Complaint is SUSTAINED.

Plaintiff shall have 30 days leave to amend the Complaint.

Moving Party to give notice.

IT IS SO ORDERED.

Dated: April 19, 2023 ___________________________________

Theresa M. Traber

Judge of the Superior Court

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.