Judge Upinder S. Kalra, Case Number: 24STCV25111, Date: 2025-03-25 Tentative Ruling

1. Demurrers to the First and Second Causes of Action for failure to state sufficient facts to constitute a cause of action and for uncertainty.

On September 30, 2024, Plaintiff ModVans, Inc. (Plaintiff) filed a Complaint against Defendants Atlantic Casualty Insurance Company, Nigel Green Insurance Agency, Inc., and Amwins Access Insurance Services, LLC (Defendants) with three causes of action for: (1) Breach of the Duty to Pay a Covered Insurance Claim; (2) Breach of the Duty of Good Faith and Fair Dealing; and (3) Negligence.

According to the Complaint, Plaintiff had an insurance policy issued by Defendant Atlantic Casualty Insurance Company (Atlantic) (the Policy) that Defendant Nigel Green Insurance Agency, Inc. (Green) obtained for it by working with Defendant Atlantic’s managing agent, Amwiss Access Insurance Services, LLC (Amwiss). Plaintiff alleges that on December 11, 2023, a fire destroyed its production facility which caused Plaintiff to sustain approximately $5,800,500.00. Plaintiff further alleges that Defendants improperly bound the Policy at old coverage limits despite Plaintiff’s negotiation for an increase and that Defendants are not performing under the Policy.

On December 26, 2024, Atlantic filed the instant demurrer. On March 12, 2025, Plaintiff timely filed an opposition. On March 17, 2025, Atlantic timely filed a reply.

The parties met and conferred telephonically on December 4, 2024 but were unable to resolve their disputes. (Nienow Decl. ¶¶ 2-5.)

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.¿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. …. 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.)¿¿

First Cause of Action – Breach of the Duty to Pay a Covered Insurance Claim[1]

Atlantic contends that this claim fails because Plaintiff did not allege breach.[2] Atlantic further contends that Plaintiff insufficiently alleged facts that its customers owned the destroyed vans warranting a higher payout and that there are no facts supporting consequential damages.

Plaintiff argues that Atlantic applied the wrong standard at demurrer, that they alleged Atlantic breached by deliberately misinterpreting the coverage owed for the destroyed vans, and that Atlantic is adding its own facts to the Complaint to make it subject to demurrer.

Atlantic replies that Plaintiff concludes the vehicles belonged to customers and that Atlantic knew it misinterpreted the Policy, which are not facts. Atlantic reiterates its argument on reply that Plaintiff did not allege facts supporting consequential damages.

To establish a cause of action for breach of contract, the plaintiff must plead and prove (1) the existence of the contract, (2) the plaintiff’s performance or excuse for nonperformance, (3) the defendant’s breach, and (4) resulting damages to the plaintiff.”¿ (Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 97-98 [internal citation omitted].) For a written contract, the plaintiff may “plead the legal effect of the contract rather than the precise language.” (Ibid.) To “plead a contract by its legal effect, plaintiff must ‘allege the substance of its relevant terms.[3]

Upon reviewing the Complaint, Plaintiff sufficiently stated a claim for breach of contract. First, Plaintiff alleges a written contract, Policy No. 2810006756-1 issued by Atlantic and in Atlantic’s possession. (Compl. ¶¶ 11-12.) Second, Plaintiff alleged the legal effect of the contract, namely, a promise by Atlantic “to pay for certain losses sustained by ModVans in exchange for premiums paid by ModVans.) (Compl. ¶ 12; see also Compl. ¶ 32 [Atlantic’s reservation-of-rights letter indicates it would pay Plaintiff’s BPP loss “up to the Policy’s limit of $600,000.”], ¶ 37 [Atlantic’s alleged performance.]) Additionally, Plaintiff alleges the coverage included $120,000 per van for Vehicles. (See Compl. ¶16(c); 21, 23, 24.) Third, Plaintiff alleges it performed under the Policy. (Compl. ¶¶ 25, 26, 45.) Fourth, Plaintiff claims Atlantic breached by delaying payment under the Policy despite receiving a timely claim, and intentionally misclassified certain losses to avoid coverage. (Compl. ¶¶ 25, 28, 31, 33, 34, 46.) Finally, Plaintiff alleges resulting damages.[4] (Compl. ¶ 38.)

Accordingly, the court OVERRULES Atlantic’s demurrer to the First Cause of Action.

Second Cause of Action – Breach of the Duty of Good Faith and Fair Dealing

Atlantic contends that this claim fails because there is no underlying breach and there are insufficient facts that it unreasonably withheld benefits. Plaintiff argues an underlying breach of a specific provision is not a prerequisite to this claim, that they alleged coverage for which Atlantic unreasonably refused to pay, and any question on this is a factual inquiry inappropriate for demurrer. Atlantic reiterates its position on reply that this claim collapses because there is no viable breach of contract and that Plaintiff’s allegations lack specificity.[5]

“‘‘Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.’ [Citation.]’ [Citation.]’” (Hicks v. E.T. Legg & Associates (2001) 89 Cal.App.4th 496, 508.) “‘[T]he scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.’ [Citations.]” (Ibid. at 509.) “The covenant of good faith and fair dealing . . . exists . . . to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 349.)

The elements for breach of the implied covenant of good faith and fair dealing are: (1) existence of a contract between plaintiff and defendant; (2) plaintiff performed his contractual obligations or was excused from performing them; (3) the conditions requiring defendant’s performance had occurred; (4) the defendant unfairly interfered with the plaintiff’s right to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant’s conduct. (Merced Irrigation Dist. v. County of Mariposa (E.D. Cal. 2013) 941 F.Supp.2d 1237, 1280 (discussing California law).) Allegations must demonstrate defendant’s conduct for failure or refusal to discharge contractual responsibilities was a conscious and deliberate act, not an honest mistake, bad judgment or negligence. (Ibid.) “‘[T]he implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract.’” (Ragland v. U.S. Bank National Assn. (2012) 209¿Cal.App.4th 182, 206 (citing to Pasadena Live v. City of Pasadena (2004) 114¿Cal.App.4th¿1089, 1094).)

“A ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself’ and it has been held that ‘[b]ad faith implies unfair dealing rather than mistaken judgment . . . .’” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394 (citing to Congleton v. National Union Fire Insurance Co. (1987) 189¿Cal.App.3d 51, 59).)

Upon reviewing the Complaint, Plaintiff sufficiently stated a claim for breach of the implied covenant of good faith and fair dealing. The only element at issue here is whether Atlantic unfairly interfered with Plaintiff’s right to receive Policy benefits. Plaintiff so alleged. Notably, Plaintiff alleged that Atlantic “did not notify ModVans of its claim position within 40 days of the fire,” had a “phlegmatic” response time, “made fractional initial payments,” “continued to delay investigating the claim,” misclassified vans on the property to withhold coverage, and knew this position was wrong. (Compl. ¶¶ 27, 28, 31, 33, 34, 47.) The court rejects Atlantic’s contention that these facts are insufficient. Indeed, it appears Atlantic conflates the requirements to allege this claim with the heightened pleading standard for fraud.

Accordingly, the court OVERRULES Atlantic’s demurrer to the Second Cause of Action.

[1] The court will refer to this as a breach of contract claim.

[2] In fact, Atlantic contends, Plaintiff alleged that Atlantic performed.

[3] Atlantic contends that Plaintiff’s Complaint is uncertain because they did not attach the Policy or allege its terms verbatim. Plaintiff argues they pled the legal effect of the Policy. Atlantic contends that the material terms concerning “vehicles” vs. “inventory” were not set forth in the Complaint and not attached, so the Complaint is uncertain. The court rejects this argument because Plaintiff alleged the Policy by its legal effect.

[4] The court declines to analyze Atlantic’s consequential damages argument because it would not dispose of the entire cause of action. Plaintiff’s cause of action cannot be split. (Fire Ins. Exchange v. Superior Court (2004) 116 Cal.App.4th 446, 452.)

[5] Atlantic’s authority in support of this proposition are summary judgment proceedings. (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062 [summary adjudication of insurer’s policy exclusion interpretation]; Swain v. California Cas. Ins. Co. (2002) 99 Cal.App.4th 1 [summary judgment]; Love v. Fire Ins. Exch. (1990) 221 Cal.App.3d 1136 [summary judgment].) To the extent Atlantic raised factual challenges, the court rejects them.