Case Name: Farmers Insurance Exchange v. Sequoia Insurance Company
Case No.: 17-CV-306361

Defendant Sequoia Insurance Company (“Defendant”) demurs to the second amended complaint (“SAC”) filed by plaintiff Farmers Insurance Exchange (“Plaintiff”).

This is an action for equitable contribution arising out of a dispute between insurers. According to the allegations of the SAC, Louis and Cesar Galindo dba Tacos Autlense (“Plaintiff Insured”) were insured by Plaintiff with a policy of insurance covering certain real and personal property located at 1020 Story Road in San Jose (the “Property”), which provided that Plaintiff would reimburse Plaintiff Insured for damage to the Property. (SAC, ¶ 6.) The lease between the Plaintiff Insured, a restaurant, and shopping center landlord EOL Properties Vii, LP (“EOL”), which included the Property, provided that EOL would be an additional insured under the policy of insurance between Plaintiff and Plaintiff Insured. (Id.) Both Plaintiff Insured and EOL were insureds under the policy of insurance. (Id.)

Defendant insured EOL by a policy of insurance which provided that Defendant would pay for certain covered real and personal property losses. (Complaint, ¶ 7.) The lease between Plaintiff Insured and EOL provided that Plaintiff Insured would pay for its pro rata portion of the insurance policy between defendants and EOL; thus, Plaintiff Insured was an insured under that policy. (Id.)

On September 20, 2016, while both of the foregoing policies of insurance were in full force and effect, the Property suffered property loss. (SAC, ¶ 8.) Claims were made against Plaintiff and Defendant’s policies of insurance. (Id.) Pursuant to the terms of the policies, the lease and equitable contribution, Plaintiff and Defendant were obligated to issue payments on a pro-rata basis. (Id.) Plaintiff ultimately paid $147,441.37 for damages to the Property while Defendant paid nothing. (Id., ¶ 9.) Plaintiff alleges that it is entitled to equitable contribution from Defendant in the amount of $147,441.37, which represents the pro-rata distribution of funds due based on the respective policy limits relative to the total combined coverage available. (Id.)

On May 26, 2017, Plaintiff filed the SAC asserting a single cause of action for equitable contribution. On June 7, 2017, Defendant filed the instant demurrer to the SAC on the grounds of failure to state facts sufficient to constitute a cause of action and uncertainty. (Code Civ. Proc., § 430.10, subds. (e) and (f).) Plaintiff opposes the motion.

Defendant asserts that its demurrer should be sustained without leave to amend for the following reasons: (1) the pleading is fatally defective as a matter of law; (2) Plaintiff has not and cannot set forth a viable cause of action for contribution; (3) Plaintiff has no cause of action against Defendant directly unless it obtains a final judgment against EOL, Defendant’s insured; and (4) the SAC cannot be amended to plead a viable cause of action.

As stated above, Plaintiff’s SAC asserts a single cause of action for equitable contribution. Equitable contribution “is the right to recover, not from the party primarily responsible for the loss, but from a co-obligor who shares such liability with the party seeking contribution.” (Fireman’s Fund Ins. Co. v. Maryland Cas. Co. (1998) 65 Cal.App.4th 1279, 1293.) “In the insurance context, the right to contribution arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others. Where multiple insurance carriers insure the same insured and cover the same risk, each insurer has independent standing to assert a cause of action against its coinsurers for equitable contribution when it had undertaken the defense or indemnification of the common insured.” (Id.) Equitable contribution permits reimbursement to the insurer that paid on the loss for the excess it paid over its proportionate share of the obligation, based on the theory that the debt it paid was equally and concurrently owed by the other insurers and should be shared by them pro rata in proportion to their respective coverage of risk. (Id.) The purpose of this rule is to prevent one insurer from profiting at the expense of others. (Id.)

An insurer’s right to equitable contribution does not arise from contract because the multiple insurers that may share responsibility for the same loss have not contracted with each and only with their respective insureds. (Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061.)

Defendant first makes an argument unrelated to equitable contribution specifically that Plaintiff’s SAC is deficiently pleaded because it has not identified the material terms of the lease agreement described in the pleadings. This argument is easily disposed of, however, because a party need only attach a copy of a written agreement to a complaint and incorporate its terms by reference or set out its terms verbatim in the body of the complaint if pursuing a claim for breach of contract. (See, e.g., Twaite v. Allstate Ins. Co. (1989) 216 Cal.App.3d 239, 252-252; Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) Plaintiff is not pursuing such a claim here (i.e., breach of the lease) and thus need not comply with the foregoing requirement.

Defendant next contends that Plaintiff cannot maintain its claim for equitable contribution because such a claim may only be brought if the defense or indemnification sought to be shared was made for a mutual insured, and here, Plaintiff and Defendant have different insureds. This argument is unavailing, however, because as currently pleaded in the SAC, Plaintiff is alleged to have been insured under the policies provided by both Defendant and Plaintiff, which each covered the subject restaurant. (SAC, ¶¶ 6-7.) As these allegations are accepted as true on demurrer (see, e.g., Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 966-967), this argument does not provide a basis upon which to sustain Defendant’s demurrer.

Defendant next argues that Plaintiff has no cause of action against it directly unless it obtains a final judgment against Defendant’s insured, EOL. This argument, however, presumes that Plaintiff cannot maintain a claim for equitable contribution and instead can only seek to recover monies paid for the loss suffered by the Property through a claim for equitable subrogation. As Defendant’s argument with respect to equitable contribution fails, this argument is without merit as Plaintiff asserts a single claim for that and not subrogation.

Defendant also contends that the SAC cannot be amended to plead a viable cause of action because there is no other recognizable cause of action which can be alleged under California law based on the allegations in the SAC. However, as with the preceding argument, this presumes that Plaintiff has not stated a claim for equitable contribution. As this is not the case, this argument fails as well.

Finally, while Defendant argues that the singular cause of action asserted in the SAC is ambiguous, the allegations contained therein clearly indicate that Plaintiff is pursuing a claim for equitable contribution and nothing else. Consequently, this argument is without merit.

In accordance with the foregoing analysis, Defendant’s demurrer to the SAC on the ground of failure to state facts sufficient constitute a cause of action and uncertainty is OVERRULED.