2016-00201561-CU-CL

Cypress Insurance Company vs. Chance 4 Change, Inc.

Nature of Proceeding: Motion for Summary Judgment

Filed By: Sauer, Kathleen A.

Plaintiff Cypress Insurance Company’s motion for summary judgment is ruled upon as follows.

The parties’ requests for judicial notice are granted.

This action arises from claims that Defendants Chance 4 Change, Inc., and Chance 4 Change Humboldt, Inc. failed to pay earned premiums under Plaintiff’s Worker’s Compensation Policies 3300065718-41, CHWC603529, and CHCWC708493 in the amount of $191,122.72. Plaintiff alleges a cause of action for breach of contract against Defendants, in addition to causes of action for common counts.

At the outset while Plaintiff has moved for summary judgment as to the first cause of action for breach of contract, and makes clear that its motion is based on that cause of action, it has three other causes of action in the complaint. Plaintiff cannot obtain summary judgment on a single cause of action when other causes of action remain pending. The Court therefore construes the motion as a motion for summary adjudication as to the first cause of action for breach of contract only.

Plaintiff’s separate statement includes the following. Defendants’ agent AISA dba Pan American Insurance (“Pan American”) submitted Defendants’ application for workers’ compensation insurance to Plaintiff on or about November 25, 2013. The application listed Defendants as the named insureds. On or about December 12, 2013, Plaintiff issued a quote and Policy 3300065718-141 was issued with effective dates of January 1, 2014 to January 1, 2015. The Policy provided for an estimated premium based upon rates and factors which were certain and constant and estimated payroll numbers which could change depending on the outcome of the final policy audit reconciliation. The annual premium estimated on the Policy was $266,370 which was to be paid with a deposit and nine monthly installments. Defendants paid $266,370. An audit was conducted on the Defendants’ payroll records on behalf of Plaintiff on or about March 25, 2015. The result of the audit was that Defendants owed an additional premium of $72,109. Defendants paid $24,037 towards the balance. On December 2, 2016, the WCIRB issued an experience modification rating for Defendants for the policy period of 82% which reduced the total policy costs and resulted in Defendants owing $11,604. Defendants have not paid this amount.

Policy CHWC6023529 covered Defendants’ workers’ compensation coverage for January 1, 2015 to January 1, 2016. Pan American provided updated payroll information and a quote was issued by Plaintiff based on that information. Policy CHCWC603529 was set up with monthly payroll reporting such that Defendants were

to issue a payroll statement every month and pay the premium reflected in that report. Defendants paid the deposit premium of $52,937.72 and eleven monthly payments for a total of $278,628.02. An audit was conducted on February 4, 2016 which resulted in an additional premium amount due of $161,030.98 which Defendants have not yet paid.

Policy CHWC708493 covered Defendants’ workers’ compensation coverage for January 1, 2016 to March 31, 2016. Pan American submitted an application for renewal of Defendants’ workers’ compensation insurance in December 2015 and Plaintiff issued a quote. Policy CHWC708493 was set up with monthly payroll reporting such that Defendants were to issue a payroll statement and pay the premium reflected in that report. Defendants paid the deposit premium of $23,616.08 and one monthly payment of $11,672.18 for a total of $35,288.26. The Policy was eventually cancelled for non-payment of the premium due for the final audit on policy 3300065718 -141. After the policy was cancelled, Defendants did not cooperate with completing a final audit and Plaintiff had to estimate the final premium due. After the action was filed, a physical audit was performed on Defendants’ payroll records which resulted in Defendants owing an additional $18,487.74. Defendants have not paid this amount. The Short Rate Schedule in the operative quote for the Policy and the Cancellation Endorsement indicated that if the Policy was cancelled for non-payment that the final premium would be more than pro-rate and would be increased by the Short Rate Table. As a result, Plaintiff assessed an additional $15,795 to the final premium.

The policies all contain a provision entitling the prevailing party to fees and costs.

Plaintiff argues that it is entitled to judgment on the first cause of action for breach of contract on the basis that Defendants have failed to pay the amounts required by the three policies. The elements of a breach of contract cause of action are “(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.)

Here the Court finds that Plaintiff’s evidence is sufficient to demonstrate that it is entitled to judgment on the first cause of action for breach of contract. The evidence demonstrates that Plaintiff had valid insurance contracts with Defendants, that Plaintiff performed under the contracts by providing the agreed upon workers’ compensation insurance, that Defendants failed to pay the amounts required under the three policies, and that Plaintiff was damaged as a result.

Defendants have failed to demonstrate the existence of a triable issue of material fact. In opposition, Defendants attempt to dispute certain facts in Plaintiff’s separate statement. For example, they attempt to dispute facts 9, 22, and 34 by stating that “[o] n the final audit worksheet it did not appear that overtime had been taken into account. The issue was addressed to brokers at Pan American at the time and also mentioned to Kathleen Sauer.” However, no evidence was cited to support this purported dispute. In any event, Defendants did not dispute the total amount due under the policies. Defendants also attempt to dispute numerous facts by stating that “there should be a separate stated amount for Chance 4 Change, Inc., and a separate stated amount for Chance 4 Change Humboldt, Inc.” But no evidence is submitted to demonstrate this purported disputed fact.

In reality, Defendants’ opposition boils down to an argument that because they are two

separate entities, there should have been separate policies for each. This argument is unsupported by any admissible evidence or legal authority. Defendants reason that Plaintiff failed to separate what amounts are due from each Defendant and that there is no basis upon which to conclude that they could be jointly and severally liable under the policies.

Defendants’ showing is insufficient. While there is evidence presented that Defendants are separate entities, there is no evidence or legal authority supporting the proposition that separate policies were required and/or that Defendants cannot be joint and severally liable for the entire amounts. While Defendants argue that separate legal entities are entitled to be written on separate policies, there is no authority presented by Defendants requiring that they have their own separate policies. In fact, Defendants’ own evidence demonstrates that in the proposal for insurance, both Defendants were named as the named insureds and a single premium for both entities is listed. (Worthen Decl. Exh. 2, p. 3.) There is no evidence that Defendants ever requested separate policies. Rather the evidence shows submission of a single application on behalf of both for a single policy covering both entities as a single risk. (Gibbons Decl. Exhs. 9, 16, and 22.) The Court would note that Defendants present the unsubstantiated claim that the statement of insureds in the policies, which name both Defendants as named insureds was knowingly false. Apparently Defendants are attempting to argue that the applications presented by their agent Pan American were false because Pan American knew they were separate entities and that separate policies were required. However, there is no evidence that Pan American made any false statement, much less evidence that Plaintiff was aware of any false statement when it issued the policies.

In arguing that separate policies were required, Defendants simply cite to an Insurance Journal Article and a Workers’ Compensation article. Putting aside the fact that the Court sustained Plaintiff’s objections to this evidence, even if considered, the evidence in no way demonstrates that two separate policies were required. The Workers’ Compensation article simply discusses how separate entities can be combined for experience rating purposes when the same person/persons own a majority interest in each of the entities. Defendants argue that while separate entities can be combined for rating purposes, there is no requirement that they be covered under the same policy. That may be true, but the evidence here shows that Defendants were covered under the policy. Further, Defendants’ citation to the Insurance Journal article suggesting a requirement (e.g. that they have separate policies) is not legal authority and rather is simply the opinion of the author unsupported by any citation to legal authority, much less any citation to California law. Indeed, the author specifically states that “[t]hese guidelines are subject to NCCI and/or individual state rating bureau interpretations. Agents, brokers, and carriers should use these descriptions only for information purposes as the final determination rests in these advisory bodies.” (Defs’ RJN, Exh. 2.) In fact, Defendants’ very evidence recognizes that risks may or may not be split into two policies. (Defs’ RJN Exh. 3.) The 1995 Workers’ Compensation Plan defines a risk as “[a]ll insured operations of any entity within California and, if two or more entities are combinable for experience rating purposes in accordance with Section IV, Rule 2, Combination of Entities, all operations of such entities within California, regardless of whether such operations or any part of them are insured by one or several insurers.” (Id.) This actually shows that California workers’ compensation permits insurers to insure “two or more” entities on a single policy.

Defendants’ argument that two separate policies were required or that separate billings

for separate amounts for the two defendants is neither supported by fact or law. The policies at issue are clear. Both Defendants were named insureds under the policies. Each policy makes clear that it was a contract between Plaintiff and “you (the employer named in Item 1 of the Information Page)….” Item 1 includes the endorsements listing the named insureds on each policy as both Defendants. (Gibbons Decl. ¶ 53, Exhs.

12 at p. 21, 19 at p. 11, and 25 at p. 15.) The final premium was based on the “business and work covered by this policy” which includes the business and work of both Defendants. (Id.) The policies therefore establish that both Defendants were liable for unpaid premiums. To the extent that one of the defendants believes that they will have to pay more than their fair share of the premium, they could seek contribution from the other in the event they do so. (Civ. Code § 1432.)

The Court is aware of Plaintiff’s argument in reply that defendant Chance 4 Change, Inc.’s corporate powers have been suspended for failure to file its annual statement for failure to pay its corporate taxes. (Sauer Reply Decl. ¶ 2, Exh. 34.) Once a corporation has been suspended, the corporation is prohibited from exercising any corporate powers, rights, or privileges “[e]xcept for the purposes of filing an application for exempt status or amending the articles of incorporation as necessary either to perfect that application or to set forth a new name . . . .” (Rev. & Tax Code § 23301) Pursuant to Revenue and Taxation Code section 23302, subdivision (c), “[t]he certificate of the Secretary of State shall be prima facie evidence of the suspension” by the Franchise Tax Board. California Courts have consistently held that suspended corporations do not have the capacity to defend themselves in litigation. (See Boyle v. Lakeview Creamery Co. (1937) 9 Cal.2d 16, 20 [interpreted language substantially similar to Rev. & Tax. Code § 23301 in finding that a suspended corporation had no right to defend suit, and no right to appeal from an adverse decision]; Grell v. Laci Le Beau Corp.(1999) 73 Cal.App.4th 1300, 1306 [corporation may not prosecute or defend an action or appeal from an adverse judgment during period it is suspended for failure to pay taxes]; Palm Valley Homeowners Ass’n v. Design Mic (2000) 85 Cal.App.4th 553, 560 [suspended corporation is “disabled from participating in any litigation activities”]. While it may be that Chance 4 Change, Inc. has been suspended and cannot defend itself in the action, Defendants, who are represented by the same counsel, presented a single opposition presenting the identical argument. Thus, the Court properly considered the opposition, at least with respect to Defendant Chance 4 Change Humboldt, Inc.

In short, Defendants do not dispute that the policies were issued or that the amounts claimed by Plaintiff have not been paid. The dispute claimed by Defendants, specifically, that there is a dispute as to what is owed by each Defendant separately is neither supported by the evidence nor the law. Rather the evidence shows that the subject policies were issued to Defendants as named insureds and that they have not paid the amounts owed.

Having failed to demonstrate the existence of a triable issue of material fact, Plaintiff’s motion is granted. Again, the motion is construed as a motion for summary adjudication as to the first cause of action for breach of contract only. Plaintiff cannot obtain summary judgment as to a single cause of action or as to the entire complaint given the existence of other causes of action not addressed by way of this motion.

While the subject policies may in fact entitle Plaintiff as the prevailing party to fees, costs and interest, Plaintiff may seek fees and costs pursuant to the Rules of Court after judgment is entered.

Plaintiff’s evidentiary objections are ruled upon as follows: Objections 1-6 and 9-16 overruled. Objections 7 and 8 are sustained. The Court would note that despite sustaining the objections 7 and 8 which were exhibits 1 and 2 to Defendants’ RJN, the Court nevertheless discussed the evidence above and thus even if the objections were overruled, the result would not change.

The notice of motion does not provide notice of the Court’s tentative ruling system as required by Local Rule 1.06(D). Plaintiff’s counsel is ordered to notify Defendants’ counsel immediately of the tentative ruling system and to be available at the hearing, in person or by telephone, in the event Defendants’ counsel appears without following the procedures set forth in Local Rule 1.06(B).

Plaintiff’s counsel shall submit an order for the Court’s signature pursuant to CCP § 437c(g) and CRC Rule 3.1312.