Case Name: Ali Amidy d/b/a Eden Garden, LLC v. Arch Specialty Insurance Co.

Case No.: 1-13-CV-254922

Demurrer to the first amended complaint and motion to strike by defendant Arch Specialty Insurance Co.

A. Request for Judicial Notice

Defendant’s request for judicial notice of the original verified complaint is GRANTED. (See Evid. Code, § 452, subd. (d) [permitting judicial notice of court records].)

B. Demurrer

1. Uncertainty

Defendant’s demurrer to the first cause of action for breach of contract, second cause of action for breach of the covenant of good faith and fair dealing, and third cause of action for declaratory relief on the ground of uncertainty [Code Civ. Proc., § 430.10, subd. (f)] is OVERRULED. A demurrer based on uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures. (See Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) A demurrer for uncertainty should only be sustained when the complaint is so bad that the defendant cannot reasonably respond. (Id.) Here, the causes of action are certain enough to allow Defendant to understand the nature of the allegations and the theory of liability to fashion an appropriate response.

2. Failure to State Sufficient Facts

Defendant’s demurrer to the first cause of action for breach of contract, second cause of action for breach of the covenant of good faith and fair dealing, and third cause of action for declaratory relief on the ground of failure to state sufficient facts [Code Civ. Proc., § 430.10, subd. (e)] is OVERRULED.

Defendant contends that the First Amended Complaint (“FAC”) contains allegations regarding the insurance policy that are inconsistent on their face with the copy of the policy attached to the original verified complaint. The FAC does not contain a copy of the policy as an exhibit. Plaintiff Ali Amidy d/b/a Eden Garden, LLC attempts to point out in opposition that the policy is not inconsistent from the previously attached policy as there also was a premium received for wrap-up coverage that would go into effect upon completion of the project. According to Plaintiff: (1) premiums were received for the wrap-up policy; (2) the wrap-up coverage never was in effect; and (3) Arch confirmed Plaintiff was entitled to reimbursement of the premiums paid for the wrap-up coverage. Plaintiff’s opposition argument aside, the more fundamental issue with Defendant’s contention is that the policy Defendant wants the Court to compare with the FAC is not complete. The copy of the policy attached to Defendant’s request for judicial notice does not contain the first two pages. Regardless of whether these pages were omitted from the original verified complaint or not still leads the Court to the same conclusion; namely, that it cannot fully review whether the policy is inconsistent with the allegations contained in the FAC based on the materials before it. The Court, therefore, cannot reach the merits of Defendant’s contention as a full policy document is not available.

Defendant argues that the first cause of action for breach of contract fails because the contract was not attached to the FAC or its terms set-out verbatim in the body of the pleading. Defendant is correct that generally, if a breach of contract cause of action relies on a written contract, the contract must be set out verbatim in the body of the complaint or as a copy attached and incorporated by reference. (Otworth v. S. Pac. Transp. Co. (1985) 166 Cal.App.3d 452, 459, citing Wise v. S. Pac. Co. (1963) 223 Cal.App.2d 50, 59).) What Defendant omits from its recitation of the relevant case law is that the other method of pleading a written contract is according to its legal effect, by alleging the making, and then proceeding to allege the substance of its relevant terms. (See Constr. Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-99.) Here, although Plaintiff has not set out the subject contract verbatim in the body of the FAC and incorporated it by reference, Plaintiff does allege the substance of the contract’s relevant terms. (See FAC, ¶¶ 7-9.)

Defendant maintains that the first cause of action for breach of contract fails because “[t]here are no factual allegations which support a claim for breach of contract by ARCH.” (Memorandum at p. 12:13-14.) To be entitled to damages for breach of contract, a plaintiff must plead and prove: (1) a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) damage to plaintiff. (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1352.) Plaintiff alleges it purchased an insurance contract and a wrap-up policy. (FAC, ¶¶ 7-8.) Defendant breached the contract when it failed to reimburse Plaintiff for a portion of the premiums paid. (Id., ¶ 9-13.) Plaintiff was damaged as it lost the $400,000 in premiums paid to Defendant. (Id., ¶ 14.) Defendant’s remaining arguments try to impose a specificity requirement on a breach of contract claim. Plaintiff is not obligated to plead this cause of action with specificity.

Defendant asserts that the statute of limitations bars the first cause of action for breach of contract and second cause of action for breach of the implied covenant of good faith and fair dealing. A claim for breach of a written contract is subject to a four-year limitations period. (Code Civ. Proc., § 337(1).) A demurrer on statute of limitations grounds does not lie unless the running of the statute appears “clearly and affirmatively” from the dates alleged in the complaint. It is not enough that the complaint might be barred. (See Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.) Defendant proffers that the policy terminated in October 1, 2009, meaning this action is time-barred as it was filed on October 22, 2013. Plaintiff alleges in opposition that the wrap-up coverage under the policy did not go into effect until after the time of completion of the project. Although the FAC does not contain as clear of an allegation as Plaintiff presents in its opposition, the FAC does provide that the intent of the wrap-up coverage for the project was “to take place once the project was completed.” (FAC, ¶ 8.) According to the FAC, the project was not completed, and eventually was foreclosed upon in January 2013. (Id., ¶ 10.) Liberally construing the allegations in Plaintiff’s favor, the Court agrees that the statute of limitations has not run for purposes of this demurrer as the running of the statute does not appear “clearly and affirmatively” from the dates alleged in the FAC.

Defendant argues that the second cause of action for breach of the implied covenant of good faith and fair dealing fails because such a claim is limited to the handling of any claim for benefits. According to Defendant, the FAC does not allege that Defendant committed any wrong in handling of any claim for benefits presented under the policy. As Plaintiff correctly posits, bad faith claims are not limited to claims handling. (See Tilbury Constructors, Inc. v. State Compensation Ins. Fund (2006) 137 Cal.App.4th 466, 480 [“[T]he overcharging of premiums was inextricably linked to the mishandling of claims − precisely the kind of bad faith behavior that goes to the heart of the special insurance relationship and gives rise to tort remedies. The premium overbilling alleged in this case is separate from any allegations of claims mishandling.”]; see also Spindle v. Travelers Ins. Companies (1977) 66 Cal.App.3d 951, 958 [“Cancellation provisions of a contract are subject to the covenant of good faith and fair dealing just as are other provisions of a contract . . . . It has been stated that ‘where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.’”].) Here, the cause of action is not simply dealing with claims handling. Rather, this cause of action is based on Defendant: (1) making false and misleading statements and representations about coverage; (2) misrepresenting to Plaintiff pertinent facts and policy provisions relating to coverage, benefits, and rights to a refund; and (3) resolving ambiguities in the policy concerning the scope of coverage to Defendant’s benefit. (FAC, ¶ 18.)

Defendant avers that since the first and second causes of action fail, the third cause of action for declaratory relief also fails to state a claim. Because the first and second causes of action are sufficient for pleading purposes, Defendant’s position lacks merit.

C. Motion to Strike

Defendant’s motion to strike the entire second cause of action for breach of the implied covenant of good faith and fair dealing is DENIED. As noted, Defendant can be liable for damages for bad faith beyond the handling of claims. (See Tilbury Constructors, Inc., supra, 137 Cal.App.4th at p. 480; Spindle, supra, 66 Cal.App.3d at p. 958.)

Defendant’s motion to strike the attorney’s fee and other fee allegations is DENIED. (See Brandt v. Super. Ct. (1985) 37 Cal.3d 813, 817.)

Defendants’ motion to strike the punitive damage allegations is GRANTED WITHOUT LEAVE TO AMEND. Plaintiff concedes the merits of the motion as Plaintiff did not address this issue in its opposition.