Case Name: Michael Tomas, et al. v. United Services Automobile Association, et al.
Case No.: 2019-CV-348493

Demurrer to the Complaint by Defendant United Services Automobile Association

Factual and Procedural Background

This is a declaratory relief action. On May 14, 2017, defendant Jeremy Lucio (“Lucio”) reported the theft of his Smith & Wesson Military and Police .40 caliber pistol handgun, together with matching magazines and ammunition, from his unlocked vehicle to the Gilroy Police Department. (Complaint at ¶ 7.) On May 26, 2017, the firearm that was stolen from Lucio’s car was used by juveniles to shoot and maim plaintiff Michael Tomas near his home in Gilroy. (Id. at ¶ 12.)

Thereafter, Michael Tomas and his wife, Amanda Tomas (collectively, “Plaintiffs”), filed a civil action against Lucio in Santa Clara County (case no. 18CV329796) which is currently pending. (Complaint at ¶ 13.) During discovery in that proceeding, Lucio stated he has a renter’s policy and automobile policy with defendant United Services Automobile Association (“USAA”). (Ibid.) The renter’s policy provides for $100,000 in coverage for each occurrence, and the auto policy provides for $100,000 in bodily injury coverage for each person claiming injury and $300,000 for each accident. (Ibid.)

On March 25, 2019, Plaintiffs delivered a demand letter to Lucio’s attorney taking the position that Lucio had $305,000 in available insurance coverage and indemnity under his two policies of insurance with defendant USAA. (Complaint at ¶ 14, Ex. 1.)

On May 1, 2019, defendant USAA sent a letter to Lucio explaining, incorrectly, that only $100,000 in insurance coverage and indemnity was available to him under these insurance policies. (Complaint at ¶ 15, Ex. 2.)

Plaintiffs allege an actual controversy exists between them and defendants concerning their respective rights and duties as they contend Lucio has insurance coverage totaling $305,000 while USAA disputes this contention. (Complaint at ¶ 16.)

On May 20, 2019, Plaintiffs filed the operative Complaint alleging a single cause of action for declaratory relief.

Demurrer to the Complaint

Currently before the Court is a demurrer to the Complaint by defendant USAA. Plaintiff filed written opposition.

Legal Standard

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

“The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. … [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)

Demurrer to the Complaint is OVERRULED.

Defendant USAA raises the following grounds for demurrer: (1) lack of standing; (2) failure to state a cause of action; and (3) misjoinder of parties. (Code Civ. Proc., § 430.10, subds. (d), (e).)

Defendant USAA first argues that Plaintiffs lack standing to sue for declaratory relief as they are not in privity of contract with USAA.

“Standing is the threshold element required to state a cause of action and, thus, lack of standing may be raised by demurrer.” (Martin v. Bridgeport Community Assn., Inc. (2009) 173 Cal.App.4th 1024, 1031.) To have standing to sue, a person, or those whom he properly represents, must “ ‘have a real interest in the ultimate adjudication because [he or she] has [either] suffered [or] is about to suffer any injury of sufficient magnitude reasonably to assure that all of the relevant facts and issues will be adequately presented.’ [Citation.]” (Schmier v. Supreme Ct. (2000) 78 Cal.App.4th 703, 707.) Code of Civil Procedure section 367 establishes the rule that “[e]very action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.” A real party in interest is one who has “an actual and substantial interest in the subject matter of the action and who would be benefitted or injured by the judgment in the action.” (Friendly Village Community Assn., Inc. v. Silva & Hill Constr. Co. (1973) 31 Cal.App.3d 220, 225.)

“ ‘Generally, an insurer may not be joined as a party-defendant in the underlying action against the insured by the injured third party. The fact that an insurer has agreed to indemnify the insured for any judgment rendered in the action does not make the insurer a proper party. Liability insurance is not a contract for the benefit of the injured party so as to allow it to sue the insurer directly.’ [Citation.]” (Royal Surplus Lines Ins. Co., Inc. v. Ranger Ins. Co. (2002) 100 Cal.App.4th 193, 200.)

Thus, the injured third party is not in privity of contract (nor is he or she an express beneficiary of the policy) and therefore generally lacks standing to sue the insurer for failure to settle a claim under the policy. (See Royal Indem. Co. v. United Enterprises, Inc. (2008) 162 Cal.App.4th 194, 211 (Royal Indem. Co.) [third party claimant lacked standing to intervene in coverage litigation between insurer and insured].) There are exceptions to this rule for assignees, judgment creditors, and intended beneficiaries. (Id. at pp. 205-206.) In addition, “where the insurer itself is seeking to obtain declaratory relief against a third party claimant, courts may allow coverage issues to be resolved in that format.” (Id. at p. 206.)

As Plaintiffs are not in privity of contract with USAA, defendant argues there is no standing to bring a declaratory relief action to settle a claim under the policies. Defendant USAA also contends no exceptions apply as Plaintiffs do not allege they are assignees, judgment creditors or intended beneficiaries.

However, as explained in opposition, “[a]nother recognized exception to the limitations on standing of a third party claimant against an insurer is found: Where ‘the liability insurance also provides medical payments coverage for anyone injured by the insured, the injured party may have a direct claim against the insurer for his or her medical expenses. I.e., the injured party is treated as an additional insured as to the medical payments coverage.’ [Citation.]” (Royal Indem. Co., supra, 162 Cal.App.4th at p. 206.) That is the situation here as Plaintiffs seek a judicial determination in part based on $5,000 in med-pay coverage available to pay plaintiff Michael’s medical bills arising from the loss. (Complaint at ¶ 17, Ex. 1.) Defendant USAA does not address this exception in its moving papers. As Plaintiffs have pled this exception in support of their declaratory relief claim, the demurrer is not sustainable for lack of standing.

The additional grounds for demurrer based on failure to state a cause of action and misjoinder of parties are dependent on the standing argument. (See Memo of P’s & A’s at pp. 8-9.) For reasons stated above, Plaintiffs have standing to allege their claim for declaratory relief. As a consequence, the demurrer on the remaining grounds is not sustainable.

Accordingly, the demurrer to the Complaint is OVERRULED in its entirety.