Case Name: Orlando Paramo v. Melissa Elena Anaya, et al.

Case No.: 1-12-CV-230170

This action arises out of injuries sustained by plaintiff Orlando Paramo (“Plaintiff”) on August 17, 2011, when he bit into a rock that was mixed into the refried beans served to him at defendant Maria Elena’s Restaurant (“Maria Elena’s Restaurant”). (See Fourth Amended Complaint (“4AC”), ¶¶ 12, 14-17.) Defendants Golden Eagle Insurance Corporation (“Golden Eagle”) and Liberty Mutual Insurance Company (“Liberty Mutual”) issued an insurance policy (Policy No. CBP 9502539) (the “Policy”) to the owners of the property who leased the premises to Maria Elena’s Restaurant, Kit Lai, Ping Lai, and Taylor Gold, LLC (the “Owners”). (See 4AC, ¶¶ 13, 18-19, 23, Ex. A.)

On November 28, 2014, Plaintiff filed the operative 4AC against Maria Elena’s Restaurant, Golden Eagle, and Liberty Mutual, alleging causes of action for: (1) breach of contract (against Golden Eagle and Liberty Mutual); (2) fraud and deceit (against Golden Eagle and Liberty Mutual); (3) intentional/negligent misrepresentation (against Golden Eagle and Liberty Mutual); (4) insurance bad faith (against Golden Eagle and Liberty Mutual); (5) breach of the covenant of good faith and fair dealing (against Golden Eagle and Liberty Mutual); (6) negligence (against Maria Elena’s Restaurant); and (7) premises liability (against Maria Elena’s Restaurant).

Currently before the Court is the demurrer by Golden Eagle and Liberty Mutual (collectively “Defendants”) to the 4AC. Defendants demur to the first, second, third, fourth, and fifth causes of action of the 4AC on the ground of failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

“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.)

As an initial matter, the Court has not considered the declaration of Plaintiff’s counsel submitted in opposition to the demurrer or any of the exhibits attached thereto as a demurrer tests only the legal sufficiency of the pleading. (See id.)
Defendants’ argument that the Court should sustain the demurrer as to the first through fifth causes of action of the 4AC because the claims are barred by the litigation privilege is not well-taken. Defendants contend in their moving papers that the claims are barred by the litigation privilege because “anything [they] have communicated in this action, by way of prior defensive pleadings, correspondence, or otherwise, may not serve as a basis for Plaintiff’s action” (see Mem. Ps. & As., p. 10:15-17), but they do not explain how the claims are based upon their pleadings and/or correspondence issued in this action. (See Schaeffer Land Trust v. San Jose City Council (1989) 215 Cal.App.3d 612, 619, fn. 2 [“[A] point which is merely suggested by a party’s counsel, with no supporting argument or authority, is deemed to be without foundation and requires no discussion.”]; see also Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785 [“When [a party] fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived.”].) In their reply, Defendants specifically assert that their coverage denial letters were issued during the course of this action and are, therefore, privileged communications. However, the coverage denial letter identified in the 4AC does not constitute a communication made in a judicial proceeding as it is ancillary to the litigation, Defendants were not a party to the litigation at the time the denial letter issued, and there is no indication that it was made to achieve the objects of the litigation. (See Civ. Code, § 47, subds. (a) and (b) [setting forth the litigation privilege]; see also Silberg v. Anderson (1990) 50 Cal.3d 205, 212 [noting that the communication must be made by the litigants or other participants in the litigation to achieve the objects of the litigation].) Moreover the cases cited by Defendants do not support their position as they involve application of the litigation privilege to defensive pleadings and business record subpoenas. (See California Physicians’ Service v. Superior Court (1992) 9 Cal.App.4th 1321, 1330 [regarding defensive pleadings]; see also Nies v. National Auto. & Casualty Ins. Co. (1988) 199 Cal.App.3d 1192 [regarding pleadings]; see also Mallard v. Progressive Choice Ins. Co. (2010) 188 Cal.App.4th 531, 543-544 [regarding business records subpoenas].)
Defendants’ argument that the Court should sustain the demurrer as to the first through fifth causes of action of the 4AC because Plaintiff lacks standing to sue under the Policy is without merit. Plaintiff adequately alleges that he is an intended third-party beneficiary of the Policy. (See 4AC, ¶¶ 1, 20-21; see also Harper v. Wausau Ins. Corp. (1997) 56 Cal.App.4th 1079, 1086 [“a claimant may sue the insurer as a third party beneficiary utilizing traditional contract principles.”]; see also Southern Cal. Gas Co. v. ABC Construction Co. (1962) 204 Cal.App.2d 747, 750-752 [stating that a third party may qualify as a beneficiary under a contract where the contracting parties must have intended to benefit that individual and such intent appears on the terms of the agreement]; see also Ascherman v. General Reinsurance Corp. (1986) 183 Cal.App.3d 307, 311; see also Civ. Code, § 1559 [allowing direct action against an insurance company to enforce the terms of a contract which were intended to benefit the third party].) Medical payment provisions of the type set forth in the Policy provide exceptions to the general rule barring actions against the insurer for liability because the medical coverage provisions provide direct obligations on the part of the insurer to the intended beneficiaries. (See Harper v. Wausau Ins. Corp. (1997) 56 Cal.App.4th 1079, 1089.) The express language of the Policy plainly indicates it is meant to directly confer a benefit upon third parties who are injured on the Owners’ property and the payment is premised on the happening of the event, not on fault. (See 4AC, Ex. A, p. 145, “Coverage C Medical Payments”.) Thus, Defendants undertook a separate and direct obligation to pay to the medical expenses of any persons injured on the Owners’ property regardless of the Owners’ negligence. Accordingly, the payments were plainly intended to directly benefit Plaintiff and were not incidental or remote. (See Harper v. Wausau Ins. Corp. (1997) 56 Cal.App.4th 1079, 1090.)

Specifically with respect to the first cause of action for breach of contract, Defendants’ argument that Plaintiff fails to allege facts sufficient to constitute a cause of action because he did not incur and/or report his medical expenses to them within one year of the date of the accident is without merit. Plaintiff persuasively argues that even assuming arguendo that he did not report his medical expenses within the one-year notice period set forth in the policy, Defendants’ obligations under the policy are not excused because they have not shown actual prejudice as a result of the delay. (See Mercury Casualty Co. v. Maloney (2003) 113 Cal.App.4th 799, 802-803 [“[A] third party beneficiary’s rights under the contract are not based on the existence of an actual contractual relationship between the parties but on the law’s recognition that the acts of the contracting parties created a duty and established privity between the promisor and the third party beneficiary with respect to the obligation on which the action is founded. [Citations] Accordingly, the third party beneficiary’s rights under the contract are subject to the conditions imposed therein.”]; see also 4AC, Ex. A, p. 145, “Coverage C Medical Payments” [stating that Defendant will pay for medical expenses for bodily injury provided that “[t]he expenses are incurred and reported to [them] within one year of the date of the accident ….” ]; see also Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 306 [“prejudice must be shown with respect to breach of a notice clause”]; see also Safeco Ins. Co. of America v. Parks (2009) 170 Cal.App.4th 992, 1003-1004 [“failure to comply with the notice or claims provisions in an insurance policy will not excuse the insurer’s obligations under the policy unless the insurer proves it was substantially prejudiced by the late notice. [Citations] ‘Prejudice is not presumed from delayed notice alone. [Citations.] The insurer must show actual prejudice, not the mere possibility of prejudice.’”].)

Accordingly, the demurrer to the first cause of action is OVERRULED.

Specifically with respect to the second cause of action for fraud and deceit and the third cause of action for intentional/negligent misrepresentation, Defendants unsuccessfully argue that the claims are not pled with the requisite specificity, there are no allegations regarding Defendants’ knowledge of the falsity of the representations, and there are no allegations establishing that Defendants owed Plaintiff a duty. The allegations for fraud are made with particularity as the 4AC alleges that the misrepresentations were made by Jose Serrano, a senior claims representative for Defendants, in an April 17, 2014 letter. (See 4AC, ¶¶ 32, 42; see also Lazar v. Super. Ct. (1996) 12 Cal.4th 632, 645 [to state a claim for fraud the plaintiff must allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written].) The 4AC further alleges that Defendants made the alleged false representations “knowing the falsity of their representations … and did so with the intent to defraud Plaintiff.” (4AC, ¶ 31; see also 5 Witkin, California Procedure (5th ed. 2008) Pleading, §728, p. 145 [“Intent, like knowledge, is a fact. Hence, the averment that the representation was made with the intent to deceive the plaintiff, or any other general allegation with similar purport, is sufficient.”].) Moreover, as Plaintiff was an intended third-party beneficiary of the Policy, Defendants owed him a legal duty not to make false representations and to disclose material facts about the terms of the Policy and coverage under the same. (See LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 337 [“As a matter of common sense, … a relationship [creating a duty] can only come into being as a result of some sort of transaction between the parties.”].)

Accordingly, the demurrer to the second and third causes of action is OVERRULED.

Specifically with respect to the fourth cause of action for insurance bad faith and the fifth cause of action for breach of the covenant of good faith and fair dealing, the 4AC adequately alleges facts establishing Plaintiff’s right to recover under the Policy and that Defendants wrongfully denied coverage for Plaintiffs’ injuries. (See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 575 [noting that cause of action against the insurer for breach of the implied covenant requires, first, that a benefit be due under the terms of the policy and, second, that the insurer withhold the benefit unreasonably or without probable cause]; see also McMillin Scripps North Partnership v. Royal Ins. Co. (1993) 19 Cal.App.4th 1215, 1222 [setting forth the circumstances under which a bad faith claim can be made].)

Accordingly, the demurrer to the fourth and fifth causes of action is OVERRULED.