Case Name: Veronica Lopez Martinez, et al. v. Estate of Grace D. Yu, et al.
Case No.: 17-CV-312744

I. Background

This is a wrongful death action arising from a head-on automobile collision in a no-passing zone. Plaintiffs Veronica Lopez Martinez and Pascual Lopez (collectively, “Plaintiffs”) allege their son Marcos Lopez Martinez died when Grace D. Yu drove her vehicle, while intoxicated, across the center line into oncoming traffic on Highway 120 in Sonora, California. (Compl., ¶¶ 3-4.) On the night of the collision, Plaintiffs’ son was driving to the Evergreen Lodge, where he lived and worked as a cook, and Ms. Yu was driving herself and four passengers home from a church outing in Yosemite National Park. (Compl., ¶¶ 10-11.) Ms. Yu worked for defendant Abundant Life Assembly of God, who organized the outing; she drove a vehicle co-owned by her husband, defendant Ik Sea Younn, who was the pastor at defendant Logos Mission Church. (Compl., ¶¶ 7 10.)

Plaintiffs assert causes of action against Ms. Yu’s estate, Mr. Younn, Logos Mission Church, and Abundant Life Assembly of God for general negligence, negligence per se, and wrongful death. Plaintiffs assert causes of action against Evergreen Lodge for negligence, wrongful death, breach of contract for insurance, and declaratory relief.

Plaintiffs also allege defendant Scottsdale Insurance Company (“Scottsdale”) issued an insurance policy, underwritten by defendant National Casualty Company (“NCC”), to Evergreen Lodge with coverage of up to $1,000,000 for incidents involving uninsured or underinsured motorists. (Compl., ¶¶ 42-44, 54.) Plaintiffs allege Scottsdale, NCC, and defendant K & K Insurance Group, Inc. (“KKIG”), the claims administrator, conspired to deny coverage for the collision. (Compl., ¶ 78.)

Plaintiffs assert causes of action against all three insurance defendants (collectively, the “Insurers”). Specifically, Plaintiffs assert causes of action against Scottsdale and NCC for breach of contract, declaratory relief, breach of the implied covenant of good faith and fair dealing, and conspiracy to breach contract. Plaintiffs name KKIG as an additional defendant in their conspiracy cause of action.

Currently before the Court is the Insurers’ demurrer to the first cause of action for breach of contract, second cause of action for declaratory relief, third cause of action for breach of the implied covenant of good faith and fair dealing, and fourth cause of action for conspiracy to breach contract on the grounds of failure to state facts sufficient to constitute a cause of action and uncertainty. The Insurers also move to strike all references to NCC and KKIG in the complaint.

II. Demurrer

A. Failure to State Sufficient Facts

The Insurers advance one central argument in support of their general demurrer to the first, second, third, and fourth causes of action. They argue Plaintiffs cannot state a cognizable claim because the insurance policy does not provide coverage for the collision. The Court first considers this central argument before evaluating whether it justifies sustaining the demurrer to each cause of action at issue.

For purposes of a demurrer, a court “admits the truth of all material factual allegations in the complaint.” (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496.) If facts appearing in an attached exhibit contradict those expressly pleaded in the complaint, those in the exhibit are given precedence. (Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 567-68.)

Plaintiffs allege Marcos Lopez Martinez drove a vehicle designated as a “Symbol No. 9 auto” within the meaning of the insurance policy such that he was covered while driving to the Evergreen Lodge at the time of the collision. (Compl., ¶¶ 47, 56.) Symbol No. 9 autos are defined as “only those ‘autos’ you do not own, lease, hire, rent or borrow that are used in connection with your business . . . includ[ing] ‘autos’ owned by your ‘employees[,]’ partners (if you are a partnership), members (if you are a limited liability company) or members of their households but only while used in your business or your personal affairs.” (Compl., Ex. E.) “The symbols entered next to a coverage on the Declarations designate the only ‘autos’ that are covered ‘autos.’” (Compl., Ex. E.) Contrary to the allegations in the body of the complaint, the policy declaration shows that Symbol No. 9 autos are not covered under the uninsured and underinsured motorists endorsement. (Compl., Ex. C.) The endorsement covers Symbol Nos. 2 and 8 autos, which include vehicles Evergreen Lodge owns or leases and specifically excludes employee-owned vehicles operated in the course of business (Symbol No. 9 autos). (Compl., Exs. C, E.) Symbol No. 9 autos are not listed anywhere on the policy declaration. (Compl., Ex. C.) Consequently, the policy declaration attached to the complaint contradicts Plaintiffs’ allegation that Symbol No. 9 autos are covered under the uninsured and underinsured motorists endorsement.

In opposition, Plaintiffs assert the policy covers employees as insureds. Although not entirely clear, it appears Plaintiffs presume the policy covers the collision so long as their son was an insured. Plaintiffs’ assertion is not entirely accurate because the policy only defines an employee as an insured “while using a covered ‘auto’ you don’t own, hire or borrow in your business or your personal affairs.” (Compl., Ex. D.) As explained above, Plaintiffs’ allegation that Symbol No. 9 autos are covered is directly contradicted by the policy documents. Thus, Plaintiffs’ assertion that their son was an “insured” is not supported by the allegations in the complaint.

The Insurers’ argument that Plaintiffs fail to allege the insurance policy covers the collision is meritorious. The Court therefore considers the significance of this argument with respect to each cause of action at issue. The Court first addresses Plaintiffs’ contract claims before addressing their claim for declaratory relief.

1. First and Third Causes of Action

The first and third causes of action are for breach of contract and breach of the implied covenant of good faith and fair dealing.

In order to state any type of breach of contract claim, including a claim for breach of the implied covenant of good faith and fair dealing, the plaintiff must allege there was an agreement between the parties the terms of which were frustrated or breached. (See McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489; see also Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031.) Coverage is a prerequisite for a claim of bad faith failure to pay benefits under an insurance policy. (Love v. Fire Insurance Exchange (1990) 221 Cal.App.3d 1136, 1151-52.) A court may sustain a demurrer to causes of action for breach of an insurance contract and breach of the implied covenant of good faith and fair dealing when the insurance policy does not cover the collision alleged. (Mercury Insurance Co. v. Pearson (2008) 169 Cal.App.4th 1064, 1070-71 [considering coverage under uninsured and underinsured motorists endorsement].)

As explained above, the policy documents attached to the complaint do not show Symbol No. 9 autos are covered under the uninsured and underinsured motorists endorsement. In other words, Plaintiffs do not adequately allege the Insurers breached the insurance contract by denying coverage under the circumstances of this particular collision. In opposition, Plaintiffs argue they also allege coverage based on the fact their son was driving a temporary substitute for a covered auto. But no such allegation appears in the complaint, which exclusively alleges coverage under the uninsured and underinsured motorists endorsement based on his driving a Symbol No. 9 auto. (See Compl., ¶¶ 43, 47, 56-57, 69-70, 77-78.) Plaintiffs therefore fail to state causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing.

The Insurers argue the first and third causes of action are not cognizable as against NCC and KKIG for the additional reason that Plaintiffs do not allege they were parties to the insurance contract. The Insurers are correct that only the insurer, not third parties, can be liable for breach of contract or breach of the implied covenant of good faith and fair dealing, even if the third parties were involved in the claims process. (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 511-12, citing Gruenberg v. Aetna Insurance Co. (1973) 9 Cal.3d 566, 576 [claims adjuster and other corporate agents acting on behalf of insurer not liable].) The policy documents clearly identify Scottsdale as the sole insurer and party to the insurance contract. (Compl., Ex. B.) Plaintiffs allege NCC and KKIG were the underwriter and claims administrator, respectively. (Compl., ¶¶ 17-18.) Plaintiffs do not allege and the policy documents do not identify either NCC or KKIG as the insurer. Plaintiffs therefore cannot assert causes of action for breach of contract or breach of the implied covenant of good faith and fair dealing against NCC and KKIG.

Based on the foregoing, the demurrer to the first and third causes of action is sustainable. When sustaining a demurrer, a court may deny leave to amend if the plaintiff cannot demonstrate any reasonable possibility of curing the defect in the pleading through amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Plaintiffs generically request leave to amend without stating what facts they could allege to cure the defects in these causes of action. Plaintiffs cannot save their causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing as asserted against NCC and KKIG by alleging additional facts because they cannot be liable as a matter of law. As for Scottsdale, although Plaintiffs’ current theory of coverage is not supported by the exhibits attached to the complaint, it is not obvious they will be unable to allege any other basis for coverage. For these reasons, the demurrer to the first and third causes of action as asserted against Scottsdale is SUSTAINED with 10 days’ leave to amend. The demurrer to the first and third causes of action as asserted against NCC and KKIG is SUSTAINED WITHOUT LEAVE TO AMEND.

The Court notes that in the event of a challenge to any amended pleading, it may admit the truth of facts in a superseded pleading if allegations in the amended pleading contradict or are clearly inconsistent with the previous allegations. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 606.)

2. Fourth Cause of Action

Plaintiffs state the fourth cause of action is for “conspiracy to breach contract.” (Compl. at p. 22:6.) The Insurers argue conspiracy is not a recognized cause of action. (Mem. of Pts. & Auth. at p. 13:18-23.) In opposition, Plaintiffs do not address this argument; they simply state their “conspiracy cause of action is actionable against all three of the insurance defendants.” (Opp. at p. 10:10-11.)

“Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.” (Applied Equipment Corp., supra, 7 Cal.4th at 510-11.) Plaintiffs thus cannot state a cause of action for “conspiracy to breach contract” against the Insurers because it is not a recognized cause of action.

Nevertheless, in ruling on a demurrer, a court is not bound by the label on a cause of action. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.) “If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Ibid.) The parties, however, provided only limited analysis here. Thus, to determine whether a cause of action has been stated under any theory, the Court finds it necessary to discuss, sua sponte, the following concepts and distinctions in tort and contract law.

Significantly, as a theory of tort liability, conspiracy cannot be advanced as a theory of liability for breach of a contract. (Applied Equipment Corp., supra, 7 Cal.4th at pp. 516-17.) As the California Supreme Court has explained, “[r]egardless of the presence or absence of third party involvement, the contracting party has done nothing more socially opprobrious than to fall short in meeting a contractual commitment. Only contract damages are due.” (Id. at p. 517.) Thus, while Plaintiffs can assert a cause of action against Scottsdale for breach of contract, it cannot be based on a conspiracy theory of liability.

Additionally, a conspiracy theory of liability “allows tort recovery only against a party who already owes [a] duty,” it cannot create a duty in contract or tort. (Id. at p. 514.) Thus, a plaintiff cannot seek to hold a third party that owes no contractual duty liable for breach of contract based on a conspiracy theory; only the party to the contract can be held liable for the breach. (Ibid.) Thus, Plaintiffs cannot assert causes of action against NCC and KKIG for breach of contract, even by alleging the existence of a conspiracy.

Rather, “California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract.” (Ibid., original italics.) A cause of action for interference protects “the expectations of contracting parties against frustration by outsiders . . . [but] does not lie against a party to the contract.” (Ibid., original italics.) Plaintiffs, however, do not clearly assert a cause of action for intentional interference with contractual relations against NCC and KKIG and do not otherwise plead facts sufficient to state a cause of action.

“The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage.” (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)

As explained above, Plaintiffs do not allege facts sufficient to show coverage for the collision as necessary for the nonpayment of benefits under the policy to constitute a breach. Plaintiffs therefore do not allege facts sufficient to state a cause of action for interference based on a breach and do not otherwise allege some lesser disruption.

Additionally, Plaintiffs cannot assert a cause of action for interference against Scottsdale since it is a party to the insurance contract. As summarized by the Sixth District, “[i]n Applied Equipment, our high court addressed whether a contracting party may be held liable in tort for conspiracy to interfere with its own contract.” (Popescu v. Apple, Inc. (2016) 1 Cal.App.5th 39, 51-52, citing Applied Equipment Corp., supra, 7 Cal.4th at 507.) “The court said it could not.” (Id. at p. 52.)

In sum, the fourth cause of action is not cognizable either as labeled or when considered as a cause of action for interference. The demurrer to the fourth cause of action is therefore sustainable.

Although there is no reasonable possibility Plaintiffs could allege new facts to state a cause of action for “conspiracy to breach contract,” there is a possibility they could allege facts to state a cause of action for interference against NCC and KKIG. Consequently, the demurrer to the fourth cause of action as asserted against NCC and KKIG is SUSTAINED with 10 days’ leave to amend. The demurrer to the fourth cause of action as asserted against Scottsdale is SUSTAINED WITHOUT LEAVE TO AMEND.

3. Second Cause of Action

As for the second cause of action, the Insurers assert in a conclusory manner that “Plaintiffs are not entitled to a judicial declaration of coverage because there was no coverage for the underlying accident under Scottsdale’s policy.” (Mem. of Pts. & Auth. at p. 14:13-14.) But Plaintiffs need not allege facts showing they are “entitled to a favorable judgment.” (Centex Homes v. St. Paul Fire and Marine Insurance Co. (2015) 237 Cal.App.4th 23, 29.) To state a claim for declaratory relief, a plaintiff must allege there is “an ‘actual controversy relating to the legal rights and duties of the respective parties,’ not an abstract or academic dispute.” (Ibid., quoting Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 746-47, original italics; see also Code Civ. Proc., § 1060.) “Strictly speaking, therefore, a demurrer is not the appropriate weapon with which to attack the merits of a claim for declaratory relief.” (Siciliano v. Fireman’s Fund Insurance Co. (1976) 62 Cal.App.3d 745, 755.) The Insurers essentially argue Plaintiffs do not allege facts showing they will be entitled to a favorable declaration, but they are not required to do so to state a claim for declaratory relief. The Insurers’ argument therefore does not justify sustaining the demurrer. They do not advance any other arguments. Consequently, the demurrer to the second cause of action is OVERRULED.

B. Uncertainty

The Insurers also demur on the ground of uncertainty. A party may demur on the ground of uncertainty to challenge a pleading as uncertain, ambiguous, or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) “[D]emurrers for uncertainty are disfavored and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Lickiss v. Financial Industry Reg. Authority (2012) 208 Cal.App.4th 1125, 1135.)

Although not clearly articulated by the Insurers, it appears the only argument advanced in support of their special demurrer on the ground of uncertainty is that the “allegation that NCC may have ‘underwritten’ the policy is vague and ambiguous, and does not make it liable on a contract to which it was not a party.” (Opp. at p. 15:21-23.) This argument does not provide adequate support for the conclusion that the pleading is so incomprehensible that they cannot respond.

To the extent the Insurers intended to advance the same arguments presented in support of their general demurrer, “[a] special demurrer for uncertainty is not intended to reach the failure to incorporate sufficient facts in the pleading, but is directed at the uncertainty existing in the allegations actually made.” (Butler v. Sequeira (1950) 100 Cal.App.2d 143, 145-46.) Consequently, the special demurrer on the ground of uncertainty is not sustainable on the basis Plaintiffs do not adequately plead contractual liability with respect to NCC.

In conclusion, the Insurers do not adequately support their demurrer on the ground of uncertainty, which is OVERRULED.

III. Motion to Strike

The Insurers also move to strike all references in the complaint to NCC and KKIG. They do not identify any statutory basis for their motion. Instead, the insurers argue “the Court should sustain their demurrers, without leave to amend, and strike [NCC and KKIG] from the complaint” because they cannot be liable for any contract claims. (Mem. of Pts. & Auth. at p. 15:25-26.)

There are two statutory grounds for striking a pleading or portion thereof. (Code Civ. Proc., § 436.) A court may “[s]trike out irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., § 436, subd. (a).) Additionally, a court may “[s]trike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.” (Code Civ. Proc., § 436, subd. (b).)

It is not obvious the Insurers intended to strike references to NCC and KKIG as “irrelevant, false, or improper matter inserted in [the] pleading.” (Code Civ. Proc., § 436, subd. (a).) In the event they intended to strike these references as portions of the pleading “not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court,” their reliance on this ground is misplaced. (Code Civ. Proc., § 436, subd. (b).) While this ground “might be broadly construed to reach any deficiency in a pleading, including substantive ones, that is not its purpose or effect.” (Ferraro v. Camarlinghi (2008) 161 Cal.App.4th 509, 528, original italics.) A motion to strike is not the appropriate vehicle for raising defects properly raised by demurrer. (CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1146.) The Insurers raised, and the Court already considered, the same argument for purposes of the demurrer.

In conclusion, the Insurers do not substantiate their motion. The motion to strike is DENIED.