2018-00231467-CU-BC

Drew Bishop vs. National General Insurance Company

Nature of Proceeding: Hearing on Demurrer to Class Action Allegation in 1st Amended

Filed By: Austin, Tyler R.

Defendants National General Insurance Company and Stonewood Insurance Services, Inc.’s demurrer to the class action allegations in Plaintiff Drew Bishop’s first amended complaint (“FAC”) is sustained without leave to amend.

In this action Plaintiff alleges that he purchased an automobile insurance policy from National General. He alleges that at the time he purchased the policy he did not have any individuals of driving age living in his residence. (FAC ¶ 8.) He alleges that on April 25, 2017, Plaintiff was in an automobile collision. (Id. ¶ 11.) Plaintiff filed a claim with National General and was asked whether any adults of driving age lived in the same residence as him and he responded that an adult of driving age had recently moved in. (Id. ¶ 13.) National General’s representative informed him that his policy was terminated and that no coverage would be provided for his loss. (Id. ¶ 15.) Plaintiff alleges that National General cited a material misrepresentation as the basis for terminating his policy which contained a provision that the policy did not provide any coverage if an adult of driving age lived in the same residence. (Id. ¶ 16.) Plaintiff

alleges that he was never asked following his original application of insurance if an adult of driving age had begun living in his residence. (Id.) Plaintiff alleges causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and for violation of Business & Professions Code § 17200.

Plaintiff also includes class action allegations in the complaint. The Court previously sustained Defendants’ demur to the class action allegations on the basis that they did not satisfy the commonality requirements for a class action. The Court’s tentative ruling on the prior demurrer sustained the demurrer without leave to amend. After oral argument Plaintiff was given leave to amend. In the FAC, Plaintiff seeks to represent “all persons who purchased an insurance policy from National General and subsequently had his or her policy revoked, rescinded, terminated or otherwise had policy benefits denied as a result of a purported exclusion in the insurance policy if the insured driver lived with adults of driving age.” (FAC ¶ 18.) This is the same exact class that was set forth in the complaint which the Court found deficient. The only changes to the FAC with respect to the class allegations is the allegation that Plaintiff believes that other similarly situated individuals had their policy rescinded based on the same material misrepresentation. (FAC ¶ 26.) Plaintiff alleges that these individuals made claims under their first party collision coverage and that Defendant employed the same “tactic of asking an immaterial question as to whether the insured was living with an adult of driving age. Upon learning this immaterial information to the claim being made, Defendant rescinded other members of the putative class based on the same material representation, and coverage for the other members of the putative class for their collision coverage claim was denied. Likewise, other members of the same putative class had their remaining balances of their auto loans paid by Defendant, leaving them damages the [sic] by the value of their vehicles less the remaining balance of their auto loans.” (Id.)

Defendants again demur to the class action allegations in the FAC on the same grounds as they did as to the original complaint. Much of the Court’s previous rationale and reasoning from the ruling on the previous demurrer is equally applicable here.

As set forth in the Court’s previous ruling, a class action is proper where “the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.” (CCP § 382.) It is “settled” that trial courts may address class action allegations on a demurrer. (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 440.) “[T]rial courts properly and ‘routinely decide[ ] the issue of class certification on demurrer, sustaining demurrers without leave to amend where it is clear that there is no reasonable possibility that the plaintiffs could establish a community of interest among the potential class members and that individual issues predominate over common questions of law and fact.’” (Silva v. Block (1996) 49 Cal.App.4th 345, 349 [citation omitted].) In evaluating class allegations on demurrer, “the trial court must determine whether there is a reasonable possibility plaintiffs can plead a prima facie community of interest among class members….If the ability of

each member of the alleged class to recover clearly depends on a separate set of facts applicable only to him, then all of the policy considerations which justify class actions equally compels the dismissal of such inappropriate actions at the pleading stage.” (Id. at 350 [citations omitted].)

In Newell v. State Farm Gen. Ins. Co. (2004) 118 Cal.App.4th 1094, a trial court’s ruling

sustaining a demurrer to class action allegations without leave to amend was upheld. There, the putative class was comprised of home insurance policyholders that were denied benefits in connection with an earthquake. The Court found that the class could not satisfy the commonality requirements for a class action. The Court reasoned that even if the insurers utilized improper claims practices, “each putative class member still could recover for breach of contract and bad faith only by proving his or her individual claim was wrongfully denied, in whole or in party, and the insurer’s action in doing so was unreasonable. [citation omitted]. Thus, each putative class member’s potential recovery would involve an individual assessment of his or her property, the damage sustained and the actual claims practices employed. [citation omitted]. In such cases, class treatment is unwarranted.” (Id. at 1103 [emphasis in original].)

In Brown v. Regents of University of California (1984) 151 Cal. App. 3d 982, an order sustaining a demurrer to class-action allegations in a complaint for negligent and intentional factual concealment and misrepresentation, and for failure to provide adequate coronary care, was upheld by the court of appeal. Beyond the questions common to all the allegations, the court found that there were many difficult factual questions which could only be resolved by individual proof. Problems in common proof of reliance, complexity of damages, and the differing extent of duty owed to each individual all combined to indicate that individual issues would substantially predominate over common questions. The court found that it was not reasonably possible that plaintiffs would be able to establish a sufficient community of interest to warrant a class action. (Brown, supra, 151 Cal. App. 3d 982, 989-991)

Plaintiff’s opposition, which is for the most part identical to the opposition to the previous demurrer, again is not persuasive. Essentially he tries to distinguish Newell on the basis that the claims in that action were complex whereas the instant complaint is not. He argues that the complaint is not for breach of contract and “bad faith” alone and alleges that Defendants’ wrongfully rescinded his policy. He argues that whether the rescission was wrongful based on his claim of a practice of seeking information related to co-habiting with an adult of driving age does not require an individualized inquiry. Rather, he argues that the complaint presents a “simple factual question: was the policy rescinded based on the same alleged improper claims handling practice of seeking the same specific irrelevant information?” (Opp. 4:26-28.)

Even assuming that the case is less complex than Newell, that does not mean that the allegations of the instant complaint meet the commonality requirements for a class action. Simplicity does not automatically equate to commonality. “As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.” (Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal.App.4th 908, 916.) Plaintiff appears to assume that a finding of improper rescission of the class members’ insurance policies would establish liability. Indeed, even where an insurer brings a breach of contract claim based on improper rescission, the trier of fact must still determine whether the insured was otherwise entitled to policy benefits. (Akin v. Certain Underwriters at Lloyd’s London (2006) 140 Cal.App.4th 291, 298.) However, as was the case in Newell, even assuming that Defendants had instituted improper claims procedures, and improperly rescinded the insurance policies, each potential class member could recover for breach of contract and bad faith only by showing that he or she was entitled to benefits under his or her own policy based on the specific circumstances of his or her claim. This would require an analysis of whether each

policy’s conditions precedent were met and/or whether any exclusions applied. These are inherently fact specific inquiries unique to each policy holder.

The changes made to the FAC do not alter the above analysis. As set forth above, Plaintiff has now alleged that class members made claims under their first party collision coverage and that Defendant employed the same “tactic of asking an immaterial question as to whether the insured was living with an adult of driving age. Upon learning this immaterial information to the claim being made, Defendant rescinded other members of the putative class based on the same material representation, and coverage for the other members of the putative class for their collision coverage claim was denied. Likewise, other members of the same putative class had their remaining balances of their auto loans paid by Defendant, leaving them damages the [sic] by the value of their vehicles less the remaining balance of their auto loans.” (FAC ¶ 26.) Regardless of these new allegations, the class that Plaintiff purports to represent is unchanged from the original complaint. (FAC ¶ 18.) Even with respect to these new allegations in ¶ 26, and again even assuming that Defendants instituted the improper claims procedures and improperly rescinded the policies (which itself would require an individualized inquiry), each class member would still be required to demonstrate his or her entitlement to benefits under the policies, which is inherently fact specific and unique to each class member. Plaintiff argues that because he alleged that Defendants paid the remaining balances of the auto loans that they admitted liability under the policies and no further investigation would be required thus showing commonality. This is incorrect. The claims in this action are premised on the contention that class members were due full policy benefits under their policies but did not receive them. Even if Defendants rescinded the policies and also paid the remaining loan balances as now alleged in the FAC, each class member would still be required to show they were entitled to the policy benefits allegedly due had the policies not been rescinded, which would, as set forth above, be unique to each class member.

In short, whether or not any insured’s policy was rescinded and why requires an individualized inquiry into each specific claim and what specific communications were made to each insured. In addition, each insured would need to show that if their policy was not rescinded that they would be entitled to benefits under the policy. This too is an individualized inquiry. The new allegations in the FAC do not change this finding.

In addition, as was the case on the prior demurrer, each member’s claim for damages is also inherently unique. Plaintiff is correct that the fact that class member’s damages may be distinct does not alone preclude class certification. (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1022.) “As a general rule if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.” (Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal.App.4th 908, 916.) However, as discussed above, Defendants’ liability cannot be determined by a set of facts common to all insureds. Thus, the requirement for an individual assessment of damages combined with the inherently unique questions of liability, makes clear that individual issues predominate over common questions of fact or law.

As it did on the prior demurrer, the Court finds that the class allegations of the FAC do not satisfy the commonality requirements for a class action. On this basis alone the demurrer to the class allegations is sustained.

Separate and apart from the above, the Court agrees with Defendants that Plaintiff

also cannot demonstrate that a class action is a superior means to resolve this action. The issues identified above, specifically, the unique nature of each insured’s claim negate a class action as a superior means to resolving the action. Moreover, the potential damages for each potential class member does not appear to be of “insufficient size to warrant individual action.” (Linder, supra, 23 Cal.4th at 446.) Plaintiff’s argument that “the amount of collision damage coverage denied would very rarely, if ever, give rise to complex bad faith litigation necessary to vindicate a policy holders right” is entirely unpersuasive. Indeed, the amount of collision damage coverage denied could be substantial and could vary widely between policy holders which simply reinforces the Court’s conclusion above.

As a result, the demurrer to the class allegations is sustained without leave to amend. The Court previously gave Plaintiff leave to amend and he failed to correct the defects. In addition, Plaintiff did not request leave and the Court sees no reasonable possibility that further leave would establish a community of interest. In this vein, it bears noting that “[T]rial courts properly and ‘routinely decide[] the issue of class certification on demurrer … . [Citations.]’ [Citation.]” (Silva v. Block (1996) 49 Cal.App.4th 345, 349.) When class certification is challenged by demurrer, “the trial court must determine whether ‘there is a “reasonable possibility” plaintiffs can plead a prima facie community of interest among class members … .’ [Citation.] ‘ “The ultimate question in every case of this type is whether, given an ascertainable class, the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.” [Citations.] If the ability of each member of the class to recover clearly depends on a separate set of facts applicable only to him, then all of the policy considerations which justify class actions equally compel the dismissal of such inappropriate actions at the pleading stage.’ [Citation.]” (Id. at p. 350; see also Canon U.S.A., Inc. v. Superior Court (1998) 68 Cal.App.4th 1, 5 [“where the invalidity of the class allegations is revealed on the face of the complaint, and/or by matters subject to judicial notice, the class issue may be properly disposed of by demurrer or motion to strike”; “[i]n such circumstances, there is no need to incur the expense of an evidentiary hearing or class-related discovery”].)

The ruling does not affect Plaintiff’s individual claims and Defendants shall an file an answer to the complaint no later than January 18, 2019.

Defendants’ counsel shall submit an order and judgment of dismissal of the class allegations pursuant to CRC 3.1312.