Case Number: KC066558    Hearing Date: July 24, 2014    Dept: J

Re: Frank Pan, et al. v. Vicky Yue Chen, etc., et al. (KC066558)

MOTION TO STRIKE PORTIONS OF FIRST AMENDED COMPLAINT

Moving Party: Defendant State Farm General Insurance Company

Respondents: Plaintiffs Frank Pan and Lingling Ying

POS: Moving OK; Opposing served by regular mail contrary to CCP § 1005(c)

Plaintiffs allege that their insurance agent Vicky Chen advised them that she, on behalf of State Farm Insurance, issued a policy to Plaintiffs that provided coverage for their entire factory in the event of a fire, but that after a fire occurred, State Farm Insurance failed to fully compensate Plaintiffs for their loss. Plaintiffs commenced this action on 12/12/13. The First Amended Complaint, filed on 5/7/14, asserts causes of action for:

1. Breach of Contract
2. Negligence
3. Breach of Implied Covenant of Good Faith and Fair Dealing

The Case Management Conference is set for 7/24/14.

JUDICIAL NOTICE:

The court takes judicial notice of the Complaint in the matter entitled Diamond Construction & Design v. Frank Pan, et al., Los Angeles Superior Court Case No. KC063455, attached to Defendant’s request as Exhibit A. (Ev C § 452(d).

MOTION TO STRIKE:

Defendant State Farm General Insurance Company (“State Farm” or “Defendant”) moves to strike the following portions of Plaintiffs Frank Pan and Lingling Ying’s (collectively “Plaintiffs”) First Amended Complaint (“FAC”) pursuant to CCP §§ 435-437, on the grounds that they are irrelevant, false or improper, and not in conformity with the law:

Paragraph 29, page 6, lines 11-14: “Since then, Diamond Construction & Design has sued Plaintiffs and State Farm for demolition related services provided in response to the fire. State Farm was dismissed from the case and Plaintiffs have attempted to contact State Farm to defend the case for Plaintiffs but were ignored by State Farm.”

Paragraph 34, page 7, lines 10-12, the language: “business personal property.”

Paragraph 34, page 7, lines 11-12: “because any inadequate policy limits are as a result of State Farm’s captive agent’s negligence.”

Paragraph 39, page 7, lines 24-26, the language: “In addition, Plaintiffs were sued in the lawsuit Diamond v. Pan as a result of State Farm’s failure to fully compensate them for their fire loss State Farm has also refused to defend them in this lawsuit.”

Paragraph 59, page 11, lines 7-8, the language: “State Farm’s conduct as described herein constitutes an illegal pattern and practice so pervasive as to amount to a general unfair and unlawful business practice.”

Paragraph 60, page 9, lines 9-13, the language: “State Farm’s conduct as described herein was done with a conscious disregard of Plaintiff’s rights and constitutes despicable conduct, and was done with the intent to vex, injure, or annoy Plaintiffs such as to constitute oppression, fraud, or malice under C.C.P. § 3294, entitling Plaintiffs to exemplary damages in an amount appropriate to punish or make an example of State Farm.”

The court may strike out any irrelevant, false, or improper matter inserted in any pleading and strike 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. (CCP § 436.)

ALLEGATIONS OF NEGLIGENCE IN THE BREACH OF CONTRACT ACTION:

Defendant contends that Plaintiffs’ cause of action for breach of contract includes irrelevant and improper allegations concerning the alleged negligence of their State Farm Agent and thus, such allegations should be stricken. Plaintiffs contend that the allegations are proper because the agent’s statements regarding coverage bind State Farm as to the coverage available under their policy.

An insurance agent may be authorized to do any act which his or her principal, the insurer, might do. (See CC § 2304; Preis v. American Indem. Co. (1990) 220 Cal.App.3d 752, 761.) Thus, absent actual or constructive notice to the insured of limits on the agent’s authority, an agent may bind the insurer by “acts, agreements or representations within the ordinary scope and limits of the insurance business entrusted to him” . . . even if the agent’s actions violate private restrictions on his or her authority. (Troost v. Estate of DeBoer (1984) 155 Cal.App.3d 289, 298; see also Thompson v. Occidental Life Ins. Co. of Calif. (1973) 9 Cal.3d 904, 912–914.)

An insurer may be bound by its agent’s interpretation of policy provisions that are later found to be ambiguous. The authority conferred by an insurer on its agents “unquestionably extends to giving ambiguous contract provisions an interpretation that the insurer itself might reasonably adopt.” (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 874.)

Further, an agent’s representations regarding coverage in selling a policy may have the effect of expanding the coverage beyond that actually provided by the policy even when there is no ambiguity. Some cases suggest the insurer may be bound by the agent’s representations under the doctrine of estoppel: “[F]raud or misrepresentation as to coverage under a policy or issuance of a policy different from that represented to the insured estops the insurer from reliance on the coverage as stated in the issued policy.” (Hartford Fire Ins. Co. v. Spartan Realty Int’l, Inc. (1987) 196 Cal.App.3d 1320, 1325 (dictum); Fanucci v. Allstate Ins. Co. (ND CA 2009) 638 F.Supp.2d 1125, 1144 (applying Calif. law).) Alternatively, the agent’s misrepresentations may be ground for reformation of the policy to provide the coverage represented. If reformation is granted, and the insurer still refuses to pay the claim, an action would lie for breach of the policy as reformed. (R & B Auto Ctr., Inc. v. Farmers Group, Inc. (2006) 140 Cal.App.4th 327, 349.)

The FAC alleges that in 2005, Plaintiffs purchased insurance for the subject property from State Farm through Vicky Chen (FAC ¶ 19); Plaintiffs requested that Ms. Chen provide the full and necessary coverage for the property, the business personal property, inventory and any loss of income that could result from a loss a the manufacturing site (Ibid.); Ms. Chen is a captive agent of State Farm and her statements regarding the insurance provided by State Farm are sufficient to bind the company (Id. ¶ 20); Ms. Chen assured Plaintiff that they were getting full coverage to replace all personal property and real property (Id. ¶¶ 22-23); and that after a fire on the subject property, Plaintiff learned that contrary to Ms. Chen’s assurance that Plaintiffs had full coverage on everything, no insurance was obtained for the stock and machinery (personal property) inside the building or for loss of business income (Id. ¶ 26).

Based on the allegations on the FAC regarding Ms. Chen’s authority and representations made to Plaintiffs as to the policy limit, it appears that allegations of inadequate policy limit resulting from Ms. Chen’s negligence in the breach of contract cause of action are not irrelevant or improper. Thus, motion to strike allegations of Ms. Chen’s representations regarding the insurance policy is denied.

ALLEGATIONS OF COVERAGE THAT IS CONTRADICTED BY THE POLICY ATTACHED TO THE FAC:

Defendant contends that Plaintiffs’ allegations of a claim for damages to business personal property are improper because the policy attached to the FAC demonstrates that business personal property is excluded from coverage.

However, as discussed above, the FAC alleges adequate facts to support Plaintiffs’ position that business personal property should be covered under the subject policy as a result of State Farm’s agent’s representations. Thus, motion to strike allegations of coverage for personal property is denied.

ALLEGATIONS OF FAILURE TO DEFEND IN DIAMOND V. PAN LAWSUIT:

The FAC appears to allege that Plaintiffs were entitled under their policy to a defense of the Diamond v. Pan lawsuit. (FAC ¶¶ 29, 39.)

However, the Diamond v. Pan lawsuit alleges that the Plaintiffs failed to pay amounts due to Diamond Construction & Design under a construction contact, and alleges causes of action for breach of contract, account stated, unjust enrichment, mechanic’s lien, third party beneficiary, constructive trust, and for temporary restraining order/preliminary injunction. (RJN, Exh. A.) It is unclear how this lawsuit would be covered under the subject insurance policy. (FAC, Exh. 1.)

Plaintiffs, in opposition, contend that the allegations demonstrate unreasonable conduct on behalf of State Farm in handling Plaintiffs’ fire loss; that they are not arguing a defense in the Diamond v. Pan lawsuit, but they are arguing that State Farm’s bad faith conduct resulted in them being sued. However, that is not what is alleged in the FAC, i.e., the FAC does not allege that State Farm’s denial resulted in Plaintiffs being sued, but rather that, State Farm refused to defend the Diamond v. Pan lawsuit for Plaintiffs. Thus, the motion to strike allegations that State Farm failed to provide a defense in the Diamond v. Pan lawsuit is granted.

ALLEGATIONS OF UNFAIR BUSINESS PRACTICE:

Defendant contends that since Plaintiffs have abandoned the cause of action for “Violation of the UCL” alleged in their original Complaint, allegations of “unfair business practice” in the third cause of action for breach of the implied covenant of good faith and fair dealing is irrelevant and improper.

Plaintiffs, in opposition, contend that their decision not to pursue an unfair competition claim does not prohibit them from showing an unfair business practice that resulted in the unreasonable withholding of benefits. Plaintiffs also contend that an unfair business practice can be the basis of an award of punitive damages in an insurance bad faith action and is a proper allegation.

It appears that Plaintiffs are correct and that their decision not to pursue an unfair competition claim does not prohibit them from alleging that Defendants engaged in an unfair business practice in their bad faith claim. UCL covers “any” wrongful “business act or practice.” (Bus. & Prof.C. § 17200.) The UCL is broad enough to reach practically any form of predatory business conduct “in whatever context it may occur.” (Barquis v. Merchants Collection Ass’n of Oakland, Inc. (1972) 7 Cal.3d 94, 111.) Thus, the motion to strike allegations of unfair business practice is denied.

PRAYER FOR PUNITIVE DAMAGES:

In order to plead punitive damages, a plaintiff must plead allegations of fraud, malice, or oppression with sufficient particularity. (Hilliard v. AH Robbins Co. (1983) 148 Cal.App.3d 374, 392.) “When the plaintiff alleges an intentional wrong, a prayer for exemplary damage may be supported by pleading that the wrong was committed willfully or with a design to injure.” (G.D. Searle & Co. v. Sup.Ct. (Seaton) (1975) 49 Cal.App.3d 22, 29.) It is not sufficient to allege merely that defendant “acted with oppression, fraud or malice.” Rather, plaintiff must allege specific facts showing that defendant’s conduct was oppressive, fraudulent or malicious (e.g., that defendant acted with the intent to inflict great bodily harm on plaintiff or to destroy plaintiff’s property or reputation). (See Smith v. Sup.Ct. (Bucher) (1992) 10 Cal.App.4th 1033, 1041–1042.)

The FAC alleges adequate facts to support Plaintiffs’ request for punitive damages. (FAC ¶¶ 19, 28, 56-58.) Thus, the motion to strike prayer for punitive damages is denied.