Case Number: BC556560 Hearing Date: February 09, 2015 Dept: 34
Moving Party: Defendant, Farmers Insurance Company’s (“Farmers” or “Defendant”)

Resp. Party: Plaintiff, Dan McIan Apostol (“Apostol” or “Plaintiff”)

Defendant’s Demurrer to the Complaint is SUSTAINED WITHOUT LEAVE TO AMEND as to the Second Cause of Action. The Demurrer to the Complaint is SUSTAINED WITH LEAVE TO AMEND as to the Fourth and Sixth Causes of Action.

Defendant’s Motion to Strike is MOOT.

Plaintiff’s Request for Judicial Notice is DENIED. Plaintiff requests that the Court take judicial notice of Plaintiff’s Insurance Policy Declaration Page, under Cal. Evid. Code §§ 452, 454. However, Plaintiff’s document is not a matter which may be judicially noticed under § 452. (See Cal. Evid. Code § 452).

PRELIMINARY COMMENTS:

Much of plaintiff’s complaint consist of first-year law school maxims, rather than a “statement of the facts constituting the cause of action, in ordinary and concise language.” (Code Civ. Proc., § 425.10(a)(1).) Such verbiage is unnecessary and does not help plaintiff’s case.

The court also notes that much of plaintiff’s opposition appears to be boilerplate recitation of black-letter law. For instance, plaintiff spends over a page indicating that “fraud actions have been classified as ‘disfavored’, and are subject to strict requirements of particularity in pleading.” (Opp., p. 5:25 – p. 6:1.) Of course, this argument cuts against plaintiff’s opposition, since, as indicated below, the complaint does not allege fraud in any particularity whatsoever.

Further, plaintiff’s opposition appears to cite from Witkin, but it is not clear what is being cited, since there are no quotation marks around the allegedly-cited statements. (See Opp., p. 6:11-16.) In one of the citations, plaintiff says “emphasis added,” but there is no emphasis in the cited passage. (See Opp., p. 6:16.) Similarly, plaintiff cites to an “Order at 2”; the court has no idea to what Order plaintiff is citing. (See Opp., p. 6:19.)

Plaintiff is similarly careless in his Request for Judicial Notice. He requests that the Court take judicial notice “pursuant to California Evidence Code 454.” (Request for Judicial Notice, p. 2:5-6.) However, Cal. Evd. Code § 454 pertains to information that the Court may use in taking judicial notice. The Court assumes that Plaintiff meant § 453, which pertains to compulsory judicial notice upon request.

Plaintiff’s counsel has been a California attorney for almost 15 years. The court would hope that any further pleadings that plaintiff’s counsel submits to this Court are more professional.

BACKGROUND:

This is an insurance coverage case. Plaintiff commenced this action on 9/3/14 against defendants, Targeted Home Inspection (“Targeted Home”) Farmers Insurance Company, First American Homebuyers Protection Corporation (“First American”), and DOES 1 through 100, alleging that prior to his purchase of a home Targeted Home failed to properly inspect the building to discover deteriorated plumbing or a defectively connected drainage system that later busted and flooded underneath the building, and that the insurers improperly failed to cover his claims. (Complaint, ¶¶ 14, 20-21.) Plaintiff alleges that prior to his purchase of real property located at 1301 W. Arbutus Street, Compton, CA 90220 (the “Property’), he hired Targeted Home to conduct an inspection of the Property; however, Targeted Home failed to inspect underneath the building. (Id., ¶¶ 10-11.). Plaintiff alleges he purchased home protection insurance from First American and also purchased insurance for his residence from defendant Farmers. (Id., ¶¶ 12-13.) Despite buying the protection, First American and Farmers denied Plaintiff’s claim. Plaintiff had to pay $16,000 to clean under the building and have the plumbing system repaired. (Id., ¶¶ 20-22.) The Complaint alleges the following causes of action: (1)-(3) negligence; (4) insurance bad faith breach of duty to pay a covered claim; (5)-(6) fraud (false promise); and (7) breach of contract. The second, fourth and sixth causes of action are against Farmers.

On December 1, 2014, Farmers demurred to and moved to strike punitive damages from the Complaint.

ANALYSIS:

(1) Demurrer

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed (Code Civ. Proc., §§ 430.30, 430.70). The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn, supra, 147 Cal.App.4th at 747.)

In ruling upon demurrers, courts may consider matters that are proper for judicial notice. (ABF Capital Corp. v. Berglass (2005) 130 Cal. App. 4th 825, 834 (considering an opposing party’s request for judicial notice of out of state law).) Judges cannot take judicial notice of hearsay statements asserted in court filings, but can take judicial notice of the existence of such documents. (Johnson & Johnson v. Sup. Ct. (2011) 192 Cal.App.4th 757, 768; Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4th 471, 483; Day v. Sharp (1975) 50 Cal.App.3d 904, 914); Saltarelli & Steponovich v. Douglas (1995) 40 Cal. App. 4th 1, 5; Magnolia Square Homeowners Assn. v. Safeco Ins. Co. (1990) 221 Cal.App.3d 1049, 1056 57.)

Defendant Farmers’ Special Demurrer is DENIED

In section 3 of its demurrer, Defendant Farmers appears to specially demur to the entire Complaint on the grounds that the action is based upon a written contract, but Plaintiff fails to attach the written Farmers insurance policy. (Demurrer, p. 3:1-21.)

“‘As to the contract, where a written instrument is the foundation of a cause of action, it may be pleaded in haec verba by attaching a copy as an exhibit and incorporating it by proper reference.’ Byrne v. Harvey, 211 Cal.App.2d 92, 103, 27 Cal.Rptr. 110 (1962); Holly Sugar Corp. v. Johnson, 18 Cal.2d 218, 225, 115 P.2d 8 (1941). ‘Where a party relies in his complaint upon a contract in writing, and it affirmatively appears that all the terms of the contract are not set forth in haec verba, nor stated in their legal effect, but that a portion which may be material has been omitted, the complaint is insufficient.’ Gilmore v. Lycoming Fire Ins. Co., 55 Cal. 123, 124, 1880 WL 1814 (1880).” (Altman v. PNC Mortgage, 850 F. Supp. 2d 1057, 1078 (E.D. Cal. 2012).)

Farmers is correct that Plaintiff has neither attached the insurance policy, nor alleged any of the pertinent provisions of the policy. Consequently, the Complaint is insufficient.

However, although Farmers argues this point, its notice of demurrer does not state that it is specially demurring based on failure to attach the contract. (See Demurrer, pp. 1-2.) Rather, Farmers just states that it is demurring to the 2nd, 4th, and 6th causes of action of the complaint. (Id.) Had Farmers’ actually demurred on this ground, the court would have sustained such a demurrer. However, the Court cannot sustain a demurrer on a ground which is not noticed.

(Nonetheless, should plaintiff decide to file a First Amended Complaint, the Court would expect that this lacuna be rectified.)

Farmer’s Demurrer to the Second Cause of Action for Negligence is SUSTAINED.

To plead a cause of action for negligence, Plaintiff must plead the following: (1) a legal duty owed to plaintiffs to use due care; (2) a breach of duty; (3) causation; and (4)damage to plaintiff. (County of Santa Clara v. Atlantic Richfield Co. (2006) 137 Cal. App. 4th 292, 318; Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917.)

Farmers demurs to the second cause of action because there is no legal basis for general negligence claims against an insurance company as a matter of law. (Brown v. Guarantee Ins. Co. (1957) 155 Cal.App.2d 679 (holding that “only bad faith should be the basis of [an] insured’s cause of action. Bad faith may involve negligence, or negligence may be indicative of bad faith, but negligence alone is insufficient to render the insurer liable”).) Plaintiff contends that pleading a negligence cause of action was necessary to support the fact that a “contractual duty to pay” was breached. In reply, Farmers argues that Plaintiff offers not a single argument or case which would establish that an insured may maintain a cause of action for negligence for failing to investigate and/or pay a claim. Farmers is correct.

Under California law, a negligence cause of action is subsumed under the “bad faith” cause of action, requiring Plaintiff to prove claims handling was unreasonable. (Brown v. Guarnatee Ins. Co. (1957) 155 Cal.Ap,2d 679; Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858.) Consequently, the Court SUSTAINS without leave to amend Defendant Farmers’ Demurrer to the second cause of action.

Farmer’s Demurrer to the Fourth Cause of Action for Insurance Bad Faith is SUSTAINED.

To establish “bad faith” liability in first party insurance cases, plaintiffs must show: (1) that they are insured under the under the insurance contract ; (2) privity of contract must exist between the plaintiff and defendant insurer; (3) the insurer has withheld benefits due under the policy; and (4) the insurer’s withholding of benefits is “unreasonable” or “without proper cause” under the circumstances. Whether the benefits are due under the policy is a contract issue. The insured must have suffered a loss covered by the policy and must have complied with policy terms for payment of such loss (e.g., notifying insurer, filing a sufficient proof of loss, etc.).

Erroneous denial of a claim for policy benefits by itself does not violate the implied covenant of good faith and fair dealing. Without more, the erroneous denial is merely a breach of contract. To support an implied covenant action, it must be shown that the insurer breached its duty “not to withhold unreasonably payments due under a policy.” (Neal v. Farmers Insurance Exchange (1978) 21 Cal.3d 910, 920.) “Bad faith” means an insurer’s conscious and deliberate failure or refusal to discharge contractual responsibilities without proper cause, and not the result of an honest mistake, bad judgment or negligence. If the insurer has “proper cause” for withholding benefits, its doing so is not a breach of the implied covenant, even if it turns out that benefits were in fact owed. (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 54; Fraley v. Allstate Ins. Co. (2000) 81 Cal.App.4th 1282, 1292.) “Unreasonable” refers to actions taken (or omitted) by an insurer without a reasonable basis therefor. (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1073.)

Farmers argues that Plaintiff’s conclusory and boilerplate allegations of bad faith are insufficient to support his claims for insurance bad faith. The mere fact that Farmers disputes its obligation or refuses to provide benefits does not by itself constitute bad faith and the mere incantation of bad faith does not state a cause of action. (Aetna Casualty & Surety Co. v. Humboldt Loaders, Inc. (1988) 202 Cal.App.3d 921, 928.) The Court agrees.

Here, Plaintiff’s Complaint is completely devoid of any facts that would support a bad faith cause of action. Plaintiff alleges that on December 11, 2013, the Property suffered water damage due to a break or leak from the main line which completely flooded underneath his home with water and human waste. (Complaint, ¶ 57.) Plaintiff made a claim against his Farmers’ insurance policy, however, Farmers denied his claim upon the ground that the problem was pre-existing. (Id., ¶ 58.) Plaintiff has not pleaded any facts to show that Farmers’ denial was unreasonable. Plaintiff makes only the conclusory allegation that Farmers “unreasonably and witgout proper cause failed to pay Plaintiff the benefit covered under the respective policies.” (Id., ¶ 60.) Plaintiff has pleaded facts that show a genuine dispute that may support a breach of contract claim, not a bad-faith claim.

The Court SUSTAINS with 20 days leave to amend Defendant Farmers’ Demurrer to the fourth cause of action.

Farmer’s Demurrer to the Sixth Cause of Action for Fraud is SUSTAINED.

To plead a cause of action for fraud, Plaintiff must plead the following: (1) a misrepresentation; (2) knowledge of falsity (or “scienter”); (3) intent to defraud (induce reliance); (4) justifiable reliance; and (5) resulting damage. (Conroy v. Regents of Univ. of Cal. (2009) 45 Cal. 4th 1244, 1255.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 216.) “Promissory fraud” is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform and, thus, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. (Cal. Civ. Code § 1710(4).) In a promissory fraud action, the essence of the fraud is the existence of an intent at the time of the promise not to perform it. To maintain an action for deceit based on a false promise, one must specifically allege and prove, among other things, that the promisor did not intend to perform at the time he or she made the promise and that it was intended to deceive or induce the promisee to do or not do a particular thing. (Tarmann v. State Farm Mutual Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 159.) The mere failure to perform a promise made in good faith does not constitute fraud. (Id.; see Building Permit Consultants, Inc. v. Mazur (2004) 122 Cal.App.4th 1400, 1414.) A cause of action for promissory fraud must include specific factual circumstances from which a contemporaneous intent not to perform can be inferred. (Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30 (mere contract breach is not sufficient to prove fraud); Hills Trans. Co. v. Southwest Forest Industries, Inc. (1968) 266 Cal.App.2d 702, 707.)

Farmers argues that Plaintiff’s fraud cause of action fails because Plaintiff has not pleaded the facts with specificity, as required by the heightened pleading standard for fraud claims. The Court agrees.

Here, Plaintiff has not pleaded his fraud cause of action with the required specificity. Plaintiff has not pleaded facts to show: (1) who made the alleged misrepresentation or false promise and that person’s authority to speak for Farmers; (2) what was said (the exact misrepresentation or false promise); (3) when it was said; (4) how it was made; and (4) where it happened. Plaintiff’s allegations are totally devoid of fact, vague and conclusory. Contrary to Plaintiff’s argument in opposition, it is not enough that the Complaint alleges that a policy was issued, damage suffered, claim made, and payment denied to establish a fraud cause of action. Plaintiff is required to plead specific facts.

The Court SUSTAINS with 20 days leave to amend Farmers’ Demurrer to the sixth cause of action.

Defendant’s Motion to Strike is DENIED as MOOT.

Defendant Farmers moves to strike Plaintiff’s requests for punitive damages in the fourth cause of action (Complaint, ¶ 62) and the Prayer for Relief (Complaint, Prayer for Relief, ¶ 2). In light of the Court’s ruling sustaining Farmers’ Demurrer to the fourth cause of action, the motion to strike is MOOT.

(Should plaintiff decide to file a first amended complaint, the Court would hope that he re-read the Court’s Order of January 12, 2015, sustaining First American Homebuyers Protection Corporation’s motion to strike before re-alleging a prayer for punitive damages.)