Opinion
D082999
01-11-2024
CITY OF RIVERSIDE, Cross-Complainant and Appellant, v. STARR INDEMNITY & LIABILITY COMPANY, Cross-Defendant and Respondent.
Office of the City Attorney, City of Riverside, Phaedra A. Norton, Rebecca L. McKee-Reimbold, Debra K. Cook, Judith N. Gallardo and Cecilia Rojas for Cross-Complainant and Appellant. Musick, Peeler &Garrett, Jennifer M. Kokes and Jacquelene A. Robinson, for Cross-Defendant and Respondent.
NOT TO BE PUBLISHED
APPEALS from an order and judgments of dismissal of the Superior Court of Riverside County No. CVRI2200057, Irma P. Asberry, Judge. Reversed with directions; dismissed.
Office of the City Attorney, City of Riverside, Phaedra A. Norton, Rebecca L. McKee-Reimbold, Debra K. Cook, Judith N. Gallardo and Cecilia Rojas for Cross-Complainant and Appellant.
Musick, Peeler &Garrett, Jennifer M. Kokes and Jacquelene A. Robinson, for Cross-Defendant and Respondent.
BUCHANAN, J.
The City of Riverside (the City), a named additional insured under an insurance policy issued by Starr Indemnity &Liability Company (Starr), appeals from the trial court's judgments of dismissal following orders sustaining Starr's demurrers to the City's cross-complaints without leave to amend in two separate actions. The trial court held California law requires that any lawsuit against an insurer by an insured must be brought in a separate, independent action, and cannot be the subject of a cross-complaint. We agree with the City that the rule of law invoked by the trial court does not apply here because the City is suing Starr as a first-party additional insured, not as an injured third party who is a stranger to the insurance contract. However, we also conclude that the City's cross-complaints failed to allege sufficient facts to sustain its causes of action. Because there is a reasonable possibility the City can amend its cross-complaints to cure the defects, we reverse and remand.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
1. Fire on Gunther's Property
In July 2021, a fire occurred in vegetation surrounding the City's powerlines located across from residential property owned by Kurt and Maria Gunther. The fire spread to the Gunther's property, causing substantial damage. The Gunthers insured their property with State Farm Insurance Company (State Farm) and National General Insurance Company (National General).
2. The City's Contract for Tree Trimming Services
At all relevant times, the City had a services contract with West Coast Arborists, Inc. (WCA). In that contract, WCA provided tree and vegetation trimming services to the City including the maintenance of trees around the City's electrical powerlines.
In addition to providing tree and vegetation trimming services, the contract required that WCA procure insurance coverage to protect the City for claims arising out of the services WCA performed under the contract. The City required proof of compliance with the insurance terms under the contract.
3. The Starr Insurance Policy
Starr was the WCA's insurer and supplied the requisite written proof of coverage purporting to satisfy the City's insurance coverage protections under the contract. Starr added the City as an additional insured to WCA's insurance policies pursuant to the contract. Starr also provided the City the requisite policy endorsements relevant to the coverage requirements of the contract.
The City also has a written insurance contract with Starr to provide insurance coverage for the completed operations of WCA under its contract with the City.
4. Starr Refused to Defend and Indemnify the City
In February and March 2022, the City tendered to Starr the defense and indemnity of the underlying litigation filed against the City stemming from the fire. In September 2022, Starr denied coverage, defense and indemnity to the City, citing a wildfire exclusion. As a result, the City alleges it has incurred substantial attorneys' fees and costs to defend the underlying litigation.
B. Procedural Background
1. The State Farm Lawsuit
In January 2022, State Farm and Kurt Gunther filed their initial complaint against the City for dangerous condition on public property. They subsequently filed a first amended complaint alleging: (1) subrogation by State Farm for $44,363.00; and (2) negligence by the Gunthers against the City and WCA. It alleged that the City "failed to maintain their trees which were located near power lines. The wind blew the trees into the power lines, which then ignited the trees which then resulted in a fire. The fire then spread" to the Gunther's property and caused damage and destruction.
In March 2022, the City filed its initial cross-complaint. It subsequently filed a first amended cross-complaint against Maria and Kurt Gunther, WCA, Starr and the Regents of the University of California alleging: (1) indemnification against all cross-defendants; (2) apportionment of fault against all cross-defendants; (3) declaratory relief against WCA, Starr, and Maria Gunther; (4) breach of express and implied contracts and breach of the covenant of good faith and fair dealing against WCA and Starr; (5) insurance bad faith against Starr; (6) violation of Business and Professions Code section 17200, and Insurance Code section 790.03 against Starr; and (7) negligence against the Gunthers and Regents of the University of California.
2. The National General Lawsuit
In March 2022, National General filed its complaint against the City. It alleged that the City negligently entrusted, managed, and maintained its city trees thereby causing a city-owned tree to fall and land on Gunther's RV vehicle.
In April 2022, the City filed its initial cross-complaint against Maria Gunther, WCA and Starr. It subsequently filed a first amended complaint alleging: (1) indemnification against all cross-defendants; (2) apportionment of fault against all defendants; (3) declaratory relief against all crossdefendants; (4) breach of express and implied contracts and breach of the covenant of good faith and fair dealing against WCA and Starr; (5) insurance bad faith against Starr; and (6) violation of Business and Professions Code section 17200, and Insurance Code section 790.03 against Starr; and (7) general negligence against the Gunthers and Regents of the University of California.
3. Bifurcation of Cross-Complaints
In September 2022, the trial court granted WCA's and Starr's motions to sever the City's cross-complaints. The court ordered that the trial be bifurcated with the first phase to adjudicate the underlying complaints in both actions and the second phase to adjudicate the City's cross-complaints for declaratory relief, express indemnity, and bad faith against WCA and Starr.
4. Starr's Demurrers to Cross-Complaints
In September and October 2022, Starr filed demurrers challenging the cross-complaints in both actions. Starr asserted that an insurer cannot be joined in any liability lawsuit against its insured by a third party. It also argued, in the alternative, that City failed to allege sufficient facts to support any of its causes of action against Starr and/or that they were uncertain.
The City opposed Starr's demurrers arguing that: (1) the court cured any potential jury trial prejudice when it bifurcated the cross-complaints; (2) the City was asserting a first party (privity) breach of contract claim against Starr; (3) the cross-complaints were compulsory; and (4) the causes of action alleged sufficient facts.
The trial court sustained Starr's demurrers without leave to amend. It found that there was "a misjoinder of Starr" because "both the insured and the insurer are in the same action" and "[t]he coverage issues are not inextricably intertwined with the liability issues." The court relied on the holding of Royal Globe Insurance Company v. Superior Court (1979) 23 Cal.3d 880 (Royal Globe) that an injured third party cannot sue both the tortfeasor and the tortfeasor's insurer in the same action. (Id. at p. 891.) The court did not reach Starr's argument regarding the sufficiency of the pleadings.
The City filed notices of appeal from the orders of November 14 and 28, 2022 sustaining Starr's demurrers to its cross-complaints. Before the case was transferred to this division, Division Two issued an order noting that demurrer orders are not appealable and directing the City to submit each resulting judgment. In response, the City submitted final judgments of dismissal dated December 21, 2022 and January 6, 2023. We construe the City's appeals from the orders of November 14 and 28, 2022 to be from the final judgments of dismissal.
The City also appealed a separate order of November 14, 2022 sustaining a demurrer filed by the Gunthers to the City's cross-complaint in the State Farm action. In response to Division Two's order, the City confirmed that other causes of action between it and the Gunthers remained pending in the trial court. The City has not pursued this appeal in its briefing. We therefore dismiss this appeal for lack of jurisdiction. (Evans v. Dabney (1951) 37 Cal.2d 758, 759 [order sustaining demurrer not appealable]; Hill v. City of Clovis (1998) 63 Cal.App.4th 434, 442-443 ["[a]n appeal cannot be taken from a judgment which fails to complete the disposition of all the causes of action pending between the parties"].) DISCUSSION
I
The City argues that the trial court erred by relying on Royal Globe because it has privity of contract with Starr as an additional insured and, in contrast to Starr's contention and the trial court's ruling, it is not a third-party claimant. Upon de novo review (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010), we agree with the City.
Third parties generally cannot sue both the tortfeasor and the tortfeasor's insurer in the same action. (Royal Globe, supra, 23 Cal.3d at p. 884 [a "third party's suit [against an insurer] may not be brought until the action between the injured party and the insured is concluded."]; see also Royal Indemnity Co. v. United Enterprises, Inc. (2008) 162 Cal.App.4th 194, 205 ["a third party who is not in privity of contract with the liability insurer . . . would normally lack standing to sue the insurer to resolve coverage questions about [the insured's rights under the policy]."]; Shaolian v. Safeco Ins. Co. (1999) 71 Cal.App.4th 268, 271 ["Because the insurer's duties flow to its insured alone, a third party claimant may not bring a direct action against an insurance company."].)
However, "this rule does not apply to a first-party additional insured in an action against the named insured and the named insured's insurer." (4 Cal. Insurance Law &Practice (2023) ch. 41, § 41.20; Royal Surplus Lines Ins. Co. v. Ranger Ins. Co. (2002) 100 Cal.App.4th 193, 200 (Royal Surplus Lines) ["An additional insured has standing to sue an insurer for breach of contract and breach of the implied covenant"].) In Royal Surplus Lines, for example, an apartment complex owner was contractually required to be added as an additional insured on the contractor's liability policy. (Id. at p. 196.) When the tenants sued the owner for injuries sustained during renovation work, the owner sued both the subcontractors on the construction project and the subcontractors' liability insurer. (Id. at pp. 196-197.) The trial court "sustained [the insurance company's] demurrer without leave to amend solely on the ground of misjoinder in that it was improper to name both the insured and insurer in the same action." (Id. at p. 198.)
In reversing the trial court, the Court of Appeal explained that the prohibition against suing "an insured and insurer . . . in the same action" did not apply if the plaintiff was not "an injured third party claimant under a policy issued to the alleged tortfeasor." (Royal Surplus Lines, supra, 100 Cal.App.4th at pp. 200, 205.) In that case, "[t]he injured third party claimants would be the tenants, who [were] no longer involved as a settlement was reached with them." (Id. at p. 200.) Because the owner was an "additional insured," it was a "first party" and not prohibited from suing both the insurer and its insured in the same suit. (Ibid.) "The duty of an insurer to provide a defense to an additional insured is broad and applies when there is only a potential for coverage and extends to the entire action." (Id. at pp. 203-204; see also 2 Cal. Insurance Law &Practice (2023) ch. 13, § 13.02 [" 'Additional insureds' . . . may-like named insureds-bring an action for breach of the implied covenant of good faith and fair dealing. Additional . . . insureds may have direct contractual rights under the policy ...."].)
Here, the City as an additional insured under the Starr policy is in the same position as the additional insured in Royal Surplus Lines. By naming the City as an additional insured, Starr undertook an independent written contractual obligation to the City for certain insurance protections. Specifically, the City and its employees were "included as Additional Insured in accordance with the policy provisions of the General Liability and Automobile Liability policies" of WCA's "Annual Tree Trimming and Maintenance Service" project. Accordingly, the City was Starr's "insured . . . with respect to . . . 'property damage' . . . caused, in whole or in party, by [WCA's] acts or omissions . . . in the performance of [its] ongoing operations" for the City. In its respondent's brief, "Starr does not dispute that the City qualified as an additional insured under that policy."
The City, therefore, is a first-party additional insured with privity of contract and standing to sue Starr. Because the City is not a third-party claimant, the prohibition against suing an insured and insurer in the same action does not apply. (Royal Surplus Lines, supra, 100 Cal.App.4th at p. 200; see also California State Auto Ass'n Inter-Ins. Bureau v. Superior Court (1986) 184 Cal.App.3d 1428, 1433 (California State Auto) [declining to extend Royal Globe to a bad faith action by an insured against her own insurance company, reasoning: "The theoretical basis for the Royal Globe decision has no relevance to this case. No potential discovery problems exists as no third party is involved. The prejudicial use of evidence of insurance is not a concern in a suit by an insured against an insurer."].)
Starr correctly points out that "the Gunthers' claims to their property and automobile insurers . . . for damages they allegedly suffered as a result of the fire at issue constituted 'first party' claims for coverage of those damages." But the Gunthers did not sue their own insurers in the underlying litigation. The Gunthers also did not sue Starr in the underlying litigation; if they had, they would have been injured third-party claimants and the cases Starr cites would have been applicable. (See Royal Globe, supra, 23 Cal.3d at pp. 883, 891-892 [plaintiff third-party claimant was involved in a slip and fall accident in a food market and sued the insurance company that issued the liability policy to the market]; Moradi-Shalal v. Fireman's Fund. Ins. Cos. (1988) 46 Cal.3d 287, 292 [plaintiff third-party claimant was injured in an automobile accident and sued the driver's insurer after settling her personal injury action against the driver]; Smith v. Interinsurance Exch. (1985) 167 Cal.App.3d 301, 302-303 [plaintiff third-party claimant sustained injuries in car accident and sued the decedent insured's estate and the decedent's insurer].)
Starr also argues that "if the City wants to sue Starr for breach of contract and bad faith, it must file a separate suit against Starr." However, "[a] cross-complaint is generally considered to be a separate action from that initiated by the complaint." (Westamerica Bank v. MBG Industries, Inc. (2007) 158 Cal.App.4th 109, 134; see also Glenwood Homeowners Assn., Inc. v. Prosher Development Ltd. (1980) 111 Cal.App.3d 1002, 1005 ["A complaint and a cross-complaint in a single lawsuit are for most purposes treated as independent actions."].) The proper approach when there is a potential for prejudice is to sever or bifurcate the actions, which is what the trial court did. As the Legislative Committee comment to Code of Civil Procedure section 428.10, subdivision (a) explains, "Any undesirable effects that might result from joinder of causes under Section 428.10 may be avoided by severance of causes or issues for trial under Section 1048 of the Code of Civil Procedure." (See also Royal Surplus Lines, supra, 100 Cal.App.4th at p. 205 ["It is within the discretion of the court to bifurcate issues or order separate trials of actions, such as for breach of contract and bad faith, and to determine the order in which those issues are to be decided."].)
In California State Auto, for example, the court held that a crosscomplaint asserting breach of the covenant of good faith and fair dealing was proper in an action by the insurer for a declaration of rights as to coverage under the policy. (California State Auto, supra, 184 Cal.App.3d at p. 1431.) The court noted that "there is no prohibition to filing a cross-complaint in an action for declaratory relief" and that the issues raised by the cross-complaint could be resolved after the issue of coverage was decided. (Id. at p. 1433, fn. omitted.) "The trial court is empowered to determine the order in which the issues to be determined are tried and may order the declaratory relief complaint tried before the cross-complaint." (Ibid.)
Because the trial court erred in ruling the City's cross-complaints were prohibited as a matter of law, we reverse.
II
As an alternate basis for sustaining its demurrers, Starr argues that the City's cross-complaints failed to state facts sufficient to constitute any cause of action against Starr. We agree.
California law provides that a cross-complaint must contain facts that are sufficiently clear and specific to inform the court and the parties of the nature of the claims and their factual basis. (Code Civ. Proc., § 430.10.) The elements of a cause of action must be clearly stated to survive a demurrer. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879-880.)
The City's cross-complaint failed to alleged facts constituting causes of action for indemnification and apportionment of fault. (Expressions at Rancho Niguel Assn. v. Ahmanson Developments, Inc. (2001) 86 Cal.App.4th 1135, 1139 ["The elements of a cause of action for indemnity are (1) a showing of fault on the part of the indemnitor and (2) resulting damages to the indemnitee for which the indemnitor is contractually or equitably responsible" (italics omitted)]; Chakalis v. Elevator Solutions, Inc. (2012) 205 Cal.App.4th 1557, 1570 [apportionment of damages cause of action includes "burden of proving fault"].) Neither cross-complaint alleges fault on the part of Starr.
The City also failed to plead facts supporting a declaratory relief cause of action. (Brownfield v. Daniel Freeman Marina Hospital (1989) 208 Cal.App.3d 405, 410 ["A complaint for declaratory relief must demonstrate: (1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to the rights or obligations of a party."].) The City did not even identify the rights or obligations for which it was seeking declaratory relief.
Similarly, the City failed to state facts sufficient to constitute a cause of action for breach of contract. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821 ["the elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff."]; Harris v. Rudin, Richman &Appel (1999) 74 Cal.App.4th 299, 307 ["If the action is based on alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written agreement must be attached and incorporated by reference."].) The City did not set forth the contract terms, the full written agreement or the specific provisions that Starr allegedly breached.
Finally, the City failed to allege any facts supporting its claim that Starr violated Business and Professions Code section 17200, or even what provisions of that statute were allegedly violated. (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 619 ["A plaintiff alleging unfair business practices under these statutes must state with reasonable particularity the facts supporting the statutory elements of the violation."].) A demurrer is properly sustained where the pleading "identifies no particular section of the statutory scheme which was violated and fails to describe with any reasonable particularity the facts supporting violation." (Ibid.)
Because the City failed to allege sufficient facts supporting its causes of action, the demurrers should have been sustained for failure to state a claim.
III
The City argues that it nevertheless should be granted leave to amend its cross-complaints. We agree.
"When a demurrer is sustained . . . without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Accordingly, "[t]he plaintiff has the burden of proving that amendment would cure the legal defect, and may meet this burden on appeal." (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1468.)
Here, we conclude that there is a reasonable possibility that the City can amend its pleadings to cure the defects. Starr even concedes that, "to the extent this Court finds that Starr can be named as a cross-defendant in the underlying . . . lawsuits, it should still sustain the demurrers with leave to amend ...." Starr also notes that it "did not and does not challenge the
City's ability to bring a claim for declaratory relief against Starr. Rather, Starr only challenged the sufficiency of said claim as it was pled against Starr." Accordingly, the City should be granted leave to amend.
DISPOSITION
The appeal from the November 14, 2022 order sustaining the Gunther's demurrer to the City's cross-complaint in the State Farm action is dismissed for lack of jurisdiction. The trial court's December 21, 2022 and January 6, 2023 judgments of dismissal in favor of Starr are reversed. The matter is remanded to the trial court with directions to vacate its orders sustaining Starr's demurrers to the City's cross-complaints without leave to amend and to enter new orders consistent with this opinion sustaining the demurrers with leave to amend. The City is awarded its costs on appeal.
WE CONCUR: IRION, Acting P. J. DO, J.