Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
APPEAL from judgments of the Superior Court of Los Angeles County No. BC342094, Ernest M. Hiroshige, Judge. Affirmed.
Marh & Associates, David Marh and Simon H. Langer for Plaintiffs and Appellants.
Anderson, McPharlin & Conners, David T. DiBiase and Paula G. Tripp for Defendant and Respondent Choi Chung Kon.
Gaglione & Dolan, Jeffrey S. Kaplan and Martina A. Silas for Defendant and Respondent Bankers Insurance Company.
ZELON, J.
Defendant Choi Chung Kon demurred to the Third Amended Complaint filed by plaintiffs Bom Suk Su and Chin Hyung Su, and the trial court sustained the demurrer without leave to amend. Later, defendant Bankers Insurance Company obtained summary judgment on the claims the Sus asserted against it. The Sus appeal, and we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The Sus hired a company called Aqua Scape Designs to perform construction work at their home, including the installation of a swimming pool. Aqua Scape apparently failed to complete the work, leading to litigation against Aqua Scape and its principal. The Sus obtained a default judgment of approximately $287,000 against Aqua Scape.
The Sus then filed suit against Aqua Scape’s insurer, Bankers, and against insurance broker Kon, whom they claimed misstated or falsely represented to them that Aqua Scape’s insurance policy would cover the work to be performed by Aqua Scape. The Sus filed their first complaint against Kon, Bankers, and others on October 27, 2005. They filed their First Amended Complaint on April 11, 2006.
Kon demurred to the First Amended Complaint, and the trial court sustained the demurrer with leave to amend. The Sus filed a Second Amended Complaint on July 26, 2006. Kon demurred to the fourth cause of action (new in this iteration of the complaint) and moved to strike that cause of action. The trial court granted the motion to strike the fourth cause of action and overruled the demurrer as moot.
At this point the proceedings in the trial court become more difficult to follow. In October 2006 the Sus requested permission to file a Third Amended Complaint; this complaint again stated one cause of action against Kon. On November 2, 2006 the trial court took the motion to amend under submission. Four days later, the court issued an order dismissing the action against Kon with prejudice because none of the surviving causes of action in the Second Amended Complaint were asserted against him. Then, in February 2007 the trial court granted the motion to amend and deemed the Third Amended Complaint filed as of November 1, 2006.
Kon’s counsel filed an ex parte application for clarification that he need not respond to the Third Amended Complaint in light of the dismissal of the action with prejudice against Kon. The trial court reconsidered its dismissal order and vacated it, ordering Kon to respond to the Third Amended Complaint within five days.
Kon demurred to the only cause of action asserted against him in the Third Amended Complaint, and also moved to strike the paragraphs in the Third Amended Complaint that pertained to punitive damages. The trial court sustained Kon’s demurrer and granted the motion to strike, and denied the Sus leave to amend. The action was dismissed with prejudice with respect to Kon on July 13, 2007. The Sus appeal.
Bankers answered the Third Amended Complaint and subsequently filed a motion for summary judgment, or, in the alternative, summary adjudication. The trial court granted summary judgment. The Sus appeal.
DISCUSSION
I. Leave to Amend
The Sus do not dispute that the trial court properly sustained Kon’s demurrer to the Third Amended Complaint: they merely contend that the court should have given leave to amend their complaint to restate their fraud cause of action against Kon. When a demurrer is sustained, it is an abuse of discretion to deny leave to amend if the plaintiff demonstrates that there is a reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
The trial court properly denied leave to amend because despite the Sus’ ample opportunity for discovery, they had neither stated a valid cause of action for fraud nor demonstrated how further leave to amend would result in the ability to set forth a valid fraud cause of action. The Sus had multiple chances to state their claims—they filed four complaints over the course of a year but failed to set forth a valid cause of action against Kon. Once a litigant has had the opportunity to amend his or her complaint, the trial court has discretion to deny leave for further amendments. (Titus v. Canyon Lake Property Owners Association (2004) 118 Cal.App.4th 906, 918 [“plaintiff has already filed an original complaint and two amended complaints without including these allegations. She has thus had ‘a fair opportunity to correct any defect.’ [Citation]”].)
The Sus argue that they cannot be expected to have identified the facts to state a valid fraud claim against Kon because they were denied discovery. While the Sus assert that demurrers operate as a bar to discovery, there was no legal impediment to discovery from Kon during the pleading phase. The civil discovery statutes clearly contemplate that discovery may begin very soon after the summons is served and make no exception because a demurrer is filed. (See, e.g., Code Civ. Proc., §§ 2025.210, subd. (b) [plaintiff may serve a deposition notice without leave of court on any date that is 20 days after the service of the summons on, or appearance by, any defendant]; 2030.020, subd. (b) [interrogatories may be propounded by a plaintiff any time after 10 days after the service of summons or appearance by the party on whom the interrogatories are propounded]; 2031.020, subd. (b) [plaintiff may make a demand for inspection at any time that is 10 days after the service of the summons on, or appearance by, the party to whom the demand is directed, whichever occurs first]; § 2033.020, subd. (b) [plaintiff may make requests for admission any time that is 10 days after the service of summons on, or appearance by that party, whichever occurs first].)
Discovery certainly encompasses the effort to gather information necessary to plead claims with the requisite specificity. “Discovery may relate to the claim or defense of the party seeking discovery or of any other party to the action,” and it encompasses “any matter, not privileged, that is relevant to the subject matter involved in the pending action or to the determination of any motion made in that action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence.” (Code Civ. Proc., § 2017.010.) Moreover, case law emphasizes the urgency of engaging in early discovery when a plaintiff encounters difficulty obtaining sufficient facts to state a valid claim. (Mattco Forge, Inc. v. Arthur Young & Co. (1990) 223 Cal.App.3d 1429, 1436, fn. 3.) “Pleading deficiencies generally do not affect either party’s right to conduct discovery [citation] and this right (and corresponding obligation to respond) is particularly important to a plaintiff in need of discovery to amend its complaint [citation].” (Ibid.; see also Budget Finance Plan v. Superior Court (1973) 34 Cal.App.3d 794, 797-798 [rejecting plaintiff’s argument that it could not conduct discovery once a demurrer was sustained because there was no party to the lawsuit with the power to invoke the court’s discovery power].)
The Sus erroneously rely on Terminals Equipment Co. v. City & County of San Francisco (1990) 221 Cal.App.3d 234 (Terminals) for their assertion that discovery is suspended when a demurrer is filed. In Terminals, the court of appeal determined that it was not an abuse of discretion for a trial court, after a demurrer had been sustained, to stay a discovery motion seeking to compel the production of a small portion of documents withheld from production as confidential government documents until a valid amended complaint had been filed. (Id. at pp. 246-247.) The court upheld the stay because the appellant “has failed to identify a single particularized need for the documents at issue here, or to show how they would be relevant to the complaint or calculated to lead to the discovery of relevant evidence.” (Id. at p. 247.)
Terminals does not stand for the broad proposition that a demurrer halts discovery, but instead contains the limited and specific holding that it is not an abuse of discretion for a trial court to stay discovery of arguably privileged documents until a valid complaint is filed where the documents in question “could not possibly support appellants’ first alleged cause of action in inverse condemnation by providing new facts indicating that they had in fact been deprived of all reasonable use of the Property; nor could they in any way affect appellants’ failure to state their second cause of action for precondemnation damages, since they would not indicate whether or not respondents had made the necessary ‘official acts’ or ‘official expressions’ of intent to condemn. In short, if appellants were unable to state a viable cause of action on the basis of the facts already available to them, nothing in these disputed documents could do anything to change that.” (Terminals, supra, 221 Cal.App.3d at p. 247.) The facts here are wholly dissimilar to the facts in Terminals, as the discovery in question necessarily would have sought to gather facts that would permit the fraud cause of action to be alleged with the requisite specificity.
The Sus have failed to demonstrate any error in denying leave to amend the complaint again. Their brief on appeal does not set forth any new and specific facts that would enable them to properly plead a fraud cause of action; it merely asserts that “armed with such statements and documentation [submitted with the motions for summary judgment] plaintiffs believed they could state, with perfection, a valid cause of action for fraud against defendant Kon.” The Sus broadly claim that the facts in the summary judgment papers that were submitted to the trial court “provided the plaintiffs with the factual documentation of the fraud perpetrated by Kon,” but they have never demonstrated how that evidence would permit them to properly state a fraud claim. To the contrary, as the trial court pointed out, the new facts on which the Sus relied was evidence submitted by Kon that he was told that the work on the project would not include pool work. This does not help the Sus to establish a fraud claim against Kon. It was not an abuse of discretion for the trial court to deny leave to amend under these circumstances. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318 [not an abuse of discretion to deny leave to amend when plaintiff has not established a reasonable possibility that the complaint can be amended to state a cause of action].)
II. Summary Judgment
The basis for the trial court’s grant of summary judgment was that Bankers was entitled to rescind its insurance policy given to Aqua Scape due to Aqua Scape’s misrepresentations of material fact made in the course of obtaining the policy. The Sus contend that there were disputed issues of material fact and that the trial court therefore erred in denying summary judgment. On appeal from a summary judgment, we make “an independent assessment of the correctness of the trial court’s ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law. [Citations.]” (Iverson v. Muroc Unified School Dist. (1995) 32 Cal.App.4th 218, 222.)
A. Bankers’ Burden
“When a policyholder conceals or misrepresents a material fact on an insurance application, the insurer is entitled to rescind the policy. ‘Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract. . . .’ (Ins. Code, § 332.) Concealment, which is the ‘[n]eglect to communicate that which a party knows, and ought to communicate’ ([Ins. Code,] § 330), ‘entitles the injured party to rescind insurance.’ ([Ins. Code,] § 331.) Similarly, ‘[i]f a representation is false in a material point . . . the injured party is entitled to rescind the contract from the time the representation becomes false.’ ([Ins. Code,] § 359.) ‘[A] rescission effectively renders the policy totally unenforceable from the outset so that there was never any coverage and no benefits are payable.’ (Imperial Casualty [& Indemnity Co. v. Sogomonian (1988)] 198 Cal.App.3d [169, ] 182.)” (LA Sound USA, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 156 Cal.App.4th 1259, 1266-1267, fn. omitted (LA Sound).) “[A]n insurer may rescind the contract of insurance ab initio for a material misrepresentation . . . .” (Barrera v. State Farm Mut. Auto Ins. Co. (1969) 71 Cal.2d 659, 665, fn. 4; see also Philadelphia Indem. Ins. Co. v. Montes-Harris (2006) 40 Cal.4th 151, 157.)
A defendant moving for summary judgment meets his or her burden of showing that there is no merit to a cause of action if he or she shows that one or more elements of the cause of action cannot be established or that there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subd. (p)(2).) Here, Bankers clearly met its burden on summary judgment of establishing that Aqua Scape’s insurance policy was void ab initio because of material misrepresentations on the application. First, it offered as evidence Aqua Scape’s insurance policy and application. On the application, Aqua Scape described its business as consisting of concrete and landscaping work. Aqua Scape denied that it drew plans, designs, or specifications; that it leased equipment; that it held a general contractor’s or builder’s license; and that it ever acted in the capacity of a general contractor or builder. The application also stated that the only classes of work Aqua Scape performed were driveway, parking area, or sidewalks and landscape maintenance and gardening. The application was signed beneath the statement, “I hereby apply to the Company for a policy of insurance as set forth in this application on the basis of the statements contained therein. I hereby certify that I have read and answered the questions on this application and that all information contained in this application is accurate and complete. I agree that such policy shall be null and void if such information is false, or misleading, or would materially affect acceptance of the risk by the Company.” The Sus did not dispute that the application included these answers; they merely argued that the application was irrelevant because the policy itself controls the coverage, and also objected to the evidence as hearsay.
Next, Bankers offered evidence of the actual scope of Aqua Scape’s work by way of the contract between the Sus and Aqua Scape, in which Aqua Scape agreed to, inter alia, install French drains; construct a concrete deck; install a barbecue and bar; construct a swimming pool and waterfall with a raised wall, pumps, and lights; construct a wood bridge; construct a pilaster; install a concrete bench and fire pit; and install lighting. The contract referred to a percentage of the contract price being due at “completion of excavation.” The Sus disputed the evidence of the work done, but their dispute was limited to the assertions that the policy covered all of this work, not that some of these projects exceeded the scope of the work declared in the insurance policy application. The Sus expressly did not dispute that Aqua Scape’s contractor’s license number was printed on its contract with the Sus and that the license was a general building contractor’s license issued to Clean Blue Care Corporation, which does business as Aqua Scape Designs.
The Sus argue on appeal that the trial court could not properly have concluded that there was evidence that Aqua Scape was acting as a general contractor in light of its exclusion of Exhibit 8, the website printout concerning Aqua Scape’s contractor’s license. We disagree. The trial court clearly ruled that the language of the declaration to which the printout was attached was “insufficient to authenticate the printout webpage showing the status of this license,” not that it was excluding all evidence that Aqua Scape had a contractor’s license. In light of Aqua Scape’s assertion that it did not dispute that the contract between Aqua Scape and the Sus listed Aqua Scape’s contractor’s license number and that the contractor’s license number was issued to the corporation doing business as Aqua Scape, the trial court could properly conclude that there was evidence that Aqua Scape had a contractor’s license without reference to the excluded exhibit.
Last, Bankers offered testimony from a senior underwriter that if it had been aware that Aqua Scape was a licensed general contractor and performed work in that capacity, it would not have issued the policy. Bankers does not insure licensed general contractors. The underwriter declared that if Bankers had known that Aqua Scape was performing excavation work or installing pools, it would not have issued a policy with the subject classifications. This evidence was sufficient to meet Bankers’ burden of demonstrating that the misrepresentations were material. (Thompson v. Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 916 [“Materiality is determined solely by the probable and reasonable effect which truthful answers would have had upon the insurer. [Citations.] The fact that the insurer has demanded answers to specific questions in an application for insurance is in itself usually sufficient to establish materiality as a matter of law”]; LA Sound, supra, 156 Cal.App.4th at p. 1269 [materiality may be shown by the effect that the truth would have had on the insurance company]; Ins. Code, §§ 334, 360.)
With this evidence, Bankers met its burden of showing that the causes of action against it failed as a matter of law because Aqua Scape had made material misrepresentations in its insurance policy application that entitled Bankers to rescind the policy. (Ins. Code, §§ 330-332, 334, 338, 358-360.)
B. The Sus’ Burden
Once the defendant has made a showing that there is no triable issue of material fact as to one or more elements of a cause of action or that a complete defense exists to a cause of action, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or as to a defense to the cause of action. (Code Civ. Proc., § 437c, subd. (p)(2).) The Sus failed to meet their burden. They focused heavily on the actual language of the policy in their opposition papers, constantly emphasizing the scope of the policy to argue coverage or at least partial coverage of the subject losses, but the scope of coverage of a policy is irrelevant when the question is whether the issuer may rescind the policy for material misrepresentations, concealment, or intentional and fraudulent omissions. (Ins. Code, §§ 331, 338, 359.) As the trial court noted, “Plaintiff offers no new additional undisputed material facts in support of its opposition papers,” and its counsel’s declaration in opposition to the summary judgment was excluded in all or nearly all substantive respects, a ruling not challenged on appeal. Similarly, on appeal, the Sus continue to maintain that the application is irrelevant and immaterial to the question of rescission of the insurance policy, a position based on what appears to be a profound misconception of the summary judgment granted here.
The Sus argue on appeal that several material issues of triable fact exist that should have precluded the summary judgment from being granted. None of these arguments are meritorious. We address each in turn.
First, the Sus claim that the application for insurance does not appear to have been completed and signed by the Aqua Scape principals. The Sus assume that this purported handwriting disparity means that Kon forged the application, and therefore that the application cannot properly be used as a basis for rescission by Bankers. The Sus fail to cite any authority or even to explain why the possibility that Aqua Scape’s insurance broker completed the application would make the misrepresentations therein any less of a ground for rescinding the insurance policy Bankers issued. There was evidence before the trial court that this was the application submitted to Bankers for the insurance policy that it issued to Aqua Scape; and far from disclaiming the policy based on a purported unauthorized completion of the application, Aqua Scape continues to argue for coverage under the policy. Misrepresentations by a broker acting on behalf of the applicant are a proper basis for voiding coverage under an insurance policy. (LA Sound, supra, 156 Cal.App.4th at p. 1268.)
The Sus next argue that there is a material issue of fact as to whether the insurance policy was a subcontractor policy only, observing that the policy itself was a general commercial policy that did not restrict itself to subcontractors, bore an endorsement that referred to “contractors and subcontractors,” and included a rider requiring any subcontractors hired by the insured to be separately insured. Whether the policy can be interpreted to cover contractors as well as subcontractors is irrelevant to the question of whether Bankers was entitled to rescind the policy based on misrepresentations in the application. This asserted issue of fact is not material to the issues at summary judgment.
The Sus also claim that there was no evidence submitted to the trial court that Bankers ever rescinded, voided, or canceled the policy. However, Bankers submitted as evidence the letter it had sent Aqua Scape disclaiming coverage. There is no legal requirement that a formal rescission take place for coverage to be voided based on the policyholder’s material misrepresentation. (LA Sound, supra, 146 Cal.App.4th at pp. 1267-1268.)
In their reply brief, the Sus include a new argument that if the policy had been rescinded, Bankers should have returned all premium payments to them, which they assert was never done. The Sus have provided no citation to admissible evidence in the record to support this assertion, and we therefore disregard it. (Placer County Local Agency Formation Com. v. Nevada County Local Agency Formation Com. (2006) 135 Cal.App.4th 793, 814 [(“We need not address points in appellate briefs that are unsupported by adequate factual or legal analysis”].)
Next, the Sus contend that there is a triable issue of fact as to whether the alleged misrepresentations regarding general contractor status or swimming pool work were actually material. The Sus argue that it was not material whether Aqua Scape was a subcontractor or contractor because the amount of risk assumed by Bankers was the same regardless of Aqua Scape’s specific role. They assert that the fact that Aqua Scape was doing swimming pool work was not material because Bankers could simply cover the other work and exclude pool work. Even leaving aside the characterization of contractor or subcontractor status, it is apparent that the actual risks of the work Aqua Scape was performing were far more substantial than Bankers could have anticipated from Aqua Scape’s representation that it was engaged in driveway paving and basic landscape work. Aqua Scape told Bankers that it did concrete work and landscaping, that it performed work in the classifications of “Driveway, Parking Area or Sidewalk,” which included “pouring, placing, & finishing above-grade concrete flatwork, asphalt or paver installation,” but did not include excavation; and “Landscape Maintenance & Gardening,” which included basic landscape and lawn care service, such as mowing, mulching, planting, over-the-counter fertilizer and weed control, but not pesticides, tree trimming or removal, fountain, pond, or cement work. Aqua Scape then contracted for work far more complex than the work it claimed to perform, agreeing to construct structures such as a bridge, waterfall, and pool and to perform excavation work.
Moreover, Bankers offered an underwriter’s testimony that Bankers does not insure licensed general contractors and that if the company had been aware that Aqua Scape was a licensed general contractor and that it performed work in that capacity, it would not have issued the policy. The underwriter also declared that if Bankers had known that Aqua Scape was performing excavation work or installing pools, it would not have issued a policy with the subject classifications. This evidence established the materiality of the misrepresentations. (Thompson v. Occidental Life Ins. Co., supra, 9 Cal.3d at p. 916 [materiality determined by the probable and reasonable effect that truthful responses would have had upon insurer; the fact that an insurer inquired on a subject usually demonstrates materiality]; Imperial Casualty & Indem. Co. v. Sogomonian, supra, 198 Cal.App.3d at p. 181 [test for materiality is subjective: what impact accurate answers would have had on the insurance carrier in question]; LA Sound, supra, 156 Cal.App.4th at p. 1269 [materiality may be shown by the effect truthful responses would have had on the insurance company]; Ins. Co., §§ 334, 360.)
The Sus acknowledge that cement pool work was excluded from the policy, but argue that Bankers should cover the other cement work and landscaping that was covered by the insurance policy. This claim rests on their belief that there was no basis for rescission here in light of the exclusion of evidence on which Bankers relied to demonstrate Aqua Scape’s misrepresentations about pool work. While the evidence of misrepresentations concerning pool work was excluded by the trial court, Bankers offered other evidence—discussed extensively above—that met its burden to demonstrate that the policy here was obtained on the basis of material misrepresentations. Because the Sus failed to meet their burden of demonstrating that there was a triable issue of material fact as to whether the insurance policy could be rescinded based on misrepresentations in the insurance application, the trial court did not err in granting summary judgment.
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
We concur: WOODS, J., Acting P. J., JACKSON, J.