Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County No. INC067430 Randall Donald White, Judge.
Chadwick J. Bradbury for Plaintiff and Appellant.
Suzanna Ah-Tye, Charles W. Savage, Betty R. Quarles and Isabel C. Lallana for Defendant and Respondent State Compensation Insurance Fund.
Lewis Brisbois Bisgaard & Smith, Arthur K. Cunningham, Jeffry A. Miller, and Matthew B. Stucky for Defendants and Respondents Downey, Cavadias & Deane, Inc. and Marco Martinez.
OPINION
RICHLI J.
Plaintiff Sullivan’s Stone Factory, Inc. (Sullivan) acquired all of the assets of Cortima Co. (Cortima) at a tax lien sale. Sullivan then obtained worker’s compensation insurance, through insurance broker Downey, Cavadias & Deane, Inc. and its employee Marco Martinez (collectively Downey), from State Compensation Insurance Fund (SCIF). Downey and SCIF allegedly knew that, under the applicable administrative regulations, Cortima’s claims history would be used in setting Sullivan’s premium but intentionally did not disclose this to Sullivan. Initially, SCIF quoted Sullivan an estimated annual premium of about $50,000. After the policy had been in effect for a year, however, SCIF retroactively increased the premium, based on Cortima’s claims history, by over 150 percent.
Sullivan then filed this action against SCIF and Downey (collectively defendants), asserting causes of action for fraud, deceit, concealment in violation of Insurance Code sections 330 through 339, negligence, and breach of the implied covenant of good faith and fair dealing. The trial court sustained defendants’ demurrers and dismissed the complaint. It reasoned that, as a matter of law, defendants could not be liable for concealing the effect of publicly available administrative regulations. It further reasoned that Sullivan was required to have worker’s compensation insurance, and therefore it could not claim to have relied in any way on the alleged nondisclosure.
Under a long line of case law, a defendant can be liable for failing to disclose information that is a matter of public record, provided the defendant’s access to that information is superior to the plaintiff’s access. Moreover, if the information had been disclosed, Sullivan could have avoided being subject to Cortima’s claims history by opting to self-insure or by promptly firing any of its employees who used to work for Cortima. Hence, we cannot say, as a matter of law, that Sullivan could not have relied on the nondisclosure.
Defendants raise a number of other arguments in support of the orders sustaining the demurrers. By and large, we reject them. We will hold, however, that Sullivan has shown no error in sustaining Downey’s demurrer to the causes of action for concealment in violation of Insurance Code sections 330 through 339 or for negligence. Moreover, Sullivan has not even asserted any error in sustaining defendants’ demurrers to the cause of action for breach of the implied covenant. In all other respects, however, we will hold that the orders sustaining the demurrers were erroneous.
I
FACTUAL BACKGROUND
Consistent with the applicable standard of review (see part III.A, post), the following fact statement is drawn from the operative complaint and from matters subject to judicial notice.
The Workers’ Compensation Insurance Rating Bureau (WCIRB) is “the rating organization to which all workers’ compensation insurers must report data.” (Simi Corp. v. Garamendi (2003) 109 Cal.App.4th 1496, 1500.) “The data reported provide the raw material with which to develop an ‘experience modification factor’ for each qualified employer. That factor plays a part in calculating the employer’s workers’ compensation insurance premium.” (Id. at p. 1501.)
The WCIRB has adopted an “Experience Rating Plan,” set forth in administrative regulations at California Code of Regulations, title 10, section 2353.1. (Available at , as of May 13, 2009.) Every workers’ compensation insurer must adhere to the WCIRB’s experience rating plan. (Ins. Code, § 11734, subd. (a).)
The experience rating plan defines a “change in ownership” as including the following events: (1) “[a]n entity is dissolved or non-operative and a new entity is formed”; and (2) “[a]ll or most of the tangible or intangible assets of an entity are sold, transferred or conveyed to another entity.”
Past experience must be used in future experience ratings, unless there has been both a “material change in ownership” and a “material change in operations or employees....” It is undisputed that in this case there was a material change of ownership. It is equally undisputed that there was not a material change in operations. Accordingly, Sullivan was subject to Cortima’s experience rating, unless there had been a material change in employees.
Under these circumstances, “a change in employees is material only if:
“(a) a majority of the employees who conduct the operations... for any period of time within the first ninety (90) days following the material change in ownership were not employed to conduct such operations within the ninety (90) days immediately preceding the material change in ownership, and
“(b) a majority of the payroll earned by the employees who conduct the operations... for any period of time within the first ninety (90) days following the material change in ownership was earned by employees who were not employed to conduct such operations for any period of time within the ninety (90) days immediately preceding the material change in ownership.”
Cortima was in the business of selling, fabricating, and installing stone materials. In December 2004, at a tax lien auction, Sullivan’s president purchased all of Cortima’s assets. He promptly transferred these assets to Sullivan, which used them in its business operations.
Sullivan then engaged Downey, an insurance broker, to obtain worker’s compensation insurance for it. Downey provided Sullivan with an application package. In January 2005, Sullivan submitted the application package to SCIF.
In March 2005, SCIF issued a worker’s compensation insurance policy to Sullivan. The policy recited that the “total estimated annual premium” was $48,682. (Capitalization omitted.) The policy also stated, “The premium shown... is an estimate. The final premium will be determined after this policy ends by using the actual premium basis and the proper classifications, rates and rating plans that lawfully apply to the business and work covered by this policy.”
“Defendants... knew that Cortima had a high Experience Modification rating, because SCIF was providing worker’s compensation insurance to Cortima....” Defendants intentionally failed to disclose to Sullivan the fact that Cortima’s experience rating would be applied to it, so that its premium rates would actually be higher than the premium rates quoted to it.
In March 2006, SCIF issued an “Experience Modification Endorsement,” retroactively increasing Sullivan’s premiums for the period from October 2005 through January 2006 by 150 percent (later increased further to 157 percent).
If Sullivan had known that it would be subject to an experience modification based on Cortima’s claims history, it “could have, and would have, taken the necessary actions to negate the application of Cortima’s claim history to [Sullivan].”
II
PROCEDURAL BACKGROUND
In 2007, Sullivan filed this action against SCIF and Downey. The complaint, as subsequently amended, asserted five causes of action:
1. Concealment in violation of Insurance Code sections 330 through 339;
2. Fraud;
3. Deceit;
4. Negligence (against Downey only); and
5. Breach of the implied covenant of good faith and fair dealing.
SCIF and Downey each filed a demurrer. The trial court sustained SCIF’s demurrer without leave to amend. It explained:
“Each cause of action is based on [SCIF]’s alleged concealment of the administrative regulations pertaining to the calculation of plaintiff’s... workers’ compensation policy rates. This allegation will not support causes of action for fraud/concealment or breach of the implied covenant. The applicability of Cortima’s workers’ compensation history to plaintiff’s rates is determined by administrative regulations published by the Insurance Commissioner and available to the public. [SCIF] could not conceal the administrative regulations as a matter of law.
“Plaintiff had already acquired Cortima’s assets at the time it applied for and obtained workers’ compensation insurance from [SCIF]. [SCIF] had no legal duty to advise plaintiff as to how to operate its business, or avoid the application of the California Experience Rating Plan.
“[SCIF] cannot be held liable for fraudulent concealment or breach of the implied covenant because it was not in a fiduciary relationship with plaintiff for purposes of obtaining the contract of insurance. [Citation.]”
The trial court also sustained Downey’s demurrer, with leave to amend as to the first through fourth causes of action, and without leave to amend as to the fifth cause of action. It explained: “Justifiable reliance/causation and breach of duty owed must be alleged.” Sullivan did not amend. Accordingly, the trial court dismissed the complaint.
III
DISCUSSION
A. Standard of Review.
“Our task in reviewing a judgment sustaining a demurrer is to determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] We assume the truth of the properly pleaded material facts and the reasonable inferences that may be drawn therefrom. [Citation.]... We also consider matters that may be judicially noticed. [Citation.]” (Reynolds v. Bement (2005) 36 Cal.4th 1075, 1083, fn. omitted.) “[O]ur review is de novo. [Citation.]” (Tracfone Wireless, Inc. v. County of Los Angeles (2008) 163 Cal.App.4th 1359, 1363.)
“In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) “[W]e treat the demurrer as admitting the complaint’s well-pleaded allegations of material fact, but not its contentions, deductions or conclusions of law. [Citations.]” (Ross v. RagingWire Telecommunications, Inc. (2008) 42 Cal.4th 920, 924.) “We also accept as true all facts that may be implied or reasonably inferred from those expressly alleged. [Citation.]” (Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 986.)
B. Fraud and Deceit Causes of Action.
Sullivan contends that it adequately stated causes of action for fraud and deceit.
“The elements of fraud are: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. [Citation.]” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 990.)
Sullivan did not allege that it was unaware of Cortima’s worker’s compensation claims history, nor of Cortima’s resulting high experience rating. Rather, it alleged that defendants failed to disclose the effect that Cortima’s experience rating would have on Sullivan.
The trial court ruled that, “as a matter of law,” SCIF could not conceal the relevant administrative regulations. However, “[u]nder a long line of cases, the fact that the victim had constructive notice of the truth from public records is no defense to fraud. The existence of such public records may be relevant to whether the victim’s reliance was justifiable, but it is not, by itself, conclusive. [Citations.]” (Bishop Creek Lodge v. Scira (1996) 46 Cal.App.4th 1721, 1734 [Fourth Dist., Div. Two].)
For example, in Manderville v. PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, the buyers of real property sued the sellers’ brokers, alleging that the brokers had falsely represented that the property could be subdivided. (Id. at pp. 1489, 1494.) The brokers argued, among other things, that the buyers could not have justifiably relied on the misrepresentation because a diligent investigation would have revealed that subdividing the property would violate a county ordinance. (Id. at p. 1502.) The appellate court stated: “Brokers’ claim is unavailing. It is well established in California that in an action for fraud or deceit, negligence on the part of the plaintiff in failing to discover the falsity of the defendant’s statement is no defense when the misrepresentation was intentional. [Citations.]” (Ibid.)
Defendants argue that “[p]arties to a contract are presumed to have knowledge of all applicable laws at the time the contract is made.” This is merely “‘a general rule of construction’....” (Pilimai v. Farmers Ins. Exchange Co. (2006) 39 Cal.4th 133, 138.) Sullivan is not denying that the applicable law became part of the contract; rather, it is arguing that it was not made subjectively aware of that law (i.e., of that term of the contract), so that it could take steps to mitigate the harshness of its application.
The trial court also ruled that SCIF had no duty to disclose. Downey argued below that it, too, had no duty to disclose. It is true that, in general, nondisclosure is not actionable as fraud unless there is some legal duty to disclose. (OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 845; see Civ. Code, § 1710, subd. 3 [deceit includes “[t]he suppression of a fact, by one who is bound to disclose it”].)
A duty of disclosure may arise from a fiduciary relationship. (Moe v. Transamerica Title Ins. Co. (1971) 21 Cal.App.3d 289, 306.) As the trial court ruled, SCIF was not in a fiduciary relationship with Sullivan. (Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1150-1151.) We may assume, without deciding, that Downey likewise was not in a fiduciary relationship with Sullivan. (See Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1156 [“it is unclear whether a fiduciary relationship exists between an insurance broker and an insured”]; but see Eddy v. Sharp (1988) 199 Cal.App.3d 858, 865 .)
However, a duty of disclosure also may arise “where the defendant alone has knowledge of material facts which are not accessible to the plaintiff.” (Borba v. Thomas (1977) 70 Cal.App.3d 144, 154.) SCIF would argue that the relevant administrative regulations were “accessible” to Sullivan. However, the duty arises from a disparity in knowledge. For there to be a duty, it is not necessary that the undisclosed information be literally inaccessible to the plaintiff; it is only necessary that the defendant’s access to it be superior to the plaintiff’s access.
Liability for nondisclosure is the subject of section 551 of the Restatement Second of Torts (section 551). Section 551 does not speak in terms of whether the undisclosed information was “accessible” to the plaintiff. Rather, it provides that one party to a business transaction has a duty to disclose to the other “facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.” (§ 551, subd. (2)(e), italics added.)
California follows section 551. (Eddy v. Sharp, supra, 199 Cal.App.3d at p. 864; Westrick v. State Farm Insurance (1982) 137 Cal.App.3d 685, 691; Wells v. John Hancock Mut. Life Ins. Co. (1978) 85 Cal.App.3d 66, 72 & fn. 8.) Moreover, it has been held that, under section 551, an insurer can have a duty to disclose facts to the insured, even though those facts are accessible to the insured. For example, “[s]ince ‘“[i]t is a matter almost of common knowledge that a very small percentage of policy-holders are actually cognizant of the provisions of their policies... and [the] insured usually confides implicitly in the agent securing the insurance,...”’ [citations], an insurer’s duty includes the duty ‘reasonably to inform an insured of the insured’s rights and obligations under the insurance policy.’ [Citation.]” (Eddy,at pp. 864-865; see also Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 426-429 [insurer had duty to inform insureds of arbitration clause of policy].)
Here, Sullivan alleged that defendants knew that Cortima’s experience rating would be applied to Sullivan. Moreover, by alleging that defendants “intentionally concealed” this information, Sullivan alleged that they knew that Sullivan did not know this. Accordingly, Sullivan alleged facts sufficient to show a duty to disclose.
Even when there is no other duty to disclose, “a nondisclosure claim arises when the defendant makes representations but fails to disclose additional facts which materially qualify the facts disclosed, or which render the disclosure likely to mislead. [Citations.]” (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 666.)
SCIF argues that it did not have all of the information necessary to determine what Sullivan’s experience rating would be. For all we know, that may be true as a factual matter, but the complaint alleges that SCIF did know.
Downey, however, argues that the allegation that it knew about Cortima’s high experience rating was too conclusory. It did not raise this argument below. A failure of the complaint to state a cause of action can be raised for the first time on appeal. (Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 622.) “However, if objection is interposed for the first time on appeal, the pleading will be liberally construed and will be upheld if the necessary facts in the complaint appear by implication or as a conclusion of law [citations].” (O’Neil v. Spillane (1975) 45 Cal.App.3d 147, 156-157.) Downey essentially concedes that its knowledge was alleged, albeit only as a conclusion.
Downey also argues that it had no duty to disclose because the effect that Cortima’s experience rating would have on Sullivan was a matter of opinion, not a matter of fact. “[A] representation ordinarily will give rise to a cause of action for fraud or deceit only if it is a representation of fact rather than opinion. [Citations.] ‘[P]redictions as to future events, or statements as to future action by some third party, are deemed opinions, and not actionable fraud.’ [Citation.]” (Nibbi Brothers, Inc. v. Home Federal Sav. & Loan Assn. (1988) 205 Cal.App.3d 1415, 1423.)
However, “[u]nder certain circumstances, expressions of professional opinion are treated as representations of fact.... [W]hen a party possesses or holds itself out as possessing superior knowledge or special information or expertise regarding the subject matter and a plaintiff is so situated that it may reasonably rely on such supposed knowledge, information, or expertise, the defendant’s representation may be treated as one of material fact. [Citations.]” (Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 408.) Here, both SCIF and Downey reasonably would have had superior knowledge of the worker’s compensation experience rating system in general, and the complaint alleged that they had superior knowledge of Sullivan’s exposure to Cortima’s experience rating in particular. Sullivan reasonably would rely on their knowledge.
Defendants assert that there is no “duty to disclose premium pricing information,” citing California Service Station etc. Assn. v. American Home Assurance Co. (1998) 62 Cal.App.4th 1166. There, however, the court held that a negligence cause of action against an insurer could not be based on a duty to disclose how the dividends on dividend-paying worker’s compensation insurance would be calculated. (Id. at pp. 1173-1177.) In the course of doing so, it stated, “There is no duty of ordinary care to disclose pricing information during arm’s-length contract negotiations.” (Id. at p. 1173.)
The court was careful to note, however, that the appellants had not pursued any type of cause of action for fraud (California Service Station etc. Assn. v. American Home Assurance Co., supra, 62 Cal.App.4th at p. 1172): “In fact, appellants actively disavowed any fraud, deceit or misrepresentation causes of action.... Of course, if they had made such claims they would have had to prove that respondent intended to induce them to market its policies by intentionally concealing dividend information, or by means of a positive misrepresentation that was either intentional or negligent. [Citations.] They would also have had to prove that they relied on the concealment or misrepresentations in agreeing to market respondent’s policies. [Citation.] Appellants are not unsophisticated, and are represented by very able counsel, so the natural inference is that they were unable to muster such proof.” (Ibid.) Thus, the court strongly suggested that a fraud cause of action could be based on a duty to disclose pricing information, as long as all the other elements of fraud were present.
Similarly, SCIF asserts that “[t]here is no duty to give financial advice to an insured,” citing California Indemnity Ins. Premium Finance Co. v. Fireman’s Fund Ins. Co. (1995) 40 Cal.App.4th 1633. What that case actually stated, however, was: “[W]e find no legal duty on the part of an insurer which would reach beyond the scope of its relationship with its insured, and would extend to advising a third party regarding financial transactions. [Citations.]” (Id. at pp. 1641-1642, fn. omitted, italics added.) Thus, again, the court strongly suggested that an insurer could have a duty to give financial advice to its own insured.
Next, SCIF argues that it was prohibited from disclosing “any information” about Cortima. In support of this argument, it cites the state constitutional right to privacy. (Cal. Const., art. I, § 1.) However, it cites no authority, other than the bare constitutional provision itself, and it makes no articulated argument as to how a disclosure would violate this provision. Accordingly, it has forfeited this argument. (People v. Watkins (1996) 45 Cal.App.4th 485, 492.) In addition, SCIF cites Labor Code section 3762. This section prohibits an insurer from disclosing to an employer most medical information about an employee who has filed a workers’ compensation claim. (Lab. Code, § 3762, subd. (c).) It would appear, however, that SCIF could have told Sullivan that it would be subject to Cortima’s experience rating without having to disclose any medical information about any individual employees.
SCIF also cites Civil Code section 56.05 “et seq.” Without a more specific citation, it is hard to be sure; nevertheless, it does not appear that these provisions would apply here. (See Civ. Code, §§ 56.05, subds. (c), (d), (j), 56.06, 56.10, subd. (a), 56.20, subd. (c), 56.27.)
Finally, SCIF argues that Sullivan was required by law to have worker’s compensation insurance; accordingly, even if it had disclosed to Sullivan the fact that it would be subject to Cortima’s experience rating, there is nothing that Sullivan could or would have done differently. In other words, SCIF argues that Sullivan cannot show either reliance or causation. Downey raised a similar argument below.
The complaint, however, alleges that if the necessary disclosure had been made, Sullivan “could have, and would have, taken the necessary actions to negate the application of Cortima’s claim history to [Sullivan].” We cannot say, as a matter of law, that there were no such actions.
For one thing, Sullivan was not absolutely required by law to obtain and maintain workers’ compensation insurance; as SCIF concedes in a footnote, Sullivan could have opted to self-insure. (Lab. Code, § 3700, subd. (b).)
For another thing, as Sullivan suggests, it could have replaced most or all of the erstwhile Cortima employees. Defendants have never argued that this would violate the employees’ rights in any way. Thus, they have forfeited any such contention for purposes of this appeal. Admittedly, Sullivan would have had to act fast. To avoid being subject to Cortima’s experience rating, it would have had to show that both (1) a majority of the persons who were employees for any part of the following 90 days had not been employees for any part of the preceding 90 days, and (2) a majority of its payroll in the following 90 days went to persons who had not been employees for any part of the preceding 90 days. The complaint alleged that the Cortima assets were purchased on or about December 6, 2004. On or about January 7, 2005, Sullivan, through Downey, submitted an application to SCIF. Thus, at that point, if either SCIF or Downey had advised Sullivan of the consequences of retaining Cortima’s employees, and if Sullivan promptly fired those employees and hired the same number (plus one) of new employees, it could have satisfied both of these regulatory prerequisites.
Accordingly, under the standard of review applicable to a demurrer, we must conclude that the trial court erred by sustaining demurrers to the fraud and deceit causes of action.
C. Statutory Concealment Cause of Action.
Sullivan contends that it adequately stated a cause of action for concealment in violation of Insurance Code sections 330 through 339.
These sections generally prohibit concealment by either party to an insurance contract. Concealment by one party entitles the other party to rescission. (Ins. Code, § 331.)
Insurance Code section 332 provides, “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 and as to which he makes no warranty, and which the other has not the means of ascertaining.”
However, Insurance Code section 333 provides that “[n]either party to a contract of insurance is bound to communicate information of the matters following...: [¶]... [¶] 2. Those which, in the exercise of ordinary care, the other ought to know, and of which the party has no reason to suppose him ignorant.” (Ins. Code, § 333, subd. 2.)
Insurance Code section 335 goes on to provide: “Each party to a contract of insurance is bound to know: [¶] (a) All the general causes which are open to his inquiry equally with that of the other, and which may affect either the political or material perils contemplated.”
Finally, Insurance Code section 336 provides that “[t]he right to information of material facts may be waived... by neglect to make inquiries as to such facts, where they are distinctly implied in other facts of which information is communicated.” (Ins. Code, § 336, subd. (b).)
Once again, defendants argue that, as a matter of law, they could not conceal the effect that Cortima’s experience rating would have on Sullivan, because it was the result of publicly available administrative regulations. As we already held in connection with the fraud and deceit causes of action, a defendant can have a duty to disclose facts that are not accessible to the plaintiff; this does not mean that the facts must be absolutely inaccessible, only that the defendant’s access to them must be superior to the plaintiff’s access.
Although Insurance Code section 332 talks in terms of facts that the plaintiff “has not the means of ascertaining,” it does not appear that the Legislature intended to require that the facts be absolutely inaccessible. For example, in Lunardi v. Great-West Life Assurance Co. (1995) 37 Cal.App.4th 807, an applicant for life insurance failed to disclose that he had been diagnosed with leukemia. (Id. at pp. 814-817.) On appeal, the plaintiffs argued that Insurance Code section 332 did not apply because the insurer had required a physical examination (see Lunardi, at p. 815) but had not required a complete blood count, which would have revealed the leukemia. (Id. at pp. 825-826.) The appellate court disagreed, stating: “[Insurance Code s]ection 332 does not require the insurer to take all possible measures to reveal undisclosed conditions.” (Id. at p. 826.)
We can take judicial notice of the applicable regulations. However, we cannot take judicial notice that these regulations were matters that, in the exercise of ordinary care, Sullivan “ought to know,” within the meaning of Insurance Code section 333. On the face of things, ordinary care would not seem to require an insured who is not a lawyer to do legal research into highly technical and somewhat obscure administrative regulations so as to determine its own experience rating.
Likewise, we cannot say that these regulations were “open to [Sullivan’s] inquiry equally with that of [defendants]” within the meaning of Insurance Code section 335. Once again, the complaint essentially alleged that SCIF and Downey had superior knowledge of these matters.
Finally, Downey notes that the policy itself provided that the final premium would be determined “by using... the proper classifications, rates and rating plans that lawfully apply to the business and work covered by this policy.” It argues that this “distinctly implied” the existence of the relevant administrative regulations, so that Sullivan’s “neglect to make inquiries” concerning them constituted a waiver under Insurance Code section 336. Insurance Code section 336 does not mean that the least hint will necessarily require further inquiries. (See Telford v. New York Life Ins. Co. (1937) 9 Cal.2d 103, 106-108 [insurer did not waive insured’s failure to disclose previous amputation of breast, even though medical examiner had seen her chest during examination; “[m]ere knowledge of the scar by the defendant did not excuse a false answer to questions... material to the risk”].) Rather, by using the word “neglect,” Insurance Code section 336 suggests that a negligence standard applies. (See Rutherford v. Prudential Ins. Co. (1965) 234 Cal.App.2d 719, 733-735 [whether an insurer’s knowledge of the falsity of one of the insured’s statements requires an investigation of the insured’s other statements depends upon the type and seriousness of the known misrepresentation].) A jury could find that, once SCIF quoted Sullivan an estimated premium, Sullivan would reasonably assume that the actual premium would be in the same ballpark; hence, it would be reasonable for it to make no further investigation.
We therefore conclude that Sullivan adequately alleged that SCIF violated Insurance Code section 332.
Downey argues, however, that it cannot be liable for statutory concealment because it was not a party to the policy. We agree. Insurance Code sections 330 through 339, by their terms, apply to the parties to the contract of insurance. Moreover, while Insurance Code section 331 does not preclude other remedies under other legal theories (De Campos v. State Comp. Ins. Fund (1954) 122 Cal.App.2d 519, 529), the only remedy it provides for statutory concealment is rescission of the policy. This remedy logically cannot apply to a nonsignatory.
We therefore conclude that, with regard to the statutory concealment cause of action, the trial court erred by sustaining SCIF’s demurrer, but it properly sustained Downey’s demurrer.
D. Negligence Cause of Action.
Sullivan contends that it adequately stated a cause of action for negligence against Downey. It further contends that it should have been allowed to amend its complaint so as to add SCIF as a defendant on its negligence cause of action.
In the trial court, Downey argued — and the trial court ruled — that the negligence cause of action was not well taken because Sullivan was required to have worker’s compensation insurance and therefore could not allege causation. As we have already rejected this contention in the context of the fraud and deceit causes of action (see part III.B, ante), we also reject it in the context of the negligence cause of action.
Ordinarily, however, a negligent misrepresentation is not actionable unless it rises to the level of “a positive assertion...; an omission or an implied assertion or representation is not sufficient. [Citations.]” (Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 243; accord, Byrum v. Brand (1990) 219 Cal.App.3d 926, 941-942; Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298, 306.) Here, the alleged negligent representation consisted of a nondisclosure — a mere omission.
Sullivan relies on Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490, which held that Insurance Code sections 330 through 339 created a duty of disclosure, and therefore a nondisclosure in violation of those sections could be the basis of a cause of action for negligence. (Pastoria, at p. 1499.) However, as we held in part III.C, ante, Insurance Code sections 330 through 339 did not apply to Downey. Thus, Downey was entitled to the benefit of the standard rule that a claim for negligent misrepresentation cannot be based on a mere omission. The trial court therefore properly sustained Downey’s demurrer to the negligence cause of action.
This cause of action was alleged solely against Downey. However, as we also held in part III.C, ante, Sullivan did adequately allege that SCIF violated Insurance Code sections 330 through 339. Accordingly, under Pastoria, it would appear that Sullivan could allege that SCIF was liable for negligent nondisclosure.
“If a complaint does not state a cause of action, but there is a reasonable possibility that the defect can be cured by amendment, leave to amend must be granted. [Citation.]” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 39.) “Whether to grant leave to amend a complaint is a matter within the discretion of the trial court. [Citation.]” (Reynolds v. Bement, supra, 36 Cal.4th at p. 1091.) “This abuse of discretion is reviewable on appeal ‘even in the absence of a request for leave to amend’ [citation]....” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 971; see also Code Civ. Proc., § 472c, subds. (a), (c).) We therefore conclude that the trial court should have given Sullivan leave to amend the negligence cause of action so as to make it apply to SCIF.
E. Cause of Action for Breach of the Implied Covenant.
In this appeal, Sullivan does not dispute that the trial court properly sustained the demurrers with respect to the cause of action for breach of the implied covenant of good faith and fair dealing. It has forfeited any challenge to this ruling.
IV
DISPOSITION
The judgment is reversed with the following directions:
With respect to the first (statutory concealment) cause of action, the order sustaining SCIF’s demurrer is reversed; the order sustaining Downey’s demurrer is affirmed.
With respect to the second (fraud) and third (deceit) causes of action, the orders sustaining the demurrers are reversed.
With respect to the fourth (negligence) cause of action, the order sustaining Downey’s demurrer is affirmed; however, on remand, Sullivan will have leave to file an amended complaint for the purpose of attempting to make this cause of action apply to SCIF. (See Code Civ. Proc., § 472b.)
With respect to the fifth (implied covenant) cause of action, the orders sustaining the demurrers are affirmed.
Each side shall bear its own costs on appeal
We concur: RAMIREZ P.J., HOLLENHORST J.
Here, SCIF quoted Sullivan a “total estimated... premium” of $48,682. (Capitalization omitted.) However, based on facts that SCIF allegedly knew, the eventual actual premium was 157 percent higher. While the policy itself advised Sullivan that the premium shown was only an estimate, it is fairly inferable that the estimated premium was likely to mislead in the absence of an additional disclosure of the facts on which the actual premium would be based. For this reason, too, the complaint adequately alleges that SCIF (although not Downey) had a duty to disclose.
Moreover, SCIF cites Code of Civil Procedure section 1985.3, which deals with subpoenas for personal records of a consumer. It does not address the disclosure of personal records in the absence of a subpoena.