Ducoing Enterprises v. Winston & Assocs.
Filed 9/9/13 Ducoing Enterprises v. Winston & Assocs.
CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
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purposes of rule 8.1115.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE
DISTRICT
DIVISION THREE
DUCOING ENTERPRISES, INC., et al.,
Plaintiffs and
Appellants,
v.
WINSTON & ASSOCIATES INSURANCE BROKERS, INC., et al.,
Defendants and
Respondents.
G046734
(Super. Ct.
No. 30-2010-00361854)
O P I N I O
N
Appeal from a judgment
of the Superior Court
of
County, David R. Chaffee, Judge. Affirmed in part, reversed in part, and remanded.
Foley Bezek Behle &
Curtis, Roger N. Behle, Jr., Justin P. Karczag and Stephanie R. Hanning for
Plaintiffs and Appellants.
Wood, Smith, Henning
& Berman, Seymour B. Everett III and Tracy M. Lewis for
Defendants and Respondents.
*
* *
Ducoing
Enterprises, Inc. (DEI), and Ducoing Management, Inc. (DMI), sued Winston &
Associates Insurance Brokers, Inc., doing business as Winston Insurance
Services (Winston), an insurance brokerage, and John Place, an insurance
broker, for negligence and other causes of action because they had not procured
insurance coverage for employee dishonesty.
DEI and DMI appeal from a judgment entered after the trial court granted
Winston and Place’s motion for nonsuit at the close of DEI and DMI’s case‑in‑chief. As part of the appeal, DEI and DMI also
challenge an order granting a motion in limine to exclude a certain
communication. For the reasons we
explain, we affirm the judgment against DMI, and, in all other respects,
reverse the judgment and remand.
Facts
I.
Insurance Coverage for Brent and Ami Ducoing’s Painting Business
In
1984, on graduating from high school, Brent Ducoing started a painting business
called “Perfection Painting.†Initially,
he operated the business as a sole proprietor, but, in 1987, formed DEI, which
operated under the fictitious business name, Perfection Painting. Brent Ducoing managed the field operations of
the painting business, while his wife, Ami Ducoing,
billing, invoicing, payroll, day‑to‑day operations, and bank
reconciliations. The Ducoings have high school degrees and no specific
education or training in the field of insurance.
The
Ducoings became acquainted with Place in 2001, when he sent them a letter
soliciting their business. Ami responded
by telephoning Place, who seemed eager to take the call. Place said his firm specialized in brokering
business insurance policies, he was an expert in that area, and he could obtain
“the best coverage for the least amount.â€
Ami wanted to save money on insurance, but wanted proper coverage. She met with Place, who asked her a series of
questions about the Ducoings’ business and put together a list of their areas
of potential exposure. She informed him
of the nature of DEI’s business and told him DEI did work out of state and had
many employees.
Place
told Ami he “was going to go back to different carriers and see what he can
come up with as far as what offers he could present to†the Ducoings. He wrote several insurance policies for DEI,
including general liability, contents coverage, and workers’ compensation. Ami understood that DEI was obtaining a
“product coverage business policy†with “a lot of additional things†and
nothing left out. On more than one
occasion, Place said the insurance coverage for DEI “had all the bells and
whistles.â€
Ami
often spoke with Place throughout the year, and would meet with Place or speak
with him by telephone when the insurance policies came up for annual renewal. On renewal of one of the policies, Place
asked Ami if there had been any changes and whether she wanted to increase the
amount of coverage.
On
one occasion, Ami contacted Place and asked him if terrorism coverage could be
deleted. She faxed him the bill and a
cover sheet, and signed a “declination of accepting terrorism coverage†to
confirm her request and inform the insurance carrier she was declining that
coverage. Winston sent her a letter
acknowledging deletion of terrorism coverage.
Ami did not recall ever signing anything from Place or an insurance
carrier, in which she declined an entire form of coverage under a policy.
In
2003, the Ducoings formed DMI to “help offset some of the insurance costs from
[DEI]†and to facilitate employment and administrative functions for Perfection
Painting. The Ducoings had been advised
by an accountant that it would be advantageous to create another
corporation. Place agreed it “was a
great idea†and assisted the Ducoings in setting up the two‑corporation
structure.
DMI
never contracted any painting jobs, owned any equipment, leased office space,
had its own telephone number, paid any bills, or earned any revenue. All trucks and equipment used for painting
jobs were owned by DEI. All revenue
received by DMI came from DEI. All
checks from clients for painting work performed by Perfection Painting were
payable to DEI or DEI/Perfection Painting.
The checks were deposited into DEI’s bank account. After a payroll service calculated the taxes
and insurance payments that were required to be deducted, DEI transferred money
from its general account into separate payroll accounts for DEI and DMI to
cover the payroll of each company.
Persons engaged in work for Perfection Painting might be employed by DEI
or DMI and transferred internally between them, depending upon each company’s
workers’ compensation insurance rates.
Ami testified, “[i]t’s strictly based upon the insurance rates, and the
only difference is the employees’ paychecks have a different name.†Place knew DEI and DMI were operated in this
fashion.
DEI
and DMI remained separate entities with different officers, books, and bank
accounts, and maintained separate addresses registered with the California
Secretary of State. DEI and DMI paid
insurance premiums from different bank accounts and had separate payroll
accounts.
In
2008, of the about 50 employees who performed work on Perfection Painting jobs,
two worked with Ami in the office and the others worked in the field. Whether employed by DEI or DMI, all those
performing work on Perfection Painting jobs wore shirts with the words
“Perfection Painting†on them and drove in trucks that displayed the words
“Perfection Painting.†Brent signed all
painting contracts for Perfection Painting on behalf of DEI, and clients would
receive invoices from Perfection Painting and DEI. DMI never sent invoices for or received
payments from painting jobs.
In
2002, DEI hired Veronica Navarro to work in the warehouse. In 2003, Navarro began assisting Ami in the
office. At that time, Navarro was an
employee of DMI, and, some time later, her employment switched back to DEI. In 2008, Navarro, while employed by DEI,
assisted Ami in compiling employee hours and preparing timesheets. At the end of each pay period, Navarro would
present the timesheets to Ami, who would review them with the field supervisor
and submit them to the payroll service.
Employee payroll was processed in the same way for both DEI and
DMI: the timesheets for DEI and DMI were
deposited into the same lockbox, and Navarro and Ami processed timesheets and
payroll checks. DEI and DMI used the
same payroll service, but had different payroll accounts.
In
July 2008, the Ducoings noticed irregularities in the payroll accounts, namely,
expenses were inexplicably increasing.
Ami reviewed a log of employee hours with a field superintendent, who
noticed entries from one person who had not worked on Perfection Painting jobs
for several months. Ami investigated
every employee to whom a paycheck had been issued to verify whether the
employee had actually worked the hours for which he or she had been paid. Ami discovered there were “employees†to whom
paychecks had been issued, but who never had been employed.
Ami
uncovered a fraudulent check‑cashing scheme by which Navarro stole money
from DEI through a manipulation of timesheets and payroll records. From February to July 2008, Navarro used
personal information from unsuccessful job applicants to create “ghost
employees.†Navarro created timesheets
for those ghost employees and used their names to transfer funds from DEI to
DMI’s payroll account. Paychecks for the
ghost employees would be issued from DMI’s payroll account. An accomplice or accomplices of Navarro would
take those paychecks to check‑cashing services in Orange
County and have them endorsed for
cash.
After
contacting the police, Ami called Place to inform him of the loss and determine
how to make a claim. Place said nothing
to suggest the loss was not covered, but told Ami a
a claim could be submitted.
IV.
Investigation, Loss, Conviction, and Insurance Claim
Ami
actively participated in the police investigation of Navarro. After reviewing records, she compiled a list
of checks for each ghost employee who improperly received a check. The names on the list were those of people
who appeared on timesheets and received paychecks but never did work for
Perfection Painting. For each check, Ami
provided the date of issuance, the amount, and the place where it was
cashed. Most of the checks were issued
from DMI’s payroll account because Navarro, without authorization, transferred
funds from DEI to DMI.
Navarro
embezzled a total of $92,818. The
Ducoings were able to stop payment on checks totaling $6,867. The banks provided the Ducoings with
affidavits of forgery, which, if signed by the purported payee, notarized, and
presented to the bank that cashed the check, would enable the Ducoings to
obtain a refund. By means of the
affidavits of forgery, the Ducoings were able to recover $38,277 from the
banks. Those funds were returned to DEI. The Ducoings also obtained miscellaneous
recovery of $4,371, leaving unrecovered losses of $43,303.
In
March 2009, the Ducoings, through DMI, sued the check‑cashing businesses
after they refused to voluntarily return the remaining funds. Following a bench trial, the Ducoings
received a judgment against the check‑cashing businesses, totaling
$69,000, only a small part of which has been paid. DEI spent about $63,000 in legal fees and
costs in that litigation. Based on
unrecovered losses, mitigation costs, legal fees and costs, and interest, the
Ducoings’ damages expert calculated the damages resulting from Navarro’s
embezzlement to have been $95,600 at the time of trial.
One
or two weeks after learning Navarro was convicted, Ami called Place and
notified him of the conviction. Based on
his earlier representation, she understood that Place would submit a claim now
that a criminal conviction had been obtained.
In March 2010, however, Place informed Ami there was no coverage for the
loss caused by Navarro. Ami was
surprised because the policy had been in place since 2002, it was always
renewed, and “[w]e never added or deleted coverage outside of adding or
subtracting pieces of equipment.†In an
e‑mail, Place told Ami that he had contacted the insurance carrier to
find out why employee dishonesty coverage was not included in the current
policy. He recalled that employee
dishonesty coverage had been in the prior policies and did not know why it was
not in the current policy. Ultimately,
Place informed Ami the policy did not include employee dishonesty
coverage.
History
DEI
and DMI brought this lawsuit against Winston and Place for negligence,
negligent misrepresentation, breach of fiduciary duty, and damages based on the
tort of another doctrine. The claims
were tried to a jury over several days in January 2012.
On
the first day of trial, the court granted Winston and Place’s motion in limine
to exclude evidence of a communication between Place and Ami, on the ground it
was a settlement communication. Before
granting the motion, the trial court conducted a hearing under Evidence Code
section 402, at which Ami testified.
At
the close of DEI and DMI’s case‑in‑chief, Winston and Place moved
for nonsuit on three grounds:
(1) lack of evidence of a loss by DMI that would have been covered
by DEI’s insurance policy; (2) insufficient evidence to establish that
Winston and Place were vicariously liable for each other’s actions; and
(3) lack of evidence of damages suffered by DEI because it successfully
recouped its losses. The trial court
granted the motion for nonsuit on two grounds:
(1) Winston and Place were agents for DMI only for procuring
workers’ compensation insurance, and for no other purpose, and therefore owed
DMI no duty to procure employee dishonesty coverage for DMI; and (2) DEI
suffered no compensable loss because Navarro embezzled money from DMI, not
DEI. Judgment in favor of Winston and
Place was entered in March 2012. DEI and
DMI timely appealed.
A. Standard
of Review
We
review an order granting nonsuit de novo, using the same
standard as the trial court. (
47 Cal.3d 278, 291.) A defendant is
entitled to a nonsuit if the
court determines, as a matter of law, the evidence presented by the plaintiff
is insufficient to permit a jury to find in the plaintiff’s favor. (Ibid.) The court must not weigh the evidence or
consider witness credibility; must accept as true the evidence most favorable
to the plaintiff; and must draw every reasonable inference, and resolve all
presumptions, conflicts, and doubts, in the plaintiff’s favor. (Ibid.) Evidence is legally insufficient when no
substantial evidence exists tending to prove each element of the plaintiff’s
claim. (Adams v. City of Fremont (1998) 68 Cal.App.4th 243, 263;
Assn. v. Department of Veterans Affairs (1998) 67 Cal.App.4th 743, 750‑751.)
B. DEI
Suffered a Loss Because Navarro Transferred the Embezzled
Money, Without Authorization, from DEI to DMI.
The
trial court concluded DEI suffered no loss because Navarro embezzled money by
having checks drawn from DMI’s payroll account.
The court explained: “The
evidence in this case . . . is there were only two checks that were
actually embezzled from [DEI], and both of those were fully reimbursed, so the
only loss suffered was loss to [DMI]. . . . I can’t accept the
argument that allows the blurring of the lines that [DMI]’s money is [DEI’s]
money and [DEI’s] money is [DMI]’s money because that completely ignores the
corporate fiction that the Ducoings had to agree to accept when they set up
these two separate corporations.â€
The
trial court erred. The evidence at trial
established that all of the money stolen by Navarro came from DEI. Using information from unsuccessful job applicants,
she created ghost employees and false timesheets for them. She embezzled money from DEI by making
unauthorized transfers of money from DEI to DMI and issuing checks drawn from
DMI’s payroll account to pay those ghost employees. The evidence showed that all revenue received
by DMI came from DEI. All checks from
clients for painting work performed by Perfection Painting were paid to DEI or
DEI/Perfection Painting and deposited into DEI’s bank account.
This
is not a matter of blurring corporate distinctions, as the trial court
stated. The money embezzled by Navarro
came from her employer, DEI. Although
the falsified checks were drawn from DMI’s payroll account, the money came from
DEI. Navarro simply took the preliminary
step, in all but two cases, of transferring money from DEI to DMI. As DEI and DMI argue: “Ms. Navarro stole money from DEI. The way she stole it was by first wrongfully
moving it into DMI, where she had access to it.
Just because she wrongfully moved it first somewhere else does not mean
it was DMI’s money . . . .
It did not become DMI’s money when she wrongfully transferred it from
DEI to DMI any more than it would become her money if she wrongfully
transferred it from DEI directly to her own bank account.â€
C. DMI
Would Have Had No Claim Under Employee Dishonesty
Coverage Because Navarro Was an Employee of DEI.
The
trial court also granted nonsuit on the ground Winston and Place were the
agents for DMI only for the purpose of procuring workers’ compensation
insurance, “had no other role with respect to insuring [DMI],†and, therefore,
had no duty to DMI to procure employee dishonesty coverage.
The
parties argue at length the issue whether Winston and Place owed DMI a duty of
care.
time her dishonest conduct occurred. She
was employed by DEI. Thus, even if
Winston and Place owed DMI a duty of care, and breached that duty of care by
failing to procure employee dishonesty coverage for DMI, no claim could have
been made by DMI under such coverage.
The
trial court granted a motion in limine brought by Winston and Place to exclude
evidence of a settlement communication, in particular, testimony that Place
told Ami “he felt so confident that coverage was there, and because [the
Ducoings] were out the loss, he would be willing to front the $10,000 and he
would deal with the insurance company directly for reimbursement.â€
Trial
court error warrants reversal only when it is reasonably probable a result more
favorable to the appealing party would have been reached in the absence of the
error. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 800.) Here, the grant of the motion in limine had
no bearing on the court’s decision to grant nonsuit against DEI and DMI. The court granted nonsuit against DEI and DMI
on grounds unrelated to the one communication not admitted into evidence. Thus, even if the court erred by granting the
motion in limine, it was not reasonably probable that, absent the error, the
court would have denied Winston and Place’s motion for nonsuit. We express no opinion on the merits of the
court’s decision on the motion in limine.
Because the matter is reversed as to DEI, this issue can be raised by
both sides in any retrial.
The
judgment against DMI is affirmed. In all
other respects, the judgment is reversed and the matter is remanded for further
proceedings. In the interest of justice,
no party may recover costs incurred on appeal.
FYBEL,
J.
WE CONCUR:
O’LEARY, P. J.
THOMPSON, J.
Ducoing by their first names to avoid confusion; we intend no disrespect.
reasonable care, diligence, and judgment in procuring the insurance requested
by its client. (Williams v. Hilb, Rogal & Hobbs Ins. Services of California, Inc.
(2009) 177 Cal.App.4th 624, 635; Kurtz,
Richards, Wilson & Co. v. Insurance Communicators Marketing Corp.
(1993) 12 Cal.App.4th 1249, 1255‑1257.)
But, “‘as a general proposition, an insurance agent does not have a duty
to volunteer to an insured that the latter should procure additional or
different insurance coverage.’†(
