Mulhearn v. Lawyers Title Ins. Co.

 

 

 

 

Filed 1/21/14  Mulhearn v.
Lawyers Title Ins. Co. CA2/7

 

 

 

 

 

>NOT TO BE PUBLISHED IN THE
OFFICIAL REPORTS

 

 

 

California Rules of Court, rule 8.1115(a),
prohibits courts and parties from citing or relying on opinions not certified
for publication or ordered published, except as specified by rule
8.1115(b).  This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115.

 

 

 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

 

SECOND APPELLATE DISTRICT

 

DIVISION SEVEN

 

 
>

BRUCE T. MULHEARN et al.,               Plaintiffs and Appellants,               v.   LAWYERS TITLE INSURANCE CO. et al.,               Defendants and Respondents.

B244893         (Los Angeles County       Super. Ct. No. BC464986)

 

 

            APPEAL
from a judgment of the Superior Court of
Los Angeles County, Holly E. Kendig, Judge. 
Affirmed in part, reversed in part, and remanded with directions.

            Bergkvist,
Bergkvist & Carter and Richard J. Cowles for Plaintiffs and Appellants.

            Freeman,
Freeman & Smiley and Jared A. Barry for Defendants and Respondents.

 

________________________

 

 

>INTRODUCTION

 

            Bruce T. Mulhearn, individually and
as trustee of the Grasmere Trust dated August 18, 1978, href="http://www.fearnotlaw.com/">appeals from a judgment entered in favor
of defendants Lawyers Title Insurance Co. (Lawyers Title) and Fidelity National
Title Insurance Company (Fidelity) after the trial court sustained their demurrers
without leave to amend to all causes of action. 
We conclude that Mulhearn stated some causes of action as trustee but
none as an individual, and that as trustee he is entitled to leave to amend
other causes of action.  We therefore
affirm in part and reverse in part with directions.

 

FACTUAL BACKGROUNDhref="#_ftn1" name="_ftnref1" title="">>[1]

 

            On April 4, 2008 Lawyers Title issued a title
insurance policy to Mulhearn as trustee of the Grasmere Trust in order to insure
priority of a deed of trust covering real property located in Bell Gardens securing a href="http://www.fearnotlaw.com/">promissory note.  The name of the insured on the policy was “Bruce
T. Mulhearn, Trustee of the Grasmere Trust Dated August 18, 1978.”  The policy stated that title to the real
property was “vested in:  Filiberto G.
Limon and Erendira Limon [the Limons], husband and wife as joint tenants.”href="#_ftn2" name="_ftnref2" title="">[2]  The policy identified a deed of trust, dated April 2, 2008 and recorded on April 4, 2008, which secured a debt of
$275,890.  The policy stated that the trustors
were the Limons and the beneficiary was “Bruce T. Mulhearn, Trustee of the
Grasmere Trust Dated August 18, 1978.”  The deed of trust identified the beneficiary
as “Bruce T. Mulhearn, Trustee of the Grasmere Trust dated 8/18/1978.”

            In
October 2009 Mulhearn as trustee began foreclosure proceedings on the property
as the result of a default on the loan secured by the deed of trust.  The loan had been due on April 2, 2009.  On February 24, 2010 the title owners of the property, the Limons, filed an action, >Filiberto G. Limon et al. v. Filiberto
Limon, et al. (Super. Ct. L.A. County, No. VC055690) (the Limon action), asserting
that their son Filiberto Limon forged their signatures on the href="http://www.sandiegohealthdirectory.com/">deed of trust.  The defendants included Filiberto Limon, Mulhearn
individually and as trustee, and the notary who notarized the deed of trust.

            Mulhearn
first learned of the alleged forgery when he received notice of the Limon
action.  Based on Fidelity’s subsequent
investigation, Mulhearn believed that the signatures on the deed of trust were
forged.  This defect in the title was not
listed as an exception or exclusion under the terms of the title policy.

            On
March 1, 2010 Mulhearn, individually and as trustee, tendered the complaint in
the Limon action to Lawyers Title and requested a defense.  On April 9, 2010 Lawyers
Title denied Mulhearn a defense or indemnity in the Limon action.  On April 27, 2010,
however, after Mulhearn had requested reconsideration, Lawyers Title accepted
the tender “as to all causes of action set forth in the Complaint” and agreed
to provide a defense and indemnity subject to a reservation of rights, but only
for claims against Mulhearn as trustee.  Lawyers
Title never provided a defense or indemnity for Mulhearn as an individual.

            On
May 13, 2010 Bergkvist, Bergkvist & Carter, counsel for Mulhearn, demanded that
Lawyers Title appoint the firm independent defense counsel for Mulhearn.  The letter also requested “reimbursement for
attorney’s fees incurred due to the unreasonable delay of [Lawyers Title].”  On June 4, 2010 the
Bergkvist firm submitted a bill and requested payment.  On July 2, 2010
the Bergkvist firm again asked for payment of the “initial attorney’s fees from
the period [Lawyers Title] declined coverage until the date you accepted.”

 

PROCEDURAL BACKGROUND

 

            A.        Demurrers
to the Original Complaint

            On
July 7, 2011 Mulhearn filed this action against Lawyers Title and Fidelity as an
individual and as trustee of the Grasmere Trust.  Mulhearn alleged causes of action for breach
of the title insurance contract, breach of the implied covenant of good faith
and fair dealing, and unfair competition under Business and Professions Code
section 17200.  Mulhearn also alleged a
cause of action for declaratory relief seeking a declaration that Mulhearn, as
an individual and as trustee, was “entitled to a legal defense in the
underlying lawsuit, to have their security interest in the property protected,
and coverage under the policy . . . for losses sustained due to
defective title[,] [¶] . . . judicial determination of [the]
right [of Mulhearn] to coverage under the . . . policy [and] [¶] . . .
of the rights and obligations of the parties.” 
Lawyers Title and Fidelity demurred.

            The
trial court sustained without leave to amend Lawyers Title’s demurrer to Mulhearn’s
individual cause of action for breach of contract because Mulhearn as an
individual was not a party to the insurance contract.  The court ruled that “the title insurance
policy attached as Exhibit A to the complaint shows that there is no contract
between Lawyers Title and Mulhearn, individually,” and the fact that Mulhearn
was not an insured took precedence over any conflicting allegation in the
complaint.  The court also sustained without
leave to amend Lawyers Title’s demurrer to Mulhearn’s individual cause of
action for breach of the implied covenant of good faith and fair dealing, but sustained
with leave to amend Lawyers Title’s demurrer to the causes of action for unfair
competition and declaratory relief.   Finally, the court sustained with leave to
amend Lawyers Title’s demurrers to Mulhearn’s claims as trustee.

            The
court also ruled that although Lawyers Title was a party to the insurance
contract, Fidelity was not, and that the allegations of a merger between Lawyers
Title and Fidelity were “not sufficient to place Fidelity on the hook for the
insurance policy issued by Lawyers Title.”  The trial court sustained without leave to
amend Fidelity’s demurrer to all causes of action by Mulhearn individually and
as trustee.

 

            B.        Demurrers
to the First Amended Complaint

            Mulhearn,
again as an individual and as trustee, filed a first amended complaint
asserting seven causes of action.  The
first cause of action for breach of contract, third cause of action for bad
faith, and fifth cause of action for unfair competition were against Lawyers
Title.  The second, fourth, and six
causes of action were the same but against Fidelity.  The seventh cause of action was for
declaratory relief.  Lawyers Title and
Fidelity again demurred.

            The
trial court again sustained Fidelity’s demurrer to all causes of action without
leave to amend.  The trial court stated, “When
I sustain a demurrer without leave to amend, that’s what I
meant. . . .  So with
respect to the Fidelity demurrer, the . . . causes of action against
Fidelity have improperly been inserted in the first amended complaint after the
court sustained Fidelity’s demurrer to these same causes of action in the
original complaint without leave to amend on October 25th, 2011.  [Mulhearn] has disregarded
that order by filing the first amended complaint with these same causes of
action, though numbered differently, against
Fidelity . . . .”  The
court on its own motion struck the causes of action against Fidelity pursuant to Code
of Civil Procedure section 436, subdivision (b), because they violated the
court’s October 25, 2011 order, which had sustained without leave to amend
Fidelity’s demurrer to the same causes of action in the original complaint.  (See Harris
v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023 [following order sustaining demurrer with leave to amend, “the
plaintiff may amend . . . complaint only as authorized by the court’s
order”].)

            The
court sustained without leave to amend Lawyers Title’s demurrer to the causes
of action for unfair competition and declaratory by Mulhearn individually.  The court ruled that because Mulhearn was not
personally a party to the insurance contract, he could not show he suffered any
injury as a result of any unfair business practice by Lawyers Title.  Nor could he show that he had an actual
dispute with Lawyers Title for which the court could grant declaratory relief.  The court ruled, however, that Lawyers Title had not
demurred to the causes of action by Mulhearn as trustee, and gave Lawyers Title
leave to renotice a proper demurrer to those claims.

            At
the next hearing the trial court repeated that Mulhearn in his individual
capacity was not a party to the title insurance contract and therefore could not
state a cause of action for contract breach or for breach of the implied
covenant.  The court again ruled that
because Mulhearn individually was not an insured, he could not show he had
suffered injury in fact as required to state a cause of action for a violation
of Business and Professions Code section 17200, and that he lacked
standing to allege that Lawyers Title had improperly handled his insurance
claim.  The court similarly determined
that Mulhearn as an individual could not allege an actual controversy under his
seventh cause of action for declaratory relief regarding his rights and duties
under the contract.  The trial court
therefore sustained without leave to amend Lawyers Title’s demurrers to
Mulhearn’s fifth cause of action for unfair competition and seventh cause of
action for declaratory relief as an individual.

            With
respect to Mulhearn’s allegations as trustee against Lawyers Title, the trial
court noted that Mulhearn based his cause of action for bad faith on the delay
in providing him a defense for the period of March 1 to April 27, 2010.  The trial court stated,
however, that Mulhearn had not alleged facts showing that the two-month delay
was unreasonable or without proper cause, nor had Mulhearn alleged that he had
requested reimbursement for the attorneys’ fees incurred as trustee during this
two-month period.  The court also noted
that the Limon action was still pending and that Lawyers Title was continuing
to provide a defense.  The court ruled
that Muhlearn as trustee had not stated an unfair competition claim for the
same reasons, and that because Lawyers Title had accepted Mulhearn’s tender as
trustee there was no actual controversy between Mulhearn and Lawyers Title.  The court sustained with leave
to amend Lawyers Title’s demurrers to Mulhearn’s causes of action as trustee
for breach of contract, breach of the implied covenant, and unfair competition,
and sustained without leave to amend Lawyers Title’s demurrer to the seventh
cause of action for declaratory relief.

 

            C.        Demurrer
to the Second Amended Complaint

            Mulhearn,
this time only as trustee, filed a second amended complaint.  The second amended complaint named Lawyers
Title only and alleged causes of action for breach of title insurance contract,
breach of the implied covenant, and unfair competition.  Lawyers Title demurred and filed a motion to
strike.

            The trial court
ruled that Mulhearn as trustee had not stated a claim for breach of contract
because Lawyers Title had accepted the claim, subject to a reservation of
rights, and had provided a defense beginning April 27, 2010.  The court ruled that the claim for indemnity
was premature because there had been no final determination of the Limon action.  The court stated that Mulhearn had not stated
a claim for breach of the implied covenant of good faith and fair dealing because
Mulhearn had not alleged facts showing that Lawyers Title’s conduct was
unreasonable.  The court also ruled that
Mulhearn had not stated an unfair competition claim for the same reason, and
that the matter had “been previously fully ruled on at the” prior hearings.  The trial court sustained without leave to
amend Lawyers Title’s demurrer to all of the causes of action of the second
amended complaint, took the motion to strike off calendar as moot, orally
dismissed the complaint against Lawyers Title and Fidelity, and directed
counsel for Lawyers Title to prepare a proposed written order and judgment.

            The
trial court entered judgment in favor of Lawyers Title and Fidelity and against
Mulhearn individually and as trustee.  Mulhearn,
presumably on behalf of himself individually and as trustee, filed a timely notice
of appeal.

 

DISCUSSION

 

            Mulhearn,
individually and as trustee, challenges all of the trial court’s orders sustaining
without leave to amend the demurrers by Fidelity and Lawyers Title to all of
the causes of action in the three complaints.  We conclude that Mulhearn cannot state any
claims as an individual, but he did state some claims as trustee against
Lawyers Title and he is entitled to leave to amend to state claims against
Fidelity.

 

            A.        Standard
of Review

            name="SR;3585">“To determine whether a demurrer was properly
sustained, we review the allegations of the operative complaint for facts
sufficient to state a claim for relief.  In
doing so, we treat the demurrer as admitting all material facts properly
pleaded.  â€˜â€œFurther,
we give the complaint a reasonable interpretation, reading it as a whole and
its parts in their context.”’”  (C.A. v. William S. Hart Union High
School Dist. (2012) 53 Cal.4th 861, 866.)  “On appeal from the sustaining of a demurrer,
we accept as true the well-pleaded facts in the operative
complaint . . . .”  (>Aryeh v. Canon Business Solutions, Inc.
(2013) 55 Cal.4th 1185, 1189, fn. 1.)  â€œWe
also consider matters shown in exhibits attached to the complaint and
incorporated by reference.”  (>Performance Plastering v. Richmond American
Homes of California, Inc. (2007) 153 Cal.App.4th 659, 665.)  “‘If the complaint states a cause of action
under any theory, regardless of the title under which the factual basis for
relief is stated, that aspect of the complaint is good against a demurrer.  â€œ[W]e are not limited to plaintiffs’ theory of
recovery in testing the sufficiency of their complaint against a demurrer, but
instead must determine if the factual allegations of the complaint are
adequate to state a cause of action name="SR;3815">under any legal theoryname="SR;3820"> . . . .”  [Citations.]’  [Citation.]” 
(Zhang v. Superior Court
(2013) 57 Cal.4th 364, 370.)  “When the
trial court sustains a demurrer without leave to amend, we review that decision
for abuse of discretion. 
[Citation.]  We will reverse for
abuse of discretion if we determine that there is a reasonable possibility the
plaintiff can cure the pleading by amendment. 
[Citation.]”  (>Glen Oaks Estates Homeowners Assn. v. Re/Max
Premier Properties, Inc. (2012) 203 Cal.App.4th 913, 919.)

 

            B.        >Mulhearn Individually

            Mulhearn
argues that he, as an individual, is a party to the policy pursuant to its “express
terms.”  The terms of the policy, which
is attached to each of the complaints, state otherwise.  The policy identified Mulhearn as trustee of the Grasmere Trust as the insured. 
As the trial court noted, the facts in the policy take precedence over any conflicting allegation in the complaint.  (See Chisom v.
Board of Retirement of Fresno County Employees’ Retirement Assn. (2013) 218
Cal.App.4th 400, 410 [“[i]f the allegations in the complaint conflict with
attached exhibits, we rely on and accept as true the contents and legal effect
of the exhibits”]; Sofranek v. County of
Merced (2007) 146 Cal.App.4th 1238,
1241, fn. 1 [“[f]acts appearing in exhibits attached to the complaint are . . .
accepted as true and given precedence over inconsistent allegations in the
complaint”].)  This rule applies to
insurance policies attached to a complaint. 
(See C & H Foods Co. v.
Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1064 [“the language in the
actual policy provision appearing in the exhibit to the complaints prevails
over the inconsistent general conclusional allegations concerning that
provision”].)  Mulhearn
did not allege facts sufficient to overcome the terms of the policy stating who
the insured is for purposes of claims like the ones in the Limon action.  To the contrary, Mulhearn alleged in all
three complaints that “[a]ll acts complained of in the underlying complaint [in
the Limon action] are for actions Mr. Mulhearn took in his capacity as Trustee
of the Grasmere Trust.”

            Mulhearn
argues that Lawyers Title breached the insurance contract by denying his
request for a defense in the Limon action. 
An insurer’s obligation to provide a defense, however, extends only to
its insureds.  (See InfiNet Marketing Services, Inc. v. American Motorist Ins. Co.
(2007) 150 Cal.App.4th 168, 176 [“[i]t is well established ‘a liability insurer
owes a broad duty to defend its insured
against claims that create a potential for indemnity’”]; Harper v. Wausau Ins. Co. (1997) 56 Cal.App.4th 1079, 1086 [“the
insurer’s duties flow to the insured”]; Alex
Robertson Co. v. Imperial Casualty & Indemnity Co. (1992) 8 Cal.App.4th
338, 343 [“[t]he duty to defend . . . is a contractual one . . .
limited to the ‘insured’”].)  The policy
stated that the insurer would “pay the costs, attorneys’ fees and expenses
incurred in defense of the title . . . as Insured.”

            Mulhearn cites paragraph 1(a) of the
policy, which defines “Insured” to include “those who succeed to the interest
of the named Insured by operation of law as distinguished from purchase
including, but not limited to, heirs, distributees, devisees, survivors,
personal representatives, next of kin, or corporate or fiduciary successors.”  Relying on this language, Mulhearn argues
that he “is the Trustee and beneficiary of the Grasmere Trust,” and as such he
individually “succeeds to the interest of [trustee] by operation of law,” and
therefore “is an insured within the [scope of the] express language” of the
policy.  As the court stated in >Kwok v. Transnation Title Ins. Co.
(2009) 170 Cal.App.4th 1562, reviewing the same definition of “insured” that appears
in the policy in this case (id. at p.
1565), “[t]here are several problems with this argument” (id. at p. 1569).  First,
there is no allegation that Mulhearn is a beneficiary of the trust, if so what
his beneficial interest is, and what the terms of the trust are.  (See id.
at p. 1570 [“[t]he trust document is not part of the record and therefore the
identity of the trustees and beneficiaries cannot be determined”].)  Second, Mulhearn has not succeeded to the
trustee’s interest by operation of law.  (>See id. at p. 1571.)  He may someday, depending on the terms of the
trust, but he has not yet.  Although the
language of paragraph 1(a) is not in the past tense (“succeeded”), it is not in
the future tense (“will succeed”), and the examples of those who may succeed by
operation of law (“heirs, distributees, devisees, survivors, personal
representatives, next of kin, or corporate or fiduciary successors”) (>id. at p. 1565) all reflect
successions that have occurred,href="#_ftn3" name="_ftnref3" title="">>>[3] and “[t]here is nothing in the policy definition of ‘insureds’
that identifie[d] ‘beneficial owners’ as insureds” (id. at p. 1571).

Thus, Mulhearn
cannot state a claim as an individual for breach of contract for failure to
provide a defense because he was not a party to the insurance contract in his
individual capacity.  There is no
reasonable possibility that he can cure this defect with any amendment.  (See >Campbell v. Regents of >University> of >California (2005) 35 Cal.4th 311, 320; Hill v. Roll Internat. Corp. (2011) 195 Cal.App.4th 1295, 1307.)href="#_ftn4" name="_ftnref4" title="">[4]

            Similarly,
because Mulhearn in his individual capacity was not an insured, he cannot state
a claim against Lawyers Title for breach of the implied covenant of good faith
and fair dealing. “Someone who is not a party to the contract has no standing
to enforce the contract or to recover extra-contract damages for wrongful
withholding of benefits to the contracting party.”  (Hatchwell
v. Blue Shield of California (1988) 198 Cal.App.3d 1027, 1034; see >InfiNet Marketing Services, Inc. v. American
Motorist Ins. Co., supra, 150
Cal.App.4th at p. 180 [where the plaintiff is “neither a named insured nor a
third party beneficiary of the . . . policy, its cause of action for
breach of the implied covenant of good faith and fair dealing fails”]; >Seretti v. Superior Nat. Ins. Co. (1999)
71 Cal.App.4th 920, 929 [“‘[p]rivity of contract with the insurer is essential
to an implied covenant action against the insurer’”].)

            Mulhearn
in his individual capacity also cannot state a claim for unfair competition
because he cannot allege any unfair business practices that caused him any
injury.  (Bus.
& Prof. Code, § 17204; Kwikset
Corp. v. Superior Court (2011) 51
Cal.4th 310, 316-317.) 
Without any “injury in fact,” Mulhearn has no standing to bring an
unfair competition claim as an individual. 
(See >Troyk v. Farmers Group, Inc. (2009) 171
Cal.App.4th 1305, 1346.)

            Finally, because
Mulhearn was not an insured, he cannot state a cause of action against Lawyers
Title for declaratory relief regarding his rights and obligations under the policy.  He had no such rights or obligations, and
Lawyers Title owed no obligations to him in his individual capacity.

 

            C.        Mulhearn
as Trustee v. Lawyers Title

                        1.         Breach of Contract

            Mulhearn in
his capacity as trustee argues that Lawyers Title breached the contract by
failing to accept his claim and to provide a defense from the time he first
tendered the claim on March 1, 2010 until Lawyers
Title accepted the claim on April 27,
2010.  Mulhearn is
correct.  He did state a claim for breach
of contract, but not a very large one.

“To
defend meaningfully, the insurer must defend immediately.  [Citation.] 
To defend immediately, it must defend entirely.”  (Buss
v. Superior Court (1997) 16 Cal.4th 35, 49; see The Housing Group v. PMA Capital Ins. Co. (2011) 193 Cal.App.4th
1150, 1155-1156 [“‘[i]mposition of an immediate duty to defend is necessary to
afford the insured what it is entitled to: the full protection of a defense on
its behalf’”].)  “An insurer’s refusal to
furnish a defense to a liability action against the insured is actionable as a
breach of contract.”  (Croskey et al., Cal.
Practice Guide:  Insurance Litigation
(The Rutter Group 2013) ¶ 7:690.)  Until
April 27, 2010
Lawyers Title was in breach of the policy, and, because of its change of position,
admittedly so.  It
may not have been much of a breach, but it was a breach, and the damages are
the costs of defense Mulhearn paid as trustee before Lawyers Title accepted the
claim.href="#_ftn5" name="_ftnref5"
title="">[5]  (See Richards v. Sequoia Ins. Co. (2011) 195 Cal.App.4th 431, 436 [“general
measure of contract damages owed an insured due to an insurer’s breach of the
duty to defend are the ‘costs and attorney fees expended by the insured
defending the underlying action’”].)

 

                        2.         Breach of the Implied
Covenant of Good Faith and Fair Dealing

            “Implied in every
contract is a covenant of good faith and fair dealing that neither party will
injure the right of the other to receive the benefits of the agreement.”  (PPG
Industries, Inc. v. Transamerica Ins. Co. (1999) 20 Cal.4th 310, 314;
accord, Wilson v. 21st Century Ins. Co.
(2007) 42 Cal.4th 713 720.)  â€œBefore an insurer can be found to have acted in bad
faith for its delay or denial in the payment of policy benefits, it must be
shown that the insurer acted unreasonably
or without proper cause.”  (Jordan
v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1072; accord, >Wilson, supra, at p. 720; PPG
Industries, Inc., supra, at p. 315.)

            Mulhearn argues
that Lawyers Title acted unreasonably by initially denying his March 1, 2010 “claim for indemnity and
tender of defense” on April 9, 2010, which required
him “to hire private counsel to file an answer and cross-complaint,” and then
later accepting tender of the claim on April
27, 2010.  There was no unreasonable conduct or delay.  Lawyers Title was entitled to a reasonable
amount of time to process and investigate Mulhearn’s claim, which he made more
difficult by tendering claims on behalf of himself as an individual and as
trustee.  Lawyers Title reasonably made a
coverage determination within six weeks, and then reasonably reconsidered and
provided coverage subject to a reservation of rights two-and-a-half weeks
later.  Lawyers Title may have breached
the insurance contract by not accepting the claim initially, but Lawyers Title
did not act unreasonably and without proper cause by taking six weeks to
investigate and decide whether to accept Mulhearn’s claim, nor by quickly
changing its mind and agreeing to accept Mulhearn’s claim as trustee.  (See Carlton
v. St. Paul Mercury Ins. Co. (1994) 30 Cal.App.4th 1450, 1458-1459 [insurer
did not act unreasonably in paying claim four months after tender, reopening
claim at the insured’s request two months later, and then making an additional
payment eight months later].)  As the
trial court stated at the hearing on the demurrer to the second amended
complaint, the facts alleged by Mulhearn “support a finding of prompt
responsiveness,” not unreasonableness.  Mulhearn did not state a claim as trustee for breach of the implied
covenant of good faith and fair dealing, and, given the chronology of events
and ultimate determination in Mulhearn’s favor, we see no reasonable
possibility that he can amend his complaint to do so.  The trial court properly sustained without
leave to amend the demurrer to Mulhearn’s cause of action for breach of the
implied covenant of good faith and fair dealing.

 

                        3.         Unfair Competition

            Business and
Professions Code section 17200 et seq., often referred to as the Unfair
Competition Law or UCL (People ex rel.
Bill Lockyer v. Fremont Life Ins. Co. (2002) 104 Cal.App.4th 508, 511), defines
“unfair competition” to “mean and include any unlawful, unfair or fraudulent
business act or practice and unfair, deceptive, untrue or misleading
advertising and any act prohibited by Chapter 1 (commencing with Section 17500 [regarding
false advertising]) of Part 3 of Division 7 of the Business and Professions
Code.”  (Bus. & Prof. Code,
§ 17200.)  “The UCL sets out three
different kinds of business acts or practices that may constitute unfair competition:  the unlawful, the unfair, and the fraudulent.”  (Rose
v. Bank of America>, N.A. (2013) 57 Cal.4th 390, 394.)

            Mulhearn alleged in his unfair
competition cause of action that Lawyers Title “purposefully [denied]
meritorious claims and tenders of defense to shirk responsibility for making
payments on the policy and to maximize their own profits,” and “sought to deny
claims without basis to force plaintiff and others to abandon meritorious
claims.”  Mulhearn
further alleged that Lawyers Title “made a pattern and practice of delaying
patently covered claims to plaintiffs and to citizens of the State of California.”  Mulhearn sought an injunction prohibiting Lawyers
Title from engaging in the “predatory insurance practices of the nature and
kind” alleged in the second amended complaint, and restitution and disgorgement
of profits “realized” by such practices.

            We can see how a proper plaintiff in
the right case could state a claim for unfair competition against an insurer
based on allegations that the insurer had a practice of denying all claims,
forcing all of its insureds to bring declaratory relief actions or at least
retain counsel to negotiate with the insurer, and then agreeing to provide a
defense and indemnity only to those insureds who went through the extra effort
and expense of challenging the insurer’s initial denial of coverage.  (See Zhang
v. Superior Court, supra, 57
Cal.4th at p. 384 [“when insurers engage in conduct that violates both the
[Unfair Insurance Practices Act] and obligations imposed by other statutes or
the common law, a UCL action may lie”]; Kapsimallis
v. Allstate Ins. Co. (2002) 104 Cal.App.4th 667, 675, 676 [insureds stated
claim for violation of Business and Professions Code section 17200 by alleging
that the insurer “adopted [an unlawful] practice with the express purpose to
deny its insureds their rights under their insurance policies”].)  But this is not what Mulhearn alleged
happened to him.  On April 13, 2010 Mulhearn wrote a letter to Lawyers Title asking it to
reconsider its initial coverage decision, and on April 27, 2010 Lawyers Title reconsidered and agreed at least in part with
Mulhearn.  Nor
did Mulhearn allege facts showing that Lawyers Title mishandled his claim or
took an unreasonable amount of time to process his claim.  As noted above, there were only two months between
the date Mulhearn submitted his claim and the date Lawyers Title investigated
and eventually accepted the claim subject to the reservation of rights.  Mulhearn’s allegations do not, and cannot reasonably
be amended to, state a claim for unfair competition.

 

                        4.         Declaratory Relief

            “Code of Civil
Procedure section 1060, which authorizes actions for declaratory relief,
provides in pertinent part:  ‘Any person
interested under a written instrument . . . or who desires a
declaration of his or her rights or duties with respect to another, or in
respect to, in, over or upon property . . . may, in cases of actual controversy relating to the legal rights and
duties of the respective parties, bring an original action . . . in
the superior court for a declaration of his or her rights . . . including
a determination of any question of construction or validity arising under the
instrument or contract.’  (Italics
added.)”  (Environmental Defense Project of >Sierra> County> v. >County> of Sierra (2008) 158
Cal.App.4th 877, 884.)

            “‘The
fundamental basis of declaratory relief is the existence of an >actual, present controversy over a
proper subject.’  [Citation.]”  (City of
Cotati> v. Cashman (2002) 29 Cal.4th 69,
79.)  The “‘actual, present controversy
must be pleaded specifically’ and ‘the facts of the respective claims
concerning the [underlying] subject must be given.’  [Citations.]” 
(Id. at p. 80; accord, >American Meat Institute v. Leeman (2009)
180 Cal.App.4th 728, 741.)  The
controversy must be justiciable and ripe for decision, and may not be “‘“conjectural,
anticipated to occur in the future, or an attempt to obtain an advisory opinion
from the court.”’  [Citation.]”  (Del
Cerro Mobile> Estates v. City of >Placentia (2011) 197
Cal.App.4th 173, 186.)  Nevertheless, “Code
of Civil Procedure section 1060 does not require a breach of contract in
order to obtain declaratory relief, only an ‘actual controversy.’”  (Meyer
v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 647.)

            On demurrer,
the court evaluates “whether the factual allegations of the complaint for
declaratory relief reveal that an actual controversy exists between the
parties.”  (Otay Land Co. v. Royal Indemnity Co. (2008) 169 Cal.App.4th 556, 562.)
 â€œâ€˜Whether a claim presents an “actual
controversy” within the meaning of Code of Civil Procedure section 1060 is a
question of law that we review de novo.’ 
[Citation.]”  (>American Meat Institute v. Leeman, >supra, 180 Cal.App.4th at p. 741; >Environmental Defense Project of Sierra
County v. County of Sierra, supra,
158 Cal.App.4th at p. 885.)

            Mulhearn
alleged that a “dispute has arisen and an actual controversy exists” between
the parties because he contends and Lawyers Title denies that he, in both his
individual and trustee capacity, is “entitled to a legal defense in the
underlying lawsuit, to have [his] security interest in the property protected,
and coverage under the policy of title insurance for losses sustained due to
defective title.”  Mulhearn alleged that
he “desires a judicial determination of his right to coverage under the
insurance policy.”  Mulhearn argues that
he stated a claim for declaratory relief both as an individual and as trustee.

            Mulhearn
is not entitled to seek declaratory relief in his individual capacity because,
as explained above, he has no rights to a defense or indemnity as an individual.  He is entitled, however, to seek declaratory
relief regarding his rights as trustee to a defense and indemnity, which Lawyers
Title provided subject to a reservation of rights, including the right to seek
reimbursement from the trust “for the reasonable attorney’s fees and costs
expended in the defense of all or part of the” underlying action.  As Lawyers Title recognized by explicitly
reserving the right to file a declaratory relief action against Mulhearn “to
seek a judicial declaration determining that it has no obligation to indemnify
or to provide a defense,” an action for declaratory relief is the standard method
for resolving these kinds of coverage issues. 
(See George F. Hillenbrand, Inc.
v. Insurance Co. of North America (2002) 104 Cal.App.4th 784, 802 [“a
declaratory relief action is the appropriate vehicle for resolving disputes
involving the contested meaning of contractual language” in an insurance
policy]; Schwarzer et al., Cal. Practice Guide: Federal Civil Procedure Before
Trial (The Rutter Group 2013) ¶ 10:9 [“[d]eclaratory relief is often
sought in actions between insurers and insureds to determine rights and
obligations under an insurance policy”].) 
“Ordinarily it is the insurer who brings a suit for declaratory
judgment,” but “the party claiming to be insured has been allowed to do so as
well.”  (>U.S.> v. Transport Indemn. Co. (9th Cir. 1976) 544 F.2d 393, 395, fn. 1; see Ringler Associates Inc. v. Maryland Casualty Co. (2000) 80
Cal.App.4th 1165, 1190 [the insured can “contest [the insurer’s] reservation of
rights by a declaratory relief action”]; Earth
Elements, Inc. v. National American Ins. Co. (1995) 41 Cal.App.4th 110,
116-117 [“[t]he insured may sue to enforce the insurer’s duty to defend and
indemnify”].)  Although “the trial court
cannot determine the amount of the insured’s indemnity obligation” until the
conclusion of the underlying action, the court can make a “declaration [as] to
whether the claim is covered by the policy.” 
(Armstrong World Industries, Inc.
v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1, 108.)  Mulhearn as trustee stated a claim for
declaratory relief regarding Lawyers Title’s duty to defend and indemnify and
the rights reserved by Lawyers in providing a defense and indemnification.

            Lawyers
Title argues that Mulhearn in his capacity as trustee is not entitled to
declaratory relief because he “admitted he was provided a defense under the Policy.”  Lawyers Title, however, provided Mulhearn as
trustee a defense subject to a reservation of rights, and Mulhearn is entitled
to seek a judicial determination of those rights.href="#_ftn6" name="_ftnref6" title="">>[6]

 

            D.        Mulhearn
as Trustee v. Fidelity

            Mulhearn’s
claims against Fidelity were based on the allegation that Lawyers Title “is now
emerged with or otherwise wholly owned by defendant, [Fidelity], by reason of
which, [Fidelity] is now liable for all debts and obligations of Lawyers
[Title].”  The trial court sustained
Fidelity’s demurrer (to the original complaint) without leave to amend because
Mulhearn’s “purported merger allegations [were] not sufficient to place
Fidelity on the hook for the insurance policy issued by Lawyers Title.”

            Mulhearn
apparently was attempting to assert successor liability against Fidelity.  Counsel for Mulhearn also argued at the
hearing on the demurrer to the original complaint that Fidelity was a proper
defendant because it was the insurance company handling Mulhearn’s claim and “made
the claims decision.”  On appeal, Mulhearn argues that he pleaded sufficient facts to establish that Lawyers
Title had “merged with” Fidelity so that Fidelity is liable for all debts and
obligations of Lawyers Title.

In order to state a claim
for successor liability against an entity that acquired another entity, the
plaintiff must allege that  “(1) there is an express or implied agreement of
assumption, (2) the transaction amounts to a consolidation or merger of the two
corporations, (3) the purchasing corporation is a mere continuation of the
seller, or (4) the transfer of assets to the purchaser is for the
fraudulent purpose of escaping liability for the seller’s debts.”  (Ray v.
Alad Corp. (1977) 19 Cal.3d 22, 28; see Cleveland
v. Johnson (2012) 209 Cal.App.4th 1315, 1327.)  To prevail on a theory that the acquiring or
purchasing corporation is a “‘mere continuation of the seller,’” the plaintiff
must allege  â€œâ€˜(1) no adequate
consideration was given for the predecessor corporation’s assets and made
available for meeting the claims of its unsecured creditors; (2) one or
more persons were officers, directors, or stockholders of both corporations.  [Citations.]’ 
[Citations.]”  (>CenterPoint Energy, Inc. v. Superior Court
(2007) 157 Cal.App.4th 1101, 1121.)

Detailed
allegations by Mulhearn, and detailed discussion by this court, are not
necessary in this case because Fidelity concedes that it is in fact Lawyers Title’s
successor:  “Notwithstanding [Mulhearn’s]
imprecise allegations, and in an effort to not mislead this Court, Fidelity is,
in fact, the successor in interest to Lawyers Title.”  Therefore, although Mulhearn may not have
sufficiently alleged all of the elements of successor liability, he should have
an opportunity to amend to allege those elements, including Fidelity’s concession
that it is Lawyers Title’s successor. 
The trial court erred by sustaining without leave to amend Fidelity’s
demurrer to Mulhearn’s claims as trustee for breach of contract and declaratory
relief (the only two claims he can state against Lawyers Title).

 

DISPOSITION

 

            The
judgment is affirmed as to all claims by Mulhearn as an individual.  The judgment is affirmed as to Mulhearn’s
claims as trustee of the Grasmere Trust for breach of the implied covenant of
good faith and fair dealing and unfair competition.  The judgment is reversed with directions to
enter an order overruling the demurrer by Lawyers Title to the causes of action
by Mulhearn as trustee for breach of contract and declaratory relief, and to
sustain the demurrer by Fidelity with leave to amend to allege successor
liability on the causes of action by Mulhearn as trustee for breach of contract
and declaratory relief.  The parties are
to bear their costs on appeal.

 

 

                                                                                    SEGAL,
J.href="#_ftn7" name="_ftnref7" title="">*

 

 

We concur:

 

 

 

                        WOODS, Acting P. J.

 

 

 

                        ZELON, J.