Fox Paine & Co., LLC v. Twin City Fire Insurance Co. ( 2024 )

Filed 9/5/24
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
FOX PAINE & COMPANY,
LLC, et al.,
Plaintiffs and A168803
Appellants,
(San Francisco County
v. Super. Ct. No.
TWIN CITY FIRE CGC17557275)
INSURANCE COMPANY et
al.,
Defendants and
Respondents.
In 2017, eight plaintiffs sued four defendants, their former insurance
broker and three excess insurers, which insurers provided $40 million in
excess coverage in four layers of $10 million each. The complaint alleged
eight causes of action. Three amended complaints followed, by the third of
which the plaintiffs had been reduced to five, the defendants reduced to the
three excess insurers, and the claims winnowed to four—breach of contract,
declaratory relief, breach of the covenant of good faith and fair dealing, and
aiding and abetting breaches of fiduciary duty. The three excess insurers
each filed demurrers, arguing among other things that plaintiffs did not
allege, and could not allege, exhaustion of the underlying policies. The trial
court overruled the demurrer of the first level excess insurer, but sustained
1
the demurrers of the two other excess insurers without leave to amend, and
entered judgments for them. Plaintiffs appeal. We affirm.
BACKGROUND
The General Setting
In 1996 Saul Fox and Dexter Paine formed Fox Paine & Company
(FPC), a private equity management firm. Fox was chief executive officer of
FPC, Paine the president. In 1998, through FPC, Fox and Paine formed two
private equity funds: Fund I, for which Paine was primarily responsible, and
Fox Fund II, for which Fox was primarily responsible.
By 2006, Fund I was largely wound down, and Paine wanted to form a
new fund, but Fox “was not inclined to do so.” So, in 2006, Fox and Paine
entered into an agreement under which Paine could start a third fund (Fund
III) under a license from FPC to use some of its assets and employees, and
Fox would receive an “equity interest” in Fund III. This is the “Newco
Agreement.”
FPC’S Insurance
In December 2006, FPC obtained a Private Equity Professional
Liability Policy from Houston Casualty Company (Houston Casualty). The
policy covered the period from December 30, 2006 to December 30, 2007, later
extended to January 2, 2008, with policy limits of $10 million. The policy
provided coverage to “Insured Organizations” as well as “Insured Persons,”
including any “director, officer, general partner, manager, . . . . or employee”
of an Insured Organization, or the “functional equivalent” of such persons.
An endorsement to the policy listed 18 entities included in the term “Insured
Organization.”
FPC also purchased Excess Private Equity Insurance, specifically four
policies issued by three different insurers: Twin City Fire Insurance
2
Company (Twin City), St. Paul Mercury Insurance Company (St. Paul), and
Liberty Mutual Insurance Company (Liberty Mutual). The excess coverage
provided $40 million in four layers of coverage, each layer providing $10
million in policy limits. The first layer of excess insurance was with Twin
City, the second layer with St. Paul, the third layer also with Twin City, and
the top layer with Liberty Mutual. In chart form, the “tower” of insurance
looked like this:
Excess Policies Policy Amount Attachment Point
Twin City $10 million $10 million
St. Paul $10 million $20 million
Twin City $10 million $30 million
Liberty Mutual $10 million $40 million
Total Excess Policies $40 million
The Delaware Litigation
Fox’s relationship with Paine deteriorated, and the Newco Agreement
“fell apart,” resulting in the first of what would become a litany of litigation,
when, in August 2007, Fox, individually and derivatively on behalf of FPC
and two Fox-owned entities (the “Fox parties”) filed suit in Delaware
Chancery Court against Paine, Paine’s family trust, Fox Paine Management
III, LLC (FPM III), and FPC (the “Paine Parties”).
In September, the Paine Parties filed counterclaims against the Fox
parties.
In November, FPC’s broker Equity Risk Partners (ERP) sent a notice of
claim of the Paine counterclaims to all insurers, including the three excess
insurers.
3
In December, the Delaware lawsuit was settled, in a settlement
agreement that was to effect a “complete divorce” between the Fox parties
and FPC and the Paine parties.
Whatever the peace envisioned, it was short-lived, as in January 2008
Paine filed a pleading involving the settlement agreement. This was the first
in a series of fights that would last for the next five years, as the Fox parties
and Paine parties (including several former FPC directors and officers)
became embroiled in lawsuits, arbitration proceedings, writs, and an appeal
stemming from the August 2007 lawsuit and its settlement (the Fox-Paine
litigation).1
The Fox-Paine litigation ended with a settlement agreement in August
2012, which agreement represented it “resolved all outstanding issues
among” Fox and Paine and “effectively put an end to the Fox-Paine
Litigation.”
As will be seen, there was more litigation to come.
Meanwhile, according to the third amended complaint, prior to the
settlement of the Fox-Paine litigation, relying on the November 2007 notice of
claim, the Paine parties sought reimbursement for costs incurred in the Fox-
Paine litigation. And, plaintiffs alleged, Houston Casualty “agreed to pay”
the Paine parties’ costs after concluding they were covered under the policy,
eventually distributing the $10 million policy limits to the Paine parties, thus
exhausting the primary policy.
The New York Litigation
In February 2014, Fox and FPC filed suit in New York state court
against Houston Casualty and ERP, FPC’s now former insurance broker.
1 As the Fox parties admitted in their first amended complaint, most of
this litigation was filed by the Fox parties.
4
Plaintiffs alleged that Houston Casualty, with ERP’s assistance, wrongfully
distributed the entire $10 million of insurance proceeds under the Houston
Casualty policy to the Paine parties. In 2017, the plaintiffs settled with
Houston Casualty, but not with ERP, and the litigation against it continued.
The San Francisco Litigation
In February 2017, alleging they were “insureds,” Fox and seven Fox-
related entities (plaintiffs) filed a complaint in San Francisco County
Superior Court.2 The complaint named four defendants, the three excess
insurers and ERP, and alleged eight causes of action. Each defendant filed a
demurrer. But before the demurrers were heard, on June 26, plaintiffs filed a
first amended complaint adding two new causes of action, now alleging 10
claims.
At that point, the proceedings in the San Francisco action were stayed
to permit the New York action to proceed against ERP, a stay that lasted
several years.
On November 9, 2022, plaintiffs’ filed a second amended complaint, a
complaint markedly different from the earlier two complaints in several
respects: (1) the plaintiffs were represented by a new law firm; (2) the
plaintiffs were reduced from eight to five; (3) the defendants were only the
three excess insurers; and (4) the causes of action had been reduced from 10
to five, styled as breach of contract, declaratory judgment, breach of covenant
2 The eight plaintiffs were:
(1) Fox Paine & Company, LLC, (2) Fox
Paine Capital Fund II GP, LLC, (3) Fox Paine Capital Management II, LLC,
(4) Fox Paine International GC, L.P., (5) Fox Paine International GP, LTD,
(6) Fox Paine International LPH, L.P., (7) Fox Paine International LPH GP,
LTD, LLC and (8) Saul A. Fox.
5
of good faith and fair dealing, aiding and abetting breaches of fiduciary duty,
and waiver and estoppel.3
Again, all three excess insurers filed demurrers. Plaintiffs filed
opposition and also motions to strike the demurrers of Twin City and St.
Paul. Defendants filed replies, and the demurrers and motion to strike came
on for hearing on March 1.
On March 17, 2023, the trial court filed its order (1) denying plaintiffs’
motion to strike; (2) sustaining St. Paul’s and Liberty Mutual’s demurrers
with leave to amend; and (3) sustaining in part and overruling in part Twin
City’s demurrer. As pertinent here, in sustaining the demurrers of St. Paul
and Liberty Mutual, the court held that plaintiffs had failed to allege
exhaustion.
On April 7, plaintiffs filed their third amended complaint (TAC), now
alleging four causes of action, the same claims in the second amended
complaint without the waiver and estoppel claim. While making some
distinctions between and among the insurers, the TAC generally alleged the
same claims against the three excess insurers.
Again, all three excess insurers demurred, fundamentally arguing that
plaintiffs “fail[ed] to state sufficient facts establishing that all underlying
insurance ha[d] been exhausted” and therefore failed to state a claim. As to
plaintiffs’ declaratory relief claim, the insurers argued that it was duplicative
of plaintiffs’ breach of contract claim, that the TAC failed to demonstrate an
“actual controversy,” and that the trial court had discretion to dismiss the
claim under section 1061 of the Code of Civil Procedure. As to the remaining
claims, the demurrers contended that plaintiffs failed to state a claim for
3 At some point, apparently in October 2021, plaintiffs had dismissed
ERP from the case.
6
either breach of implied duty of good faith and fair dealing or aiding and
abetting breaches of fiduciary duty.
On August 9, the demurrers came on for hearing, along with several
other matters. And on August 10, the trial court filed a comprehensive 23-
page “omnibus order” ruling on the several matters. As pertinent here, that
is, the demurrers, the trial court sustained in part and overruled in part
Twin City’s demurrer, overruling it as to the first level of excess insurance,
finding that plaintiffs “sufficiently allege” exhaustion of the primary Houston
Casualty policy such that “Twin City’s first excess coverage policy was
triggered.” The trial court rejected Twin City’s other arguments in support of
demurrer, and plaintiffs’ claims against Twin City are proceeding below.4
As most pertinent here, the order sustained the demurrers of St. Paul
and Liberty Insurance without leave to amend, holding that plaintiffs did not
allege exhaustion of the underlying policies. The trial court also rejected
plaintiffs’ arguments that by virtue of settling with the Paine parties St. Paul
had waived the right to rely on the exhaustion provision, or was estopped
from arguing that exhaustion had not occurred.
On September 19, the trial court entered judgment for Liberty Mutual,
and on September 26, judgment for St. Paul. And on October 2, plaintiffs
filed notices of appeal from those judgments.
DISCUSSION
Introduction
Plaintiffs make four arguments on appeal: (1) the trial court erred in
holding that “plaintiffs had to establish actual exhaustion”; (2) St. Paul
4 Plaintiffs’ brief asserts that trial against Twin City was scheduled for
January 2024, Liberty Mutual’s brief that it was to begin in April. At oral
argument, counsel confirmed that it actually began in mid-August.
7
waived or is estopped from asserting lack of exhaustion as a defense; (3) there
was “no reason to dismiss plaintiffs’ other, unrelated tort causes of action”;
and (4) the trial court abused its discretion in sustaining the demurrer
without leave to amend.
Demurrers and the Standard of Review
We set forth the governing principles in Chiatello v. City & County of
San Francisco (2010) 189 Cal.App.4th 472, 480: “ ‘Because this case comes to
us on a demurrer for failure to state a cause of action, we accept as true the
well pleaded allegations in plaintiffs’ [third] amended complaint. “ ‘We treat
the demurrer as admitting all material facts properly pleaded, but not
contentions, deductions or conclusions of fact or law. [Citation.] We also
consider matters which may be judicially noticed.’ [Citation.] Further, we
give the complaint a reasonable interpretation, reading it as a whole and its
parts in their context. [Citation.]” ’ [Citation.] We likewise accept facts that
are reasonably implied or may be inferred from the complaint’s express
allegations.’ [Citations.] ‘ “ ‘A demurrer tests the legal sufficiency of the
complaint . . . .’ [Citations.] On appeal from a dismissal after an order
sustaining a demurrer, we review the order de novo, exercising our
independent judgment about whether the complaint states a cause of action
as a matter of law. [Citations.] When the trial court sustains a demurrer
without leave to amend, we must also consider whether the complaint might
state a cause of action if a defect could reasonably be cured by amendment. If
the defect can be cured, then the judgment of dismissal must be reversed to
allow the plaintiff the opportunity to do so. The plaintiff bears the burden of
demonstrating a reasonable possibility to cure any defect by amendment.” ’ ”
In 2021, we added this: “We also assume the attachments to the
complaint are true, and they take precedence over any conflicting allegations
8
in the [T]AC. [Citation.] [¶] Finally we ‘will affirm if there is any ground on
which the demurrer can properly be sustained, whether or not the trial court
relied on proper grounds or the defendant asserted a proper ground in the
trial court proceedings.” (George v. eBay, Inc. (2021) 71 Cal.App.5th 620, 628
(George).)
“Although we review the complaint de novo, ‘ “[t]he plaintiff has the
burden of showing that the facts pleaded are sufficient to establish every
element of the cause of action and overcoming all of the legal grounds on
which the trial court sustained the demurrer, and if the defendant negates
any essential element, we will affirm the order sustaining the demurrer as to
the cause of action. [Citation.] . . . .” (Kahan v. City of Richmond (2019)
35 Cal.App.5th 721, 730 (Kahan).)
By way of further introduction, we note that plaintiffs first argument
focuses almost entirely on their declaratory relief cause of action, paying at
most lip service to their claim for breach of contract. Indeed, Liberty
Mutual’s brief asserts that plaintiffs “do not seriously dispute the Superior
Court’s holding that they have not stated a claim for breach of contract”—an
assertion to which plaintiffs do not take issue in their reply. We nevertheless
begin our analysis with the breach of contract claim.
No Breach of Contract
Plaintiffs’ first cause of action is breach of contract. As plaintiffs
describe it in their brief, the excess insurers “breached their obligations to
Plaintiffs by, among other things: (i) failing to provide consent to defense
costs arising from covered claims; (ii) failing to pay or reimburse Plaintiffs’
defense costs for covered claims; (iii) refusing to communicate with Plaintiffs,
their insureds . . . ; (iv) failing to properly investigate tendered claims; (v)
communicating improperly with FPC’s litigation opponents, and non-
9
insureds, regarding coverage and proceeds . . . ; (vi) failing to disclose
communications to third parties regarding the Excess Policies; and (vii)
improperly disbursing policy proceeds from the FPC Policies to uninsured
parties who were litigating against the Plaintiffs . . . . (E.g., 6AA1113−1114
[TAC ¶ 86-90]; see generally Ins. Code, § 790.03, subdivision (h).)”
We begin by noting that, except for the claim, however imprecisely
expressed, that the excess insurers failed to pay covered claims, the other
“failures” alleged by plaintiffs cannot be breaches of contract, as the alleged
wrongs are not within the coverage of the policies. In other words, neither
policy requires that the insurer do—or not do—any of the things alleged, and
thus cannot support a breach of contract. (Archdale v. American
International Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449, 466
[breach of contract cause of action “necessarily relates only to the express
promises made by [an insurer] in its policy”]; see also Levy v. State Farm
Mutual Auto. Ins. Co. (2007) 150 Cal.App.4th 1, 5, 58 [demurrer properly
sustained where plaintiff offered mere allegation of breach without facts
demonstrating “a link” between the alleged violations “and the insurance
contract[]”].)
And as to the allegation as to what might be a breach of contract, i.e.,
the failure to pay covered claims, it fails as well, as the policies are excess
policies, described this way by the late Justice Croskey in his leading
commentary:
“ ‘Excess’ insurance: Excess insurance ‘refers to indemnity
coverage that attaches upon the exhaustion of underlying insurance
coverage for a claim.’ (Montrose Chemical Corp. of Calif. v. Superior Court
(Canadian Universal Ins. Co., Inc.) (Montrose III) (2020) 9 Cal.5th 215,
222 (internal quotes omitted); Powerine Oil Co., Inc. v. Superior Court
10
(Central Nat’l Ins. Co. of Omaha) (Powerine II) (2005) 37 Cal.4th 377(citing text).)
“In other words, excess insurance ‘provides coverage after other
identified insurance is no longer on the risk.’ (North American Capacity
Ins. Co. v. Claremont Liability Ins. Co. (2009) 177 Cal.App.4th 272, 291.)
“An excess insurer’s coverage obligation begins once a certain level of
loss or liability is reached; that level is generally referred to as the
‘attachment point’ of the excess policy. [Citations.]” (Croskey, et al., Cal.
Practice Guide: Insurance Litigation (The Rutter Group 2023) ¶ 8:177.)
In Reserve Insurance Co v. Pisciotta (1982) 30 Cal.3d 800—there
addressing the issue of insolvency of an underlying insurer—our Supreme
Court held that “we must look to the excess policy’s express language to
determine whether an excess insurer is obligated” on its policy. (Id. at
p. 814.) We do that, and easily conclude that plaintiffs show no such
“obligation.” The policies have not, in Justice Croskey’s words, “attached.”
The St. Paul policy provides that St. Paul “shall only be liable . . . after
the total amount of all Underlying Limits of Liability has been paid in legal
currency by the Issuers of all Underlying Insurance as covered loss
thereunder.”
The Liberty Mutual policy “only provides coverage when the
underlying limit of liability is exhausted by reason of the insurers of the
underlying policies paying or being held liable to pay in legal currency the
full amount of the underlying limit of liability as loss.” And “underlying
limit of liability” is defined as “the combined limits of liability of the
underlying policies, less any reduction or exhaustion of limits of liability
due to payment of loss under those policies.” And “underlying policies” are
11
defined as the Houston Casualty policy in the first, second, and third-layer
excess policies issued by Twin City and St. Paul.
Those are the provisions in the excess policies, policies that, as
plaintiffs concede, are “generally interpreted using the ordinary rules of
contractual interpretation.” We described this and other rules of policy
interpretation in Alterra Excess & Surplus Ins. Co. v. Snyder (2015)
234 Cal.App.4th 1390, 1402: “ ‘ “[w]hile insurance contracts have special
features, they are still contracts to which the ordinary rules of contractual
interpretation apply.” [Citations.] “The fundamental goal of contractual
interpretation is to give effect to the mutual intention of the parties.
[Citation.]” [Citation.] “Such intent is to be inferred, if possible, solely from
the written provisions of the contract.” [Citation.] “If contractual language is
clear and explicit, it governs. (Civ. Code, § 1638.)” [Citation.] Moreover, if
the policy’s terms are “ ‘used by the parties in a technical sense or a special
meaning is given to them by usage,’ ” this use or meaning “controls judicial
interpretation.” [Citation.]’ (La Jolla Beach & Tennis Club, Inc. v. Industrial
Indemnity Co. (1994) 9 Cal.4th 27, 37.)”
In short, the “interpretation of an insurance policy is a question of law.”
(Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18 (Waller).) And
“[i]f contractual language is clear and explicit, it governs.” (Yahoo, Inc. v.
National Union Fire Insurance Co. of Pittsburgh, PA (2022) 14 Cal.5th 58,
67.)
The trial court order addressed the question of exhaustion as to all
three of the excess insurers, in a lengthy analysis. Following that analysis,
12
the trial court sustained the demurrers of St. Paul and Liberty Mutual
without leave to amend.5 This was correct.
The St. Paul policy is triggered only if the “total amount of” underlying
limits “has been paid.” And Liberty Mutual’s policy “only provides coverage”
when the underlying limit of liability “is exhausted” by the underlying
insurers “paying or being held liable to pay.” Such language demonstrates
that the St. Paul and Liberty Mutual policies did not “attach”—and no
obligations arose. (See Qualcomm, Inc. v. Certain Underwriters at Lloyd’s,
London (2008) 161 Cal.App.4th 184, 189 (Qualcomm) [insurer’s obligations
did not arise “until [the underlying insurer] actually paid in the full . . .
amount of its underlying limit”]; Wells Fargo Bank v. California Ins.
Guarantee Assn. (1995) 38 Cal.App.4th 936, 945; Span, Inc. v. Associated
International Ins. Co. (1991) 227 Cal.App.3d 463, 476.) As the Ninth Circuit
put it in applying California law, “[u]ntil the legal obligations of the primary
insurers ha[ve] been determined and the excess policies had been triggered,”
an insured “[can]not . . . sue[] the excess insurers for breach of contract.”
(Iolab Corp. v. Seaboard Sur. Co. (9th Cir. 1994) 15 F.3d 1500, 1504 (Iolab).)6
No Declaratory Relief Claim
Plaintiffs’ second cause of action was styled “declaratory judgment,”
more accurately called “declaratory relief.” As noted, it is this cause of action
to which plaintiffs devote the bulk of their argument, in an argument that
5 The court also sustained the demurrer of Twin City as to its third-
layer excess policy but, as indicated, overruled it as to the first layer.
6 The Liberty Mutual policy also requires as a condition of coverage of
defense costs that the “insureds shall not . . . incur costs of defense, where
the . . . costs of defense are reasonably likely to involve the limit of liability of
this [Liberty] policy, without the Insurer’s prior written consent, which
consent shall not be unreasonably withheld.” The TAC does not allege that
plaintiffs even tried to fulfill this condition precedent.
13
reads “the trial court erred in holding that plaintiffs had to establish actual
exhaustion.”7 The argument relies heavily on Ludgate Ins. Co. v. Lockheed
Martin Corp. (2000) 82 Cal.App.4th 592 (Ludgate), a case plaintiffs cite 10
times in their opening brief and 16 times in their reply. Plaintiffs’ argument
is not persuasive—and Ludgate is not all plaintiffs crack it up to be.
By way of brief background, the trial court discussed the law of
declaratory relief in its analysis of Twin City’s demurrer, beginning with this
observation: “The court may sustain a demurrer on the ground that the
complaint fails to allege an actual or present controversy, or that it is not
‘justiciable.’ The court may also sustain a demurrer without leave to amend
if it determines that a judicial declaration is not ‘necessary or proper at the
time under all the circumstances,’ ” citing DeLaura v. Beckett (2006)
137 Cal.App.4th 542, 545 and Wilson v. Transit Authority (1962)
199 Cal.App.2d 716, 721. Indeed.
Code of Civil Procedure section 1060 provides in pertinent part that
declaratory relief is proper as to a contract “in cases of actual controversy
relating to the legal rights and duties of the respective parties.” But even if
such “actual controversy” is established, Code of Civil Procedure section 1061
goes on to state that a court “may refuse to exercise the power” to grant
declaratory relief “in any case where its declaration or determination is not
necessary or proper at the time under all the circumstances.” As our
Supreme Court has observed, Code of Civil Procedure sections 1060 and 1061
“must be read together” (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th
634, 647), going on to hold that “when resolution of the controversy over
future remedies would have little practical effect in terms of altering parties'
7 Though plaintiffs’ argument says what it says, the trial court did not
hold that plaintiffs had to prove exhaustion.
14
behavior, courts have considerable discretion, pursuant to Code of Civil
Procedure section 1061, to deny declaratory relief because it ‘is not necessary
or proper at the time under all the circumstances.’ ” (Id. at p. 648.)
That is the situation here. Code of Civil Procedure sections 1060 and
1061 both demonstrate that declaratory relief is not appropriate.
The TAC asked for a declaration “that plaintiffs’ losses constitute
covered ‘loss’ under the St. Paul policy,” such “that St. Paul should be held
liable to pay, and must actually pay, the limits of liability of its policy to
plaintiffs.” Plaintiffs argue this claim against St. Paul (and, for that matter,
against Liberty Mutual, the fourth excess insurer), should proceed alongside
the litigation now proceeding against Twin City, even if the exhaustion rule
prevents their breach of contract claims from moving forward. Plaintiffs
assert that an “actual justiciable controversy exists” between them and the
excess insurers regarding the excess insurers’ “obligations . . . to insure and
reimburse plaintiffs for ‘loss’ incurred in connection with the [Fox-Paine
litigation].”
As to the Liberty Mutual policy, the TAC seeks in part a ruling that
this policy is “triggered by exhaustion of all underlying policies, who
have . . . be[en] held liable to pay their limits of liability.” Despite the trial
court’s holding that plaintiffs have not alleged exhaustion, Plaintiffs
nevertheless contend they should be allowed to force Liberty Mutual to stay
in the case because Paragraph 78 of the TAC alleges that “In defending
themselves from and against the Delaware Litigation and Continuing Paine
Claims, Plaintiffs have incurred covered ‘Loss’ and recoverable interest
exceeding $43,000,000, not subject to offset, according to proof at time of
trial. . . .” This argument fails for several reasons.
15
To begin with, as we recently confirmed in Thomas v. Regents of
University of California (2023) 97 Cal.App.5th 587, 611 (Thomas), we do not
assume the truth of contentions or conclusions of law. And the contentions
that plaintiffs’ litigation costs are “covered Loss” and not subject to offset are
conclusions of law. So, too, the allegation in Paragraph 94 of the TAC that
the underlying limits will be exhausted as that involves the construction of
the Liberty Mutual policy.
Second, the alleged $43 million does not reach the Liberty Mutual
policy because plaintiffs admit it includes interest. But Liberty Mutual does
not owe interest as a matter of law, as the underlying policies have not been
exhausted, and thus Liberty Mutual’s performance not come due. (Civ. Code,
§ 3287.)
The situation presented here is exactly the same as that in Qualcomm,
where the policy provided that the excess insurer “shall be liable only after
the insurers under each of the Underlying Policies have paid or have been
held liable to pay the full amount of the Underlying Limit of Liability”
(Qualcomm, supra, 161 Cal.App4th at p. 189), language materially identical
to the exhaustion provision in the Liberty Mutual policy. Qualcomm settled
with the primary insurer for less than full policy limits. The court held that
Qualcomm could not satisfy the exhaustion provision in the excess policy.
Ludgate is not to the contrary. There, Ludgate and other insurers filed
a declaratory relief action against Lockheed. Ludgate later “separated itself
from” the other plaintiffs and “pursued its claim against Lockheed on its own
as a separate and independent plaintiff.” (Ludgate, supra, 82 Cal.App.4th at
p. 597.)
Lockheed filed a cross-complaint for declaratory relief and breach of
contract. In response, Ludgate filed a motion for judgment on the pleadings,
16
asserting that the cross-complaint did not present a justiciable controversy.
The trial court granted the motion. The Court of Appeal reversed, holding
that Ludgate “was bound by the allegations in its own complaint, including
the existence of an actual controversy between the parties. By alleging the
existence of an actual controversy, the insurer waived the opportunity to
deny such a controversy as to [Lockheed’s] cross-complaint.” (Ludgate, supra,
82 Cal.App.4th at p. 605.)
Reaching that conclusion, the Court of Appeal discussed at length, over
several pages, Ludgate’s own amended complaint and first amended
complaint, and said that “Ludgate is bound by the allegations.” Then, after
more discussion, the court held as follows: “Because Ludgate alleged and
represented to the court that ‘[a]n actual and justiciable controversy exists
between [Ludgate] and Lockheed over the rights, duties and obligations of
the . . . Primary Policies and the Excess Policies,’ and that ‘a judicial
determination of the rights and duties of the parties with respect to defense
and indemnity under the Primary Policies and the Excess Policies,’ was
necessary to resolve the actual controversy, a claim that was not disputed by
Lockheed, the issue was properly joined and a sufficient cause of action for
declaratory relief was stated both by Ludgate’s first amended complaint and
Lockheed’s fifth amended cross-complaint.” (Ludgate, at p. 605.)
After that, the court continued on for over a page discussing Code of
Civil Procedure section 1060. Only after all that did the court make the
comment on which plaintiffs rely where, citing nothing, the court said this:
“All that Code of Civil Procedure section 1060 requires is that there be ‘actual
controversy relating to the legal rights and duties of the respective parties.’
Exhaustion of underlying limits, while necessary to entitle the insured to
recover on the excess policy, is not necessary to create actual controversy.
17
Exhaustion is merely an issue of proof and entitlement to recovery, not of
pleading.” (Ludgate, at p. 606.)8
That, in our view, is pure dictum.
In any event, Ludgate is distinguishable, as noted in Dominguez v.
Bonta (2022) 87 Cal.App.5th 389, 419. There, plaintiffs sought declaratory
(and injunctive) relief challenging the constitutionality of two statutes. The
trial court sustained defendants’ demurrer without leave to amend, noting
among other things that the complaint “does not state nor can it state a
justiciable controversy.” The Court of Appeal affirmed, observing that
“[n]otably, none of the authorities cited by plaintiffs stand for the proposition
that an appellant may avoid a demurrer merely by alleging an unripe dispute
constitutes an ‘actual controversy.’ (See Ludgate [, supra,] 82 Cal.App.4th [at
pp.] 604–605 [each party, through their pleadings, admitted facts
demonstrating an actual controversy]. . . .)”
Ludgate is distinguishable for another reason: the insured Lockheed
pleaded facts that would establish exhaustion. (Ludgate, supra,
82 Cal.App.4th at pp. 606−608.) Lockheed’s cross-complaint included exhibits
demonstrating that it had less than $90 million in underlying primary limits
and its indemnity claim was for “at least $140.6 million.” (Ludgate, at
pp. 606−607.) The court noted that Lockheed had “sufficiently alleged
8 Our accurate description of Ludgate reveals that plaintiffs’
description is inaccurate, their brief describing Ludgate this way: “There, an
insured sought a declaration that its excess insurer was required ‘to defend
and indemnify [it]’ for certain environmental claims, based on the insured’s
allegation that its losses would reach the excess policies. ([Ludgate, supra,
82 Cal.App.4th] at p. 598.) The trial court, just like the court here, dismissed
the complaint for failure to prove exhaustion. (Id. at p. 601.)” As is apparent
from our extensive discussion, plaintiffs’ description is a mischaracterization
of the case.
18
exhaustion of underlying limits,” demonstrating the existence of an “actual
controversy. . . .” (Id. at pp. 606−607.) Additionally, Ludgate admitted that
Lockheed’s alleged indemnity costs were likely to reach Ludgate’s coverage
layer. (Id. at pp. 607−608.) Neither circumstance is present here.9
Even if plaintiffs had established the existence of an actual
controversy—and they have not—the trial court had discretion to dismiss the
declaratory relief cause of action if a declaration was not necessary or proper
at the time under the circumstances.
It has long been the rule that a “not necessary or proper” determination
can be made on demurrer. (Moss v. Moss (1942) 20 Cal.2d 640, 642−643 and
authorities there cited.) And such a determination is a discretionary one,
“subject to reversal only if that discretion is abused.” (Otay Land Co. v. Royal
Indemnity Co. (2008) 169 Cal.App.4th 556, 563.)
It is true that the trial court here did not indicate it was using its
discretion to sustain the demurrers, so we cannot hold that the court’s
discretion was not abused. That said, our review is de novo and, as noted, we
will affirm if there is any ground on which the demurrer can properly be
sustained, whether or not the trial court relied on that ground. (George,
supra, 71 Cal.App.5th at p. 628; Kahan, supra, 35 Cal.App.5th at
pp 730−731.)
Such is the situation here and the demurrers were properly sustained,
for several reasons.
9 Plaintiffs’ brief misrepresents this point also, asserting that the
“Excess Insurers” admitted the existence of an actual controversy because the
“Excess Insurers” sued the Paine parties and plaintiffs in federal court.
Paragraph 60 of the TAC that the Fox parties cite in support of this assertion
states that only Twin City and St. Paul filed those lawsuits, not Liberty
Mutual. Indeed, Liberty Mutual was not a party to either lawsuit.
19
The first is that at least two aspects of plaintiffs’ declaratory relief
claim are derivative of other claims. For example, the TAC requests
declaratory relief “that St. Paul’s policy . . . is triggered by the exhaustion of
the ‘first layer’ Twin City policy and plaintiffs’ losses, a request obviously
derivative of plaintiffs’ breach of contract claim. Likewise plaintiffs’ request
for a declaration that St. Paul “waived” its right to rely on the exhaustion
provision or is “estopped” from requiring it.
“The object of the [declaratory relief] statute is to afford a new form of
relief where needed and not to furnish a litigant with a second cause of action
for the determination of identical issues.” (General of America Insurance Co.
v. Lilly (1968) 258 Cal.App.2d 465, 470.) “The availability of another form of
relief that is adequate will usually justify refusal to grant declaratory relief.”
(Girard v. Miller (1963) 214 Cal.App.2d 266, 277.)
An additional reason why declaratory relief is not proper is that the
outcome of the litigation currently proceeding against Twin City is unknown.
That litigation includes a claim for breach of contract, as to which Twin City
has asserted several defenses. And if one or more of the defenses succeed, it
will mean that Twin City would not have to pay its full $10 million policy
limits. So, keeping the excess insurers in the case would raise the prospect of
what we described as a “purely advisory opinion based on hypothetical facts
or speculative future events.” (Hayward Area Planning Assn. v. Alameda
County Transportation Authority (1999) 72 Cal.App.4th 95, 102; Younger v.
Superior Court (1978) 21 Cal.3d 102, 119−120 [“the rendering of advisory
opinions falls within neither the functions not the jurisdiction of this court”].)
Moreover, there is the expense involved to the excess insurers—not to
mention the superior court. If plaintiffs had their way, the excess insurers
will have to engage in a trial alongside Twin City, this against parties who
20
apparently have unlimited resources and the willingness to spend them,
witness the $25 million plaintiffs claim was spent in the Fox Paine litigation.
And if it turns out that Twin City defeats or diminishes plaintiffs’ claims, the
excess insurers will have wasted significant time and resources. And, of
course, so would the superior court in having to manage that case.
Finally, there are sound policy reasons why the excess insurers should
stay on the sidelines without incurring these unnecessary costs. A strict
exhaustion requirement brings stability and predictability to the excess
insurance system, both for insurers and insureds. “[A]n excess insurer
predicates the premiums it charges upon the obligations that it and the
primary insurer assume . . . .” (Hartford Accident and Indemnity Company v.
Continental National Insurance Cos. (1988 861 F.2d184, 1187.) Thus,
burdening the excess insurers with prematurely litigating coverage issues
before exhaustion upsets insurers’ settled expectations. Again, Iolab is apt,
where the court concluded that “requiring the excess insurer to defend
against [the insured’s] claim would impose on the excess insurers the
unnecessary cost of litigating a claim that may never trigger excess coverage
and thereby frustrate the policy adopted by the California courts.” (Iolab,
supra, 15 F.3d at pp. 1504−1505.)
Plaintiffs’ Waiver and Estoppel Argument Has No Merit
Plaintiffs next argue, an argument that affects only St. Paul, that
St. Paul “waived or is estopped from asserting lack of exhaustion as a
coverage defense.” The argument is premised on the allegation that St. Paul
paid benefits to the “Paine parties that would never have been owed absent
exhaustion,” a $3 million payment, plaintiffs allege, St. Paul asserted to be
“expressly designated as an ‘indemnity payment.’ ” And, the argument runs,
“by making a payment to the Paine parties without insisting on exhaustion of
21
underlying limits, St. Paul waived or should be estopped from asserting any
right to insist on exhaustion with respect to plaintiffs here.”
We begin by observing that the argument is brief indeed, barely over
two pages, and does not even set forth what plaintiffs claim the law to be—
not for waiver, not for estoppel.
We described waiver at some length in Antonopoulos v. Mid-Century
Ins. Co. (2021) 63 Cal.App.5th 580, 599−600: “ ‘ “ ‘[W]aiver is the intentional
relinquishment of a known right after knowledge of the facts.’ [Citations.]
The burden . . . is on the party claiming a waiver of a right to prove it by clear
and convincing evidence that does not leave the matter to speculation, and
‘doubtful cases will be decided against a waiver’ [citation].” . . . The waiver
may be either express, based on the words of the waiving party, or implied,
based on conduct indicating an intent to relinquish the right.’ (Waller[,
supra,] 11 Cal.4th [at p.] 31 . . . . Our Supreme Court has recognized that
these general waiver rules apply in the context of an insurer relinquishing its
right to deny coverage. ([Ibid.]) The Monteleone [v. Allstate Ins Co. (1996)
51 Cal.App.4th 509 court recognized the same: ‘Waiver requires the insurer
to intentionally relinquish its right to deny coverage. [Citation.]’.”
Plaintiffs’ argument is hard to comprehend. St. Paul is, as noted, an
excess insurer whose duties under its policy do not arise until exhaustion of
the underlying coverage. The TAC acknowledges that in 2012 the Paine
parties were in litigation demanding payment from St. Paul under the policy
because they were the insureds who had suffered covered “Loss.” And St.
Paul’s decision to settle with the Paine parties was in the context of resolving
that litigation. That is, while St. Paul denied coverage to the Paine parties, it
simply decided in favor of resolution with the Paine parties over contentious
litigation. The settlement does not imply that St. Paul would not “insist on
22
exhaustion” as to plaintiffs, and certainly does not demonstrate that St. Paul
“inten[ded] to give up such right” as to plaintiffs. (Utility Audit Co., Inc. v.
City of Los Angeles (2003) 112 Cal.App.4th 950, 959.) In sum and in short,
there is no support—not in the TAC, not in the record as a whole—for the
claim that St. Paul’s settlement constituted a known relinquishment of the
right to insist on exhaustion of the remainder of the Twin City policy limits.
In addition to all that, plaintiffs’ theory is foreclosed by the public
policy favoring settlements. (See, e.g., Western Steamship Lines, Inc. v. San
Pedro Peninsula Hospital (1994) 8 Cal.4th 100, 110.) As our Supreme Court
earlier put it, “ ‘[A] man is allowed to negotiate for the purchase of his peace
without prejudice to his rights.’ ” (Potter v. Pacific Coast Lumber Co. of
California (1951) 37 Cal.2d 592, 600.) So, too, an excess insurer.
Plaintiffs cite authorities recognizing that “an insurer may not ‘favor
the interest of one of its insureds over the interests of the other,’ ” citing
Schwartz v. State Farm Fire & Cas. Co. (2001) 88 Cal.App.4th 1329,
1337−1338 (Schwartz). That is not the setting here. This case involves
multiple insureds who were adverse to each other and for whom coverage was
disputed. No authority precludes the insurer from settling with one insured
where the settlement itself did not “exhaust” the policy or otherwise itself
leave plaintiffs without coverage.
Finally, the trial court correctly rejected plaintiffs’ argument because of
the integration (or “merger”) clause in the primary Houston Casualty policy.
The St. Paul policy requires exhaustion of the Twin City policy before any
payment is due, and the integration clause in the Houston Casualty policy,
which was incorporated into the St. Paul policy, does not allow the policy’s
terms to be modified or waived except through written amendment, the policy
stating that the terms of the policy shall not “be waived or changed except by
23
written endorsement or rider issued by the insurer to form a part of this
policy.”
Plaintiffs claim this language is “ambiguous.” To the contrary, it is not
only clear, it resembles language commonly found in insurance policies and
other contracts, language routinely enforced by California courts. (See, e.g.,
Haggard v. Kimberly Quality Care, Inc. (1995) 39 Cal.App.4th 508, 521 [“In
light of this express modification provision, no contract implied from oral
statements or conduct could modify the termination provision of the
Agreement”].) As we put it in Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th
1519, 1535, “waiver” “cannot be reconciled with the integration clauses of
the . . . contract” providing that the contract “ ‘may not be modified or
amended by oral agreement, or course of conduct, but only by an agreement
in writing signed by the parties.’ ”
Plaintiffs also argue that the integration clause does not meet the
“conspicuousness” requirement for policy “exclusions.” The clause is not
operating as an exclusion, but rather as preventing waiver of an otherwise
operative provision. And even if some conspicuousness requirement applied,
the integration clause meets that requirement: the clause was at the end of
the policy, where integration clauses are typically found; was separated into
its own standalone paragraph; and was accompanied by the caption
“ENTIRE AGREEMENT.” The clause was conspicuous.
As to estoppel, we discussed this as well, in California-American Water
Co. v. Marina Coast Water District (2022) 86 Cal.App.5th 1272, 1292−1293,
noting among other things that estoppel “ ‘generally requires a showing
that a party’s words or acts have induced detrimental reliance by the
opposing party.’ (Lynch v. California Coastal Com. (2017) 3 Cal.5th 470,
475–476; see Rubin v. Los Angeles Fed. Sav. & Loan Assn. (1984)
24
159 Cal.App.3d 292, 298 [‘detrimental reliance is not a necessary element
of waiver, only of estoppel’]; City of Hollister v. Monterey Ins. Co. (2008)
165 Cal.App.4th 455, 487 [same].)”
The TAC does not allege, or even attempt to allege, that the
settlement—or any statement or conduct of St. Paul—led plaintiffs to believe
that St. Paul would not require exhaustion as to them, the TAC failing to
allege that plaintiffs acted upon or “rel[ied] on” any such “belief.” (Supervalu,
Inc. v. Wexford Underwriting Managers, Inc. (2009) 175 Cal.App.4th 64, 77.)
The Tort Claims Were Properly Dismissed
Plaintiffs’ third argument, an argument less than a page long, is that
there was “no reason to dismiss plaintiffs’ other, unrelated tort causes of
action,” referring to their claims for violation of the covenant of good faith
and fair dealing (hereafter, bad faith) and aiding and abetting breaches of
fiduciary duty. Plaintiffs are wrong. There was good reason to dismiss these
causes of action, as neither stated a claim.
Bad Faith
Plaintiffs have, as noted above, not alleged exhaustion under the excess
policies, and thus no coverage, a failure fatal to their claim for bad faith.
As our Supreme Court succinctly put it in Kransco v. American Empire
Surplus Lines Ins. Co. (2000) 23 Cal.4th 390,408, citing Waller: “Of course,
without coverage there can be no liability for bad faith . . . . [Citation.]” Or
as Waller itself put it, citing to, and quoting from, a leading Court of Appeal
case: “It is clear that if there is no potential for coverage and, hence, no duty
to defend under the terms of the policy, there can be no action for breach of
the implied covenant of good faith and fair dealing because the covenant is
based on the contractual relationship between the insured and the insurer.
25
(Love v. Fire Ins. Exchange [(1990)] 221 Cal.App.3d 1136, 1151−1153
[(Love)].)” (Waller, supra, 11 Cal.4th at p. 36.)
Addressing claims by insureds similar to those plaintiffs make here,
this is how the Court of Appeal distilled the law in Brown v. Mid-Century Ins.
Co. (2013) 215 Cal.App.4th 841, 858: “The Browns allege that Mid-Century
breached the implied covenant of good faith and fair dealing by failing to
investigate their claim properly, engaging in unlawful and deceptive claims
practices, and refusing to indemnify the Browns under the policy. Because
the policy did not cover the Browns’ claims, however, the Browns do not have
a claim for breach of the implied covenant of good faith and fair dealing.
(See Kransco v. American Empire Surplus Lines Ins. Co.[, supra,] 23 Cal.4th
[at p.] 408 [‘without coverage there can be no liability for bad faith on the
part of the insurer’]; Cardio Diagnostic Imaging, Inc. v. Farmers Ins.
Exchange [(2012)] 212 Cal.App.4th [69,] 76 [‘because no policy benefits were
due under the policy, [the insured’s] claim for breach of the implied covenant
of good faith and fair dealing cannot be maintained’].)”
This is how Justice Croskey’s commentary puts it: “[12:45] No ‘Bad
Faith’ Liability Where No Breach of Contract: The insurer’s obligations
under the implied covenant do not extend beyond the purposes and objectives
of the existing insurance contract: ‘The covenant of good faith is read into
contracts in order to protect the express covenants or promises of the
contract, not to protect some general public policy interest not directly tied to
the contract’s purposes.’ [Citations.]
“In short, if the insurer did not breach the policy, it did not breach the
implied covenant. (See Waller[, supra,] 11 Cal.4th [at p.] 36 [‘the conclusion
that a bad faith claim cannot be maintained unless policy benefits are due is
in accord with the policy in which the duty of good faith is [firmly] rooted].’)
26
[Citations.]” (Croskey, et al., Cal. Practice Guide: Insurance Litigation,
supra, ¶ 12:45.)
Love held that “a bad faith claim cannot be maintained unless policy
benefits are due.” (Love, supra, 221 Cal.App.3d at p. 1153.) Or as that case
put it at an earlier point, “there are at least two separate requirements to
establish breach of the implied covenant: (1) benefits due under the policy
must have been withheld; and (2) the reason for withholding benefits must
have been unreasonable or without proper cause.” (Love, supra,
221 Cal.App.3d at p. 1151.)
Love was relied on by both St. Paul and Liberty Mutual. The case is
ignored in plaintiffs’ reply.
Plaintiffs argue that “exhaustion is [not] an element plaintiffs must
prove” to state a bad faith claim. But plaintiffs concede that an element of
bad faith is that “all of the conditions required for defendant’s performance
had occurred,” and one such “condition” that must have “occurred” before St.
Paul had a duty to “perform” is that the underlying policy, i.e., the Twin City
policy, be exhausted.
In claimed support of their argument that these claims do not require
exhaustion, plaintiffs cite Schwartz, supra, 88 Cal.App.4th at pp. 1336−1340
and Masco Contractors Servs. W. v. New Hampshire Ins. Co. (N.D. Cal. 2005)
WL 2005 No. C 04-4183 MJJ (Masco). Neither case applies here.
Schwartz, supra, 88 Cal.App.4th 1329, involved two competing claims
for coverage. One set of claimants (the Schwartzes) successfully argued that
the excess insurer had breached the duty of good faith and fair dealing by
paying policy limits to the other set of claimants (the Weinsteins) when the
latter exhausted primary coverage. (Id. at pp. 1337−1338.) But neither
St. Paul nor Liberty Mutual has impaired whatever rights plaintiffs might
27
have to other policy proceeds if the plaintiffs prove that they have a covered
claim and satisfy the exhaustion requirements.
Masco, supra, WL 405361 is likewise inapposite. There, the court held
that the insured had stated a cause of action against its umbrella insurer
because the complaint alleged that the umbrella carrier and the primary
carrier had “coordinated their coverage positions to minimize policy benefits”
(id. at *4) to the insured, and thus had already breached the umbrella policy.
Here, by contrast, the TAC does not allege material facts that would, if
proven, establish that St. Paul or Liberty Mutual did anything to impair any
rights the Fox parties may have under any other policy.
Aiding and Abetting
Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 343, the
case cited by the trial court, sets forth the elements of aiding and abetting.
We had occasion to apply Nasrawi in George, supra, 71 Cal.App.5th at p. 641,
there, as here, in a setting involving a claim of breach of fiduciary duty. This
is what we said:
“Citing CACI, Nasrawi[, supra,] 231 Cal.App.4th [at p.] 343 . . . sets
forth the four elements of a claim for aiding and abetting, there in a claim
involving an alleged breach of fiduciary duty: ‘(1) a third party’s breach of
fiduciary duties owed to plaintiff; (2) defendant’s actual knowledge of that
breach of fiduciary duties; (3) substantial assistance or encouragement by
defendant to the third party’s breach; and (4) defendant’s conduct was a
substantial factor in causing harm to plaintiff. (Judicial Council of Cal., Civ.
Jury Instns. (CACI) (2014) No. 3610 . . .)’ Appellants’ conclusory allegation
the eBay was ‘aware’ of ‘unscrupulous buyers who take unfair advantage of
sellers’ is manifestly insufficient. (Casey v. U.S. Bank Nat. Assn. (2005)
127 Cal.App.4th 1138, 1154 [dismissing aiding and abetting claim where
28
plaintiff alleged that defendant generally knew of ‘wrongful or illegal conduct’
but did not plead knowledge of specific alleged fraud]; Das v. Bank of
America, N.A. (2010) 186 Cal.App.4th 727, 745.)
“Moreover, knowledge alone, even specific knowledge, is not enough to
state a claim for aiding and abetting. California law ‘necessarily’ requires
that for aiding and abetting liability to attach, a defendant have made ‘ “ ‘a
conscious decision to participate in tortious activity for the purpose of
assisting another in performing a wrongful act.’ ” ’ (American Master Lease
LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1476.) Or as the
Court of Appeal put it in Gerard v. Ross (1988) 204 Cal.App.3d 968, 983, an
alleged aider and abettor must have ‘acted with the intent of facilitating the
commission of that tort.’ Such is lacking here.”
Such intent was lacking in George. Such intent is lacking here.
Plaintiffs contend that Paine and former FPC executives owed fiduciary
duties to FPC after they left FPC in January 2008, and that they breached
this alleged continuing fiduciary duty by submitting and pursuing a claim
based on the November 2007 notice of claim. To no avail.
First, this is the identical conclusory allegation we do not accept in
ruling on a demurrer, as we recently held in Thomas, supra, 97 Cal.App.5th
at pp. 660−661, there refusing to recognize an allegation of a fiduciary
relationship as true when ruling on a demurrer. Beyond that, the allegations
in the TAC contradict this conclusion by demonstrating that no such
fiduciary duties were owed, the TAC alleging that plaintiffs’ relationship with
the Paine parties terminated in 2007. Plaintiffs cannot now argue that Paine
owed, much less breached, a fiduciary to them in 2013.
But even if plaintiffs could somehow show that Paine did breach some
duty owed to plaintiffs, the TAC fails to allege facts showing that St. Paul
29
“kn[ew] the [Paine parties]’s conduct constitutes a breach of duty and g[ave]
substantial assistance or encouragement to [the Paine parties] to so act.”
(Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, 1325.) The only assistance
alleged in the TAC is that St. Paul assisted by funding the Paine parties’
litigation against the Fox parties. Because the settlement with the Paine
parties occurred well after the Fox Paine litigation ended, St. Paul could not
have “funded” litigation against plaintiffs, as it had already concluded. As we
held in George, “[K]knowledge alone, even specific knowledge, is not enough
to state a claim for aiding and abetting.” (George, supra, at p. 641.)
Were that not enough, plaintiffs’ allegations do not establish the other
two elements required to state a claim for aiding and abetting: providing
“substantial assistance or encouragement” to the Paine parties, and causing
harm to plaintiffs.
Denying Leave to Amend Was Not an Abuse of Discretion
Plaintiffs’ last argument, a brief 14-lines, is that the trial court abused
its discretion in denying leave to amend. Plaintiffs say they asked for leave
to amend in their oppositions below, and in claimed support of their
argument cite two cases for the boilerplate principle that discretion is abused
of “there is a reasonable possibility amendment could cure the defect”:
JPMorgan Chase Bank, N.A. v. Ward (2019) 33 Cal.App.5th 678, 684, and
Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 (Schifando).
Asking for leave is hardly enough, as the law imposes on plaintiffs the
burden of showing a reasonable possibility that the defect in the pleading can
be cured by amendment. (Campbell v. Regents of University of California
(2005) 35 Cal.4th 311, 320; Schifando, supra, 31 Cal.4th at p. 1081; see also
Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 962 [“It
is the plaintiff’s burden on appeal to show in what manner it would be
30
possible to amend a complaint to change the legal effect of the pleading; we
otherwise presume the pleading has stated its allegations as favorably as
possible”]. (Fn. Omitted).)
Nowhere—not below, not here—do plaintiffs set out any factual
material that could be inserted in any fourth amended complaint to remedy
the defects in their causes of action. Plaintiffs have now had four chances to
state a claim, having been given leave to amend when their demurrer to the
second amended complaint was sustained. There was no abuse of discretion.
DISPOSITION
The judgments are affirmed. St. Paul and Liberty Mutual shall recover
their costs on appeal.
31
_________________________
Richman, J.
We concur:
_________________________
Stewart, P. J.
_________________________
Miller, J.
Fox Paine & Company, LLC v. Twin City Fire Insurance
Company (A168803)
32
Trial Court: San Francisco County
Superior Court;
Trial Judge: Honorable Andrew
Y.S.Chang;
Attorney for Plaintiffs and Reed Smith, Raymond A.
Appellants, Fox Paine & Cardozo; King & Spalding,
Company, LLC et al.: LLP, Anne M. Voigts,
Matthew Noller, Kelly
Perigoe; McKool Smith LLP,
Michael J. Miguel
Attorney for Defendant and Maynard Nexsen LLP,
Respondent, St. Paul Mercury Christopher C. Frost, James
Insurance Company: J. Hockel, Brandt P. Hill,
Braden T. Morell
Attorney for Defendant and Hangley Aronchick Segal
Respondent, Liberty Mutual Pudlin & Schiller, Ronald P.
Insurance Company: Schiller, Sharon F. McKee;
Nicolaides Fink Thorpe
Michaelides Sullivan LLP,
Matthew C. Lovell
33