Power Fabricating v. Liberty Surplus Ins. Corp.

Filed 10/30/07 Power Fabricating v. Liberty Surplus Ins. Corp. CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Steven L. Perk, Judge. Reversed.

Malek & Malek, Sandra L. Malek and Jeffrey L. Malek for Plaintiff and Appellant.

Berger Kahn and James F. Henshall, Jr., for Defendant and Respondent.

* * *

Plaintiff Power Fabricating, Inc., (Power) challenges the judgment entered after the trial court sustained the demurrers of defendant Liberty Surplus Insurance Corporation (Liberty) without leave to amend. Powers complaint sought declaratory relief and damages due to Libertys refusal to defend it against a wrongful death action brought by the widow of one of Powers putative employees who was electrocuted while working at a housing development in San Diego County. Liberty contends the allegations in Powers complaint that the decedent was its employee and working within the course and scope of his employment when the accident occurred constitute binding judicial admissions precluding coverage based on the insurance policys employee and workers compensation exclusions.

We conclude Powers allegations do not preclude coverage because other allegations in Powers complaint disclose a triable issue of fact in the wrongful death action which potentially exposes Power to liability covered by Libertys insurance policy. Specifically, the issue is whether the decedent was employed by, and acting on behalf of, a company separate from Power at the time of the accident. Because Power has demonstrated the wrongful death action may result in an award against it falling outside the policys exclusions, the complaint here sufficiently alleges Liberty has a duty to defend Power in that action. Accordingly, we reverse the judgment. We conclude, however, the trial court properly sustained Libertys demurrer to Powers cause of action for breach of statutory duties because Insurance Code section 790.03, subdivision (h), does not provide a private right of action. We therefore do not disturb that portion of the trial courts order sustaining the demurrers.

I

Factual and Procedural Background

Jonathon Kryzak worked as an apprentice electrician on a homebuilding project in San Diego County. After receiving complaints from subcontractors about the supply of electrical power at the project, the homebuilder requested Temp Power Systems (Temp) to provide a switch over at various locations to increase the amperage of the supply. A switch over involves the rerouting of electrical power from one source to another. In performing the switch over, Kryzak came into contact with an energized electrical line and was fatally electrocuted.

Kryzaks widow sued the homebuilder and Power in San Diego County (Kryzak action) for negligence and negligence per se, alleging, inter alia, that Power negligently failed to coordinate and confirm that the developer deenergized the electrical system before Kryzak began work, failed to inspect Kryzaks work, failed to implement safety procedures, and failed to provide a safe work place. Power tendered defense of the action to its workers compensation insurer, State Compensation Insurance Fund (State Fund) and its commercial general liability (CGL) insurer, Liberty. State Fund denied Powers defense request because it already had paid benefits to Kryzaks widow under its policy, purportedly relieving it of any defense obligation. Liberty denied Powers defense request because Kryzaks death purportedly arose from work he was performing for Power, thus falling within policy exclusions for employees and claims covered by workers compensation.

Relying on the exclusive remedy provisions of the Workers Compensation Act (Lab. Code, 3201 et seq.), Power demurred to the complaint in the Kryzak action, arguing that Power employed Kryzak at the time of the accident. The trial court overruled the demurrer, citing a factual dispute concerning which business entity employed Kryzak at the time. The court noted that a stipulated workers compensation request for award listed Temp as Kryzaks employer, and did not mention Power. The court also judicially noticed that Temp and Power are separately registered with the state as corporations, have different agents for service of process, and hold different contractors license numbers. The court also emphasized the widows assertion that the subcontract for the work her husband performed reflected only Temps contractors license number. This assertion is consistent with her allegation that Kryzak performed his work under a subcontract with Temp Power Systems, Inc. Although the court took judicial notice of a fictitious business name statement indicating Power was doing business as Temp, the court concluded this did not resolve the factual dispute over Kryzaks employment at the time of the accident.

Power brought the present action for damages and declaratory relief against State Fund and Liberty, alleging they each have a duty to defend and indemnify Power in connection with the Kryzak action. In its second amended complaint, Power alleges it employed Kryzak, who was acting within the course and scope of his employment when he was electrocuted. Attached to the complaint as exhibits were Kryzaks employment agreement with Power, a payroll check reflecting Power as his employer, and a W-2 form also reflecting Power as Kryzaks employer. Also attached were the fictitious business name statement reflecting Temp as a dba of Power, the State Fund and Liberty policies, the Kryzak complaint, and the trial courts demurrer ruling in the Kryzak action.

Liberty demurred to the complaint, citing its CGL policys exclusion for employees and claims covered by workers compensation insurance. The trial court sustained the demurrers without leave to amend and entered judgment in Libertys favor. Power now appeals.

II

Standard of Review

The trial courts decision to sustain a demurrer is a legal ruling, subject to de novo review. [Citation.] [W]e give the complaint a reasonable interpretation, and treat the demurrer as admitting all material facts properly pleaded, but not the truth of contentions, deductions or conclusions of law. We reverse if the plaintiff has stated a cause of action under any legal theory. [Citation.] [Citation.] (Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal.App.4th 949, 955.) Although we review the order sustaining a demurrer de novo, we review denial of leave to amend for abuse of discretion. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

III

discussion

A. The Trial Court Erred in Sustaining Demurrers to Powers Causes of Action for Declaratory Relief, Breach of Contract, and Bad Faith

[A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. [Citation.] [T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy. [Citation.] Implicit in this rule is the principle that the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded. [Citations.] [Citation.] [] The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. Facts extrinsic to the complaint also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy. [Citation.] [Citation.] As one Court of Appeal has put it, [f]or an insurer, the existence of a duty to defend turns not upon the ultimate adjudication of coverage under its policy of insurance, but upon those facts known by the insurer at the inception of a third party lawsuit. [Citation.] Hence, the duty may exist even where coverage is in doubt and ultimately does not develop. [Citation.] [Citation.] (Montrose Chem. Corp. v. Superior Court (1993) 6 Cal.4th 287, 295, original italics (Montrose).) Accordingly, in considering whether Liberty has a duty to defend in the present case, we consider the policy, the allegations of the third party case, and extrinsic evidence.

The Liberty CGL policy issued to Power includes the following insuring agreement: We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for bodily injury or property damage to which this insurance does not apply. . . .

The policy contains two exclusions relevant here. The first is the workers compensation exclusion, which explains: Any obligation of the insured under a workers compensation, disability benefits or unemployment compensation law or any similar law. The second removes coverage for the insureds employees under certain conditions, excluding: Bodily injury to: [] (1) An employee of the insured arising out of and in the course of: [] (a) Employment by the insured; or [] (c) [sic] Performing duties related to the conduct of the insureds business; or [] (2) The spouse, child, parent, brother or sister of that employee as a consequence of paragraph (1) above. [] This exclusion applies: [] (1) Whether the insured may be liable as an employer or in any other capacity; and [] (2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.

Liberty contends the trial court properly sustained its demurrer without leave to amend because Power alleges in its complaint that Kryzak was its employee who was killed while acting in the course and scope of his employment. Liberty asserts these allegations are binding judicial admissions placing the case squarely within the policys coverage exclusions. Power, however, contends it merely recited the position it took in the Kryzak action. Power requests that if its allegations are considered judicial admissions in the present action, Power should be allowed to amend its complaint to clarify that Power contends in the [Kryzak] proceeding that Kryzak was its employee,acting within the course and scope of that employment at the time he sustained his fatal injuries.

We recognize, as Liberty points out, a fact admitted in a complaint is a conclusive judicial admission binding on the pleader. (See Castillo v. Barrera (2007) 146 Cal.App.4th 1317, 1324.) But [o]n the other hand, a mere conclusion, or a mixed factual-legal conclusion in a complaint, is not considered a binding judicial admission. (Ibid.) Whether Kryzak was Powers employee acting within the course and scope of that employment is a mixed question of law and fact, and therefore does not constitute a binding judicial admission against Power.

More important, however, are Powers allegations regarding the Kryzak action. Specifically, Power alleges its demurrers in that case were overruled because the court judicially noticed certain facts e.g., Temp and Power are separately registered as corporations, have different service agents, and have different contractors license numbers that raise an issue of fact whether Temp is a separate company from Power, and whether Kryzak acted as an employee of Temp, rather than Power, at the time he died. If the Kryzak plaintiff succeeds in demonstrating Kryzak did not act as Powers employee at the time of the accident, Power could be held liable for claims that would fall outside of the employee exclusions in the Liberty CGL policy.

In order to prevail in a declaratory relief action, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. In other words, the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot. Facts merely tending to show that the claim is not covered, or may not be covered, but are insufficient to eliminate the possibility that resultant damages (or the nature of the action) will fall within the scope of coverage, therefore add no weight to the scales. (Montrose, supra, 6 Cal.4th at p. 300.) Although Powers complaint attaches evidence demonstrating Kryzak was its employee at the time of the accident, it also attaches the courts ruling in the Kryzak action citing contrary evidence. Because Powers complaint demonstrates the possibility of coverage, however slight, Libertys demurrer should have been overruled.

Liberty contends the courts ruling in the Kryzak action does not demonstrate a possibility of coverage because Power did not provide that court with the employment agreement, payroll check, and W-2 form it attached to its complaint here. In essence, Liberty contends that Powers evidence is so overwhelming that if properly presented, the court in the Kryzak action will rule in Powers favor.^[1]

The issue here, however, is not whether Power will ultimately prevail in the Kryzak action, but whether the plaintiffs allegations in the Kryzak action, if established, would create liability against Power falling outside of the CGL policys coverage exclusions. Again, as our Supreme Court observed: [T]he carrier must defend a suit which potentially seeks damages within the coverage of the policy. [Citation.] . . . (Montrose, supra, 6 Cal.4th at p. 296, original italics.) So long as facts extrinsic to the complaint, gathered from the insured or other sources, suggest that the claim may be covered under its policy, the insurer is held to a duty to defend the action. (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1082.) The extrinsic facts noted by the court in the Kryzak action suggest Power did not employ Kryzak when he was electrocuted, but was performing work for another company. Thus, the workers compensation and employee coverage exclusions of the Liberty CGL policy may not apply to Power.

The ability to call upon an insurers superior resources to defend against third party claims has been recognized as a significant motivation in the decision to purchase insurance. (See Montrose, supra, 6 Cal.4th at pp. 295-296.) This duty arises and continues as long as there is any potential for coverage. (Ibid.) True, Power has alleged facts which strongly support a finding Kryzak was its employee acting within the course and scope of his employment when the accident occurred. But Power has also alleged the plaintiff in the Kryzak action has factual support for its position that it may obtain a recovery unfettered by workers compensation limitations. Unless and until Liberty can demonstrate the Kryzak action cannot result in a covered claim, its duty to defend will continue.

Indeed, because Powers potential liability in the Kryzak action will turn on many of the same factual issues governing the present coverage action, resolving these issues before the Kryzak action concludes may create inconsistent factual determinations. On this subject, our Supreme Court observed: To eliminate the risk of inconsistent factual determinations that could prejudice the insured, a stay of the declaratory relief action pending resolution of the third party suit is appropriate when the coverage question turns on facts to be litigated in the underlying action. (Montrose, supra, 6 Cal.4th at p. 301.) Thus, if requested by Power, the trial court should stay its final coverage determination until the Kryzak action resolves all factual issues potentially affecting Libertys coverage.

Because the coverage exclusions in Libertys CGL policy do not eliminate the potential for coverage under the circumstances here, we conclude the trial court erred in granting demurrers to Powers causes of action for declaratory relief, breach of contract, and bad faith.

B. The Trial Court Properly Sustained Powers Demurrer to Powers Breach of Statutory Duty Cause of Action

Included in Powers complaint is a cause of action for breach of statutory duty, alleging Libertys unfair claims settlement practices violated Insurance Code section 790.03, subdivision (h).^[2] As Liberty correctly points out, however, Power cannot bring a private cause of action under this provision. (See Moradi-Shalal v. Firemans Fund Ins. Companies (1988) 46 Cal.3d 287, 304 [Neither section 790.03 nor section 790.09 was intended to create a private civil cause of action against an insurer that commits one of the various acts listed in section 790.03, subdivision (h)]; Zephyr Park v. Superior Court (1989) 213 Cal.App.3d 833, 837.) We therefore conclude the trial court properly sustained Powers demurrer to this cause of action without leave to amend.

IV

Disposition

The judgment is reversed. Power is entitled to recover its costs for this appeal.

ARONSON, J.

WE CONCUR:

SILLS, P. J.

IKOLA, J.

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Analysis and review provided by Carlsbad Property line attorney.

^[1] In its request for judicial notice, Power directs us to a notice of ruling served on it in the Kryzak action, indicating the court denied Powers summary judgment request because there existed a triable issue of fact as to whether Kryzak was Powers employee when the accident occurred. We note the document does not bear a court file stamp, and appears generated by the plaintiffs counsel in that case. Accordingly, the document is hearsay and does not constitute an order or ruling of the court. We therefore deny Powers request for judicial notice.

^[2] In particular, Power cites subdivision (h)(3) and (5) of Insurance Code section 790.03. These provisions identify the following unfair claims settlement practices: (3) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies. [] . . . [] (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.