Freedom Transport, Inc. v. The Travelers Companies, Inc. et al.
EDCV 16-213 JGB (SPx)
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA
2017 U.S. Dist. LEXIS 18744
February 8, 2017, Decided
February 8, 2017, Filed
COUNSEL: [*1] For Freedom Transport, Inc., a California Corporation, Plaintiff: Raymond D McElfish, LEAD ATTORNEY, McElfish Law Firm PC, West Hollywood, CA; Erin Melody-Rosenfeld, McElfish Law Firm, West Hollywood, CA; Maurice Newman, Maurice Newman Law Offices, Van Nuys, CA.
For The Travelers Companies, Inc., doing business as Travelers Insurance Company, Defendant: Bryan A Reynolds, LEAD ATTORNEY, Richard C Weston, Weston and McElvain LLP, El Segundo, CA.
JUDGES: Honorable JESUS G. BERNAL, UNITED STATES DISTRICT JUDGE.
OPINION BY: JESUS G. BERNAL
Proceedings: Order: (1) GRANTING Defendant’s Motion for Summary Judgment (Dkt. No. 52); and (2) GRANTING Defendant’s Request for Judicial Notice (Dkt. No. 52-3.) (IN CHAMBERS)
Before the Court are: (1) Defendant The Travelers Companies, Inc.’s (“Travelers” or “Defendant”) Motion for Summary Judgment (Dkt. No. 52); and (2) Defendant’s Request for Judicial Notice. (Dkt. No. 52-3.) After considering all papers timely filed in support of and in opposition to the motion, and the parties’ arguments at the January 30, 2017 hearing, the Court: (1) GRANTS Defendant’s Motion for Summary Judgment; and (2) GRANTS Defendant’s Request for Judicial Notice. (Dkt. No. 53.) [*2]
On November 6, 2015, Plaintiff Freedom Transport, Inc. (“Plaintiff”) filed a complaint against Travelers and fictitious Defendants 1 through 100 in California Superior Court for the County of San Bernardino. (Ex. 2 to the Notice of Removal, Dkt. No. 1.) Plaintiff’s claims arise from Travelers’ decision to deny Plaintiff coverage under a Policy insuring loss to cargo. (Id.) Plaintiff alleges that Travelers wrongfully denied the claim because it did not conduct a thorough investigation. (Id.) According to Plaintiff, Travelers’ conclusion that there was no forced entry could have resulted only from an incomplete investigation or suppression of material facts. (Id.) The complaint alleged six causes of action: (1) breach of insurance contract; (2) constructive fraud; (3) fraud-concealment; (4) breach of the covenant of good faith and fair dealing; (5) injunctive relief; and (6) declaratory relief. (Id.)
Travelers removed the action to this Court on February 4, 2016. (Notice of Removal at 1.) On February 12, 2016, Travelers filed a motion to dismiss the second, third, fifth, and sixth causes of action from the Complaint, as well as Plaintiff’s claim for punitive damages. (Dkt. No. 13.) On March 24, [*3] 2016, the Court granted Travelers’ motion, but granted Plaintiff leave to amend the third cause of action for fraudulent concealment as well as its claim for punitive damages. (March 24, 2016 Order, Dkt. No. 24.) Plaintiff’s First Amended Complaint (“FAC”), filed on April 14, 2016, alleges three causes of action against Travelers: (1) breach of insurance contract; (2) fraud-concealment; and (3) breach of the covenant of good faith and fair dealing. (Dkt. No. 25.) On April 28, 2016, Travelers filed a motion to dismiss the second cause of action for fraudulent concealment as well as Plaintiff’s claim for punitive damages. (Dkt. No. 31.) This Court denied Travelers’ motion to dismiss on August 11, 2016. (Dkt. No. 29.)
Plaintiff filed a motion for leave to amend its complaint to add Travelers Property as a defendant on November 1, 2016. (Dkt. No. 47.) Defendant filed an Ex Parte Application to strike Plaintiff’s motion and supporting documents, (Dkt. Nos. 48 & 49), for failure to meet and confer under local rule 7-3, and failure to include a hearing date in violation of local rules 7-4, 6-1, and 11-3.8. (Dkt. No. 50.) On November 8, 2016, this Court granted Defendant’s Ex Parte Application to strike documents 47, [*4] 47-1, 48, and 49. (Dkt. No. 51.)
Defendant then filed a Motion for Summary Judgment on November 18, 2016. (“Motion,” Dkt. No. 52.) In support of its Motion, Defendant filed a Statement of Uncontroverted Facts and Conclusions of Law, (“SUF,” Dkt. No. 52-1), a Declaration of Bryan A. Reynolds, (Dkt. No. 52-2), and a Request for Judicial Notice. (“RJN,” Dkt. No. 52-3.) In its RJN, Defendant asks this Court to take judicial notice of The Travelers Companies, Inc.’s Form 10-K for 2016, which is an annual report that must be filed with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934. (Id.)1 On the same day, Plaintiff filed a renewed motion requesting leave from this Court to file an amended complaint to add Travelers Property as a defendant. (Dkt. No. 53.) On January 5, 2017, this Court denied Plaintiff’s motion for leave to amend. (Dkt. No. 65.)
1 Pursuant to Federal Rule of Evidence 201, “[a] court shall take judicial notice if requested by a party and supplied with the necessary information.” Fed. R. Evid. 201(d). An adjudicative fact may be judicially noticed if it is “not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). The Court finds that Defendant’s SEC filing is a proper subject for judicial notice. The Form 10-K is in the public record and its existence is “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). Indeed, courts routinely take judicial notice of these types of documents. See, e.g., In re Am. Apparel, Inc. S’holder Litig., 855 F. Supp. 2d 1043, 1061 (C.D. Cal. 2012) (taking judicial notice of an SEC Investor Bulletin); id. (“Courts can consider securities offerings and corporate disclosure documents that are publicly available.”). Accordingly, the Court GRANTS Defendant’s Request for Judicial Notice.
On December 30, 2016, Plaintiff filed an Opposition to Defendant’s motion for summary judgment. (“Opposition,” Dkt. No. 62.) In support of the Opposition, Plaintiff filed a Declaration of Raymond McElfish. (Dkt. No. 63.) On January 13, 2016, Defendant filed a Reply to Plaintiff’s Opposition to its [*5] motion for summary judgment. (“Reply,” Dkt. No. 67.)
- LEGAL STANDARD
A motion for summary judgment shall be granted when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). The moving party must show that “under the governing law, there can be but one reasonable conclusion as to the verdict.” Anderson, 477 U.S. at 250.
Generally, the burden is on the moving party to demonstrate its entitlement to summary judgment. Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998); Retail Clerks Union Local 648 v. Hub Pharmacy, Inc., 707 F.2d 1030, 1033 (9th Cir. 1983). The moving party bears the initial burden of identifying the elements of the claim or defense and presenting evidence that it believes demonstrates the absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). When the non-moving party has the burden at trial, however, the moving party need not produce evidence negating or disproving every essential element of the non-moving party’s case. Id. at 325. Instead, the moving party’s burden is met by pointing out an absence of evidence supporting the non-moving party’s case. Id. The burden then shifts to the non-moving party to show that there is a genuine issue of material fact that must be resolved at trial. Fed. R. Civ. P. 56(e); Celotex, 477 U.S. at 324; Anderson, 477 U.S. at 256. The non-moving party must make an affirmative showing on all matters placed in issue by the motion [*6] as to which it has the burden of proof at trial. See Celotex, 477 U.S. at 322; Anderson, 477 U.S. at 252; William W. Schwarzer, A. Wallace Tashima & James M. Wagstaffe, Federal Civil Procedure Before Trial, 14:144. “This burden is not a light one. The non-moving party must show more than the mere existence of a scintilla of evidence.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010) (citing Anderson, 477 U.S. at 252). It must do more than demonstrate “some ‘metaphysical doubt’ as to the material facts at issue.” Id. (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986)).
A genuine issue of material fact exists “if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson, 477 U.S. at 248. When ruling on a motion for summary judgment, the Court construes the evidence in the light most favorable to the non-moving party. See Barlow v. Ground, 943 F.2d 1132, 1135 (9th Cir. 1991); T.W. Elec. Serv. Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630-31 (9th Cir. 1987).
Travelers now moves for summary judgment, arguing that it cannot be liable for breach of contract because it was not a party to the insurance contract between Plaintiff and Travelers Property (“Property”). (Mot. at 15-19.) As with the contract claim, Travelers argues it is entitled to summary judgment on Plaintiff’s breach of the covenant of good faith and fair dealing claim because to recover for bad faith, an insured must first establish that a contract has been breached. (Id. at 25.) Travelers also [*7] moves for summary judgment on Plaintiff’s claim for fraudulent-concealment, arguing that Plaintiff has failed to advance any evidence upon which a reasonable jury may find the existence of a duty. (Id. at 24.)
Citing Illinois law, Plaintiff opposes the Motion, asserting that Travelers is liable for the misconduct of Property, its subsidiary, under a direct participant theory of liability. (Opp. at 4-5.) Plaintiff argues Travelers is liable for the acts or omissions of Property because the nature of the relationship between Travelers and Property establishes that Travelers directly participated in creating the conditions that led to Plaintiff’s injuries. (Id.) Simply put, Plaintiff seeks to hold Travelers liable for Property’s alleged misfeasance by piercing the corporate veil. (Id.) Defendant, on the other hand, argues that all of Plaintiff’s claims fail as a matter of law because Defendant was not the insuring entity, and Plaintiff’s alter ego allegations do not raise a genuine dispute of material fact. (Mot. at 15-19.)
- Undisputed Facts
On December 4, 2013, Property issued Plaintiff a Cargo Carrier Commercial Inland Marine insurance policy, Policy No. QT-660-2D682623-TIL-13, for a one-year policy period [*8] commencing November 27, 2013 and ending November 27, 2014 (the “Policy”). (FAC ¶ 5; SUF 1.) The Policy provided insurance coverage for goods that Plaintiff, a transportation company, accepted for transportation. (See Policy, Carriers Cargo at 1.) The Policy provided for $100,000 in coverage limits applicable to property in or on a land vehicle or container. (See Policy, Declarations Page at 1.) The Policy covered loss to the cargo from “Direct Physical Loss or Damage from an external cause.” (See Policy, Carriers Cargo Pak at 1.) In an endorsement attached to the Policy, Travelers excluded from coverage “loss caused by or resulting from theft from any unattended vehicle, trailer or container unless at the time of theft all windows, doors and compartments were closed and locked and there are visible signs that the theft was the result of forced entry.” (See Policy, Cargo Theft and Dishonest Acts Exclusions Endorsement at 1.) Plaintiff alleges that on January 29, 2014, Plaintiff “sustained a loss where their insured vehicle was broken into and their cargo was stolen.” (SUF 5.) Plaintiff was never sued by any third party regarding the loss. (FAC ¶¶ 26-27; SUF 8.) Plaintiff “presented a first party claim to their insurance company. . . for loss of Cargo.” (Id. at ¶ 6.) Travelers Property denied Plaintiff’s [*9] claim on March 31, 2014, based on a Cargo Theft and Dishonest Acts Exclusion that precludes coverage in the absence of a “sign of forced entry.” (Id. at ¶ 7.)
Plaintiff alleges that Travelers wrongfully denied the claim because it “failed to consider critical evidence and witnesses and jumped to erroneous conclusions.” (FAC ¶ 30.) In fact, according to Plaintiff, Travelers “concealed or suppressed material facts,” including the extent of Travelers’ investigation, and whether Travelers interviewed additional witnesses or discovered facts favorable to Plaintiff. (Id. ¶ 23.) Plaintiff, therefore, maintains that Travelers did not conduct a thorough investigation of the claim. (Id.) On that basis, Plaintiff filed this action for breach of contract, fraudulent-concealment, and breach of the covenant of good faith and fair dealing against Travelers Companies, Inc., Property’s parent company. Plaintiff seeks compensatory damages, punitive damages, and costs of suit. (Id., Prayer for Relief ¶¶ 1-4.)
- The Proper Defendant
Insurers who erroneously fail to indemnify a covered loss or to defend a third party claim against an insured face liability for breach of contract. Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 576, 108 Cal. Rptr. 480, 510 P.2d 1032 (1971). The elements of a cause [*10] of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff. Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 124 Cal. Rptr. 3d 256, 250 P.3d 1115 (2011). In breach of contract actions, the insurer may be liable for acts by its agents within the scope of their actual or ostensible authority. Cal. Civ. Code § 2330. In some circumstances, such conduct may be subject insurers to extracontractual (i.e., tort and possibly statutory) liability. See, e.g., Bock v. Hansen, 225 Cal. App. 4th 215, 228, 170 Cal. Rptr. 3d 293 (2014). When there is no potential for coverage, however, no action lies for bad faith in the investigation and processing of a claim. R & B Auto Ctr., Inc. v. Farmers Group, Inc., 140 Cal. App. 4th 327, 353, 44 Cal. Rptr. 3d 426 (2006).
To sue for breach of implied covenant of good faith, there must be privity of contract between the insured and the defendant. Cal. Ins. Code § 11783(a); Gruenberg v. Aetna Ins. Co., 9 Cal 3d 566, 576, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973). See Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 36, 44 Cal. Rptr. 2d 370, 900 P.2d 619 (1995) (“It is clear that if there is no. . .[coverage under 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.”).
Liability for bad faith may also be imposed on a person or entity shown to be a corporate insurer’s “alter ego.” Holley v. Crank, 400 F.3d 667, 674 (9th Cir. 2005). Two elements must be established for piercing the corporate veil: “(1) that there [*11] be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.” Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 290, 300, 216 Cal. Rptr. 443, 702 P.2d 601 (1985); Wady v. Provident Life & Acc. Ins. Co. of America, 216 F. Supp. 2d 1060, 1068 (C.D. Cal. 2002).
Insurance “Bad Faith” is one theory of extracontractual liability commonly invoked by insured Plaintiffs. See, e.g., Foley v. Interactive Data Corp., 47 Cal. 3d 654, 684-85, 254 Cal. Rptr. 211, 765 P.2d 373 (1988). Again, persons other than the insurer (e.g., the insurer’s agents and employees) cannot be sued for breach of the insurance policy or an implied covenant, but they may be sued for independent torts. Bock, 225 Cal. App. 4th at 228. Plaintiffs can also invoke statutory duties imposed on insurance companies to pursue extracontractual relief. Cal. Ins. Code § 790, et seq. However, for the statutory duties to give rise to a claim, Travelers must be Plaintiff’s “insurer.” See Truck Ins. Exch. v. Amoco Corp., 35 Cal. App. 4th 814, 826, 41 Cal. Rptr. 2d 551 (1995).
Here, Travelers cannot be vicariously liable for breach of contract or breach of the implied covenant of good faith and fair dealing unless Travelers can be considered Plaintiff’s insurer on an equitable basis–i.e., Travelers is found to be the alter ego of its subsidiary. In addition, Travelers can only be liable for the tort of fraudulent concealment if it directly participated in creating the conditions that caused the [*12] alleged injury to Plaintiff or if it would otherwise be liable as principal under an agency theory of liability.
- Sufficiency of Allegations for Direct Liability
It is undisputed that Travelers Property Casualty Company of America and not The Travelers Companies, Inc., issued the Commercial Inland Marine Insurance Policy, Policy No. QT-660-2D68263-TIL-13, to Plaintiff for the relevant policy period. (SUF 1.) It is also undisputed that Plaintiff presented its claim to Property, and Property is the entity that denied the claim. (SUF 6-7.) The express terms of the Policy identify Travelers Property as the issuing entity. (See Policy.) Defendant is not a party to that contract under its clear terms. It is a longstanding principle that judicial acceptance of an attempt to substitute new parties to an insurance policy, where there is no underlying agreement to that effect, amounts to the court’s making a new contract. Cantlay v. Olds & Stoller Inter-Exchange, 119 Cal. App. 605, 614, 7 P.2d 395 (1932). The Court will not, therefore, substitute Property for Travelers merely because Travelers is Property’s corporate parent. Accordingly, any claim stemming from the contractual relationship created by the Policy can only be brought against Property.
Similarly, Plaintiff’s claim [*13] for breach of the duty of good faith and fair dealing fails as a matter of law against Defendant because a defendant cannot be held liable for breach of the duty of good faith and fair dealing if it was not party to the underlying contract. See Gruenberg v.Aetna Ins. Co., 9 Cal.3d 566, 576, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973). “Although an action for bad faith breach of the covenant of good faith and fair dealing sounds in tort, the duty of good faith and fair dealing derives from and exists solely because of the contractual relationship between the parties.” Austero v. National Cas. Co. of Detroit, Mich., 62 Cal.App.3d 511, 515, 133 Cal. Rptr. 107 (1976).
Accordingly, for Plaintiff to survive Travelers’s motion for summary judgment, Plaintiff must raise a genuine issue of material fact as to Travelers’ status as Property’s alter ego. Plaintiff bears the burden of proof on this issue at trial. See Minifie v. Rowley, 187 Cal. 481, 488, 202 P. 673 (1921).
- Sufficiency of Allegations for Indirect Liability
- Alter Ego Liability
“The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff’s interests.” Mesler, 39 Cal. 3d at 300. The purpose of the doctrine is to bypass the corporate entity for the sole purpose of avoiding injustice. Id. Its “essence. . . is that justice be done[,] . . . [and t]hus the corporate form will be disregarded [*14] only in narrowly defined circumstances and only when the ends of justice so require.” Id. at 301. “The terminology ‘alter ego’ or ‘piercing the corporate veil’ refers to situations where there has been an abuse of corporate privilege, because of which the equitable owner of a corporation will be held liable for the actions of the corporation.” Roman Catholic Archbishop of San Francisco v. Superior Court, 15 Cal. App. 3d 405, 411, 93 Cal. Rptr. 338 (1971) (citing Minton v. Cavaney, 56 Cal. 2d 576, 579, 15 Cal. Rptr. 641, 364 P.2d 473 (1961)). Plaintiff bears the burden of proof on this issue. See Minifie v. Rowley, 187 Cal. 481, 488, 202 P. 673 (1921).
In California, two conditions must be met before the alter ego doctrine can be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Holley, 400 F. 3d at 674-75. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. Automotriz etc. De California v. Resnick, 47 Cal. 2d 792, 796, 306 P.2d 1 (1957); Hennessey’s Tavern, Inc. v. American Air Filter Co., 204 Cal. App. 3d 1351, 1358, 251 Cal. Rptr. 859 (1988).
“Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.” Roman Catholic Archbishop, 15 Cal. App. 3d at 406; Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 838-839, 26 Cal. Rptr. 806 (1963). Other factors include [*15] inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. See Tomaselli v. Transamerica Ins. Co., 25 Cal. App. 4th 1269, 1285, 31 Cal. Rptr. 2d 433 (1994); Associated Vendors, Inc., 210 Cal. App. 2d at 838-39. No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. Talbot v. Fresno–Pacific Corp., 181 Cal. App. 2d 425, 432, 5 Cal. Rptr. 361 (1969). Still, alter ego is an extreme remedy, sparingly used. Calvert v. Huckins, 875 F. Supp. 674, 678 (E.D. Cal. 1995).
Plaintiff alleges that Travelers “issued insurance policies, established practices and procedures for the handling of claims arising under said insurance policies investigated and handled claims arising under such insurance policies, and employed claims personnel and attorneys with respect to claims arising under insurance policies issued by Defendant for benefits of cargo claims.” (FAC ¶ 10.) Plaintiff also alleges that those designated Doe Defendants “were the agents, principals, employees, employers, representatives of each of the other Defendants, either actually or ostensibly, and in doing the things herein alleged, acted within the course and scope of such agency, employment, joint venture, and/or conspiracy, with the approval, knowledge, authority, acquiescence and or ratification of each of the remaining Defendants.” (Id. [*16] at ¶ 13.) Plaintiff further alleges that each and every corporate Defendant “was duly authorized, ordered and directed by the respective and collective corporate employers, and management level employees of said corporate employers” to carry out such acts. (Id. at ¶ 14.) In so doing, Plaintiff alleges that “Defendant corporation ratified, accepted the benefits of, condoned, lauded, acquiesced, authorized and otherwise approved of each and all acts and or conduct of the aforementioned corporate employees, agents, and representatives.” (Id.)
Again, Defendant maintains it was not a party to the insurance contract between Plaintiff and Property. (Mot. at 15.) Plaintiff does not dispute this. (Opp.) Rather, it asserts that Property is Travelers’ agent with respect to the alleged wrongs underlying Plaintiff’s claims, Travelers and Property were engaged in a joint venture, entered into a conspiracy to wrongfully deny Plaintiff’s claim, or Travelers is Property’s alter ego. (FAC ¶ 13.) As such, Plaintiff argues that Travelers should be derivatively liable for any breaches of Property’s contractual and statutory duties as well as directly liable for Property’s torts. (Opp. at 4-5.)
Plaintiff fails to advance [*17] any evidence to allow a reasonable jury to infer that Travelers treats the assets of Property as its own, commingles funds with Property, controls the finances of Property, shares officers or directors with Property, that Property is undercapitalized, or that the separateness of Property has ceased. Apart from the conclusory allegations contained in the FAC–which are not afforded a presumption of validity when resolving a motion for summary judgment–there is no indication that Travelers engaged in specific manipulative conduct toward Property which “relegate[s] the latter to the status of a mere instrumentality, agency, conduit or adjunct” of Property. Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc., 116 Cal. App. 3d 111, 119-20, 172 Cal. Rptr. 74 (1981).
Plaintiff’s only evidence of an alter ego relationship between Property and Travelers is that Defendant’s counsel represents both Travelers and Travelers Property, Travelers Property operates under Travelers name, and both entities are headquartered at the same address. (Dkt. No. 53, 4.) Plaintiff’s evidence does not support the argument that Travelers’ involvement with Property’s claim processing was outside the bounds of a normal parent-subsidiary relationship. See, e.g., Calvert, 875 F. Supp. at 678 (finding that the fact a parent company had an ownership interest in [*18] a subsidiary, that the parent and the subsidiary had some interlocking directorates and officers, that the parent had incorporated subsidiary’s income figures into its financial reports, that the parent had guaranteed a promissory note for the subsidiary, and that the parent and the subsidiary shared counsel was not sufficient to confer alter ego status).
Plaintiff further alleges that Travelers and Property “used their economic strength and control to take advantage of Plaintiff and failed to give the interests of Plaintiff at least as much consideration as they gave to their own interests.” (FAC ¶ 37.) Travelers’ purported economic strength fails to speak to Travelers’s control over Property. Even if it were germane to the unity of interest inquiry, it lacks any evidentiary basis. Moreover, assuming this allegation pertained to Travelers’ control over its subsidiary, economic interdependence without more is insufficient to find alter ego status. DVI, Inc. v. Superior Court, 104 Cal. App. 4th 1080, 1097, 128 Cal. Rptr. 2d 683 (2002) (stating that the relationship of parent and subsidiary “contemplates a close financial connection between parent and subsidiary and a certain degree of direction and management exercised by the former over the latter.”).
Indeed, financial [*19] transactions between a parent and subsidiary do not make the parent liable for the subsidiary’s debts, absent inadequate capitalization or other indicia of improper motives. See Doe v. Unocal Corp., 248 F.3d 915, 928 (9th Cir. 2001)( “[T]he Ninth Circuit found no alter ego relationship was created where the parent company guaranteed loans for the subsidiary, reviewed and approved major decisions, placed several of its directors on the subsidiary’s board, and was closely involved in the subsidiary’s pricing decisions.”) (citing Kramer Motors, Inc. v. British Leyland, Ltd., 628 F.2d 1175, 1177 (9th Cir.1980)). For financial transactions to support an alter ego theory of liability, Plaintiff must have adduced facts showing that they were designed improperly to avoid liability. See Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 539, 99 Cal. Rptr. 2d 824 (2000). There is no evidence here that this was the case.
Using “Travelers” generally on the Policy materials, in correspondence with Plaintiff, or on investor literature is also insufficient to raise a triable issue of fact as to claims predicated on an alter ego theory of liability. See DVI, Inc, 104 Cal. App. 4th at 1095 (“The consolidated report’s use of the words ‘we’ or ‘the Company’ to refer to DVI and its subsidiaries does not prove they are a single entity in practice.”) (internal quotation marks omitted). The fact that Travelers and its subsidiaries operate as a corporate group [*20] is similarly insufficient for Plaintiff to make an affirmative showing that triable issues remain when Plaintiff has the burden of proof at trial. See Tomaselli v. Transamerica Ins. Co., 25 Cal.App.4th 1269, 1284, 31 Cal. Rptr. 2d 433 (1994) (“[T]hat insurers operate as a group under corporate parent insufficient to show alter ego”).
Lastly, Plaintiff has failed to advance any evidence that in treating the acts of Property as those of Property alone an inequitable result would follow. Mesler v. Bragg Management Co., 39 Cal. 3d 290, 300, 216 Cal. Rptr. 443, 702 P.2d 601 (1985). Travelers has met its burden by pointing to the absence of evidence reasonably supporting Plaintiff’s alter ego theory of liability. On the evidence presented, Plaintiff has failed to make an affirmative showing that the losses it must bear are an inequitable result. Indeed, the Court does not see any evidentiary basis to infer that such losses were caused by Travelers’ misconduct, directly or vicariously.
- Vicarious Liability
In tort actions, the insurer may be vicariously liable for its agent’s tortious acts which the insurer directed or authorized or which, even though not originally authorized, the insurer later ratified. Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 823, 169 Cal. Rptr. 691, 620 P.2d 141 (1979); White v. Ultramar, Inc., 21 Cal. 4th 563, 570, 88 Cal. Rptr. 2d 19, 981 P.2d 944 (holding corporate employer liable for punitives based on actions of managing agent); Butcher v. Truck Ins. Exch., 77 Cal. App. 4th 1442, 1461, 92 Cal. Rptr. 2d 521 (2000) (holding insurer vicariously liable for agent’s negligent failure to deliver agreed-upon [*21] coverage). Liability may be imposed upon the maker of a fraudulent misrepresentation to “A” who intends that “A” repeat it to “B,” who acts upon it and is injured thereby; and a fraudulent representation intended to defraud any member of “the public or a particular class of persons” may give rise to liability in factor of anyone who detrimentally relies on the representation, whether it was communicated or not.” Mega Life & Health Ins. Co. v. Sup. Ct., 172 Cal. App. 4th 1522, 1530, 92 Cal. Rptr. 3d 399 (2009).
Defendant argues that there can be no claim for fraud without establishing that Defendant was under a duty to disclose a fact to Plaintiff. Defendant argues that since there is no evidence of knowing ratification by an officer, director or managing agent, there is no triable issue of fact for purposes of Plaintiff’s fraudulent concealment claim. (Mot. at 27.) Since in Defendant’s view, Plaintiff cannot make this threshold showing–i.e., Plaintiff cannot show that it had a relationship with Travelers, or that it was in privity with Travelers, or that Travelers was Plaintiff’s insurer–there is no legal basis to find Defendant liable. (Mot. at 24.)
In California, “[t]he required elements for fraudulent concealment are (1) concealment or suppression of a material fact; (2) by a defendant [*22] with a duty to disclose the fact to the plaintiff; (3) the defendant intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the concealment or suppression of the fact.” Hambrick v. Healthcare Partners Med. Grp., Inc., 238 Cal. App. 4th 124, 162, 189 Cal. Rptr. 3d 31 (2015).
Plaintiff alleges that Travelers omitted material information about the investigation and processing of its claims and Plaintiff relied on these misrepresentations. (FAC ¶ 26.) Plaintiff alleges that the concealment by Travelers of its inadequate investigation into Plaintiff’s claim caused Plaintiff to delay paying its client, Paramount Transportation Logistics Services, LLC (“Paramount”), for the lost cargo and the repairs to the vehicle damaged by the break-in. (Id. at ¶¶ 26, 27.) This delay caused Plaintiff to lose its business relationship with Paramount. (Id. ¶ 27.) Plaintiff alleges that the persons who made the material omissions were Travelers “employees, agents, and/or representatives, including but not limited to claims adjustors, claims investigators, and/or members of [Travelers’] [*23] Specialty Investigations Group.” (Id. at¶ 23.) These acts were allegedly done “with the knowledge, approval, and ratification of [Travelers’] managing agents.” (Id. at ¶36.)
To support its claim for punitive damages, Plaintiff alleges Travelers “engaged in a course of conduct which was intended to oppress [Plaintiff].” (FAC ¶ 35.) Travelers allegedly refused to carry out its obligations under the Policy “with conscious disregard for not only [Travelers’] duties and responsibilities to [its] insured but for the rights of Plaintiff to receive benefits and coverage under the policy… and the financial hardship faced by Plaintiff due to the improper denial of Plaintiff’s claim.” (Id. ¶ 36.) Plaintiff further alleges that Travelers: acted with malice, fraud, oppression, and/or in conscious disregard of Plaintiff’s rights… by failing to promptly and thoroughly investigate Plaintiff’s claims, by making knowingly false representations and by concealment of critical facts regarding Plaintiff’s claims, and by purposefully ignoring evidence available to Defendants that would dictate a reversal of the denial of coverage with no consideration for the impropriety of their conduct and with no regard [*24] for the unjustified financial hardship being forced upon Plaintiff. (Id. ¶ 37.)
As to Travelers’ vicarious liability, Plaintiff alleges that “they created a situation where their insured was deliberately denied a covered claim due to inadequate investigation and claim handling.” (Dkt. No. 21, 4.) But this does not indicate what Travelers actually did to create this situation. Nor does it evince Travelers’ direct participation in the investigation or handling of Plaintiff’s claim. Further, while the insurance contract may create a fiduciary duty on the part of Property, Plaintiff fails to explain how this duty necessarily extends to Property’s parent corporation. (Id. at 5.) There is nothing to suggest that Property entered the subject contract with the intent to benefit Travelers by deceiving Plaintiff. Sonora Diamond Corp., 83 Cal. App. 4th at 539. Plaintiff similarly fails to explain how a confidential relationship between Property and itself creates a confidential relationship between itself and Travelers. (Id. at 6.) Nor do the allegations of reliance on misrepresentations made by Property satisfy Plaintiff’s burden of production on this element as to Travelers. (Id. at 7-8.) See Walker v. Signal Companies, Inc., 84 Cal. App. 3d 982, 1002, 149 Cal. Rptr. 119 (1978) (“No other facts or circumstances are presented, however, to warrant [*25] the transference of that reliance to Signal Properties and ultimately to Signal as the parent corporation.”).
Plaintiff’s assertion that Property was the actual and ostensible agent of Travelers is based on the same listing of alleged facts which support its alter ego argument. (See, e.g., FAC ¶26.) To the extent Plaintiff relies on an agency theory to assert claims against Travelers, the Court concludes that Plaintiff has failed to establish any facts to raise a triable issue as to the existence of an agency relationship between Property and Travelers. Plaintiff needed to set forth additional facts regarding Travelers’ participation in, or approval of, Property’s inadequate or improper investigation of Plaintiff’s claim or Property’s alleged wrongful denial of Plaintiff’s claim. See Sonora Diamond Corp., 83 Cal. App. 4th at 542 (“[T]he parent must be shown to have moved beyond the establishment of general policy and direction for the subsidiary and in effect taken over performance of the subsidiary’s day-to-day operations in carrying out that policy.”).
At bottom, the general allegations contained in the FAC do not distinguish between Travelers Companies and Travelers Property. As such, the Court is left with no basis to infer any [*26] inequitable conduct on the part of the holding company to conclude that a triable issue of fact remains. Plaintiff advances no evidence for a jury to reasonably find that Travelers directly participated in perpetuating the fraud alleged. Nor does Plaintiff’s reference to other vicarious liability theories raise a triable issue of fact because Plaintiff cites no facts that support these theories and fails to articulate why they apply. Plaintiff, therefore, fails to establish that a triable issue exists as to Travelers’ direct or vicarious liability for Property’s alleged misconduct. Accordingly, Defendant’s Motion for Summary Judgment is GRANTED with respect to Plaintiff’s breach of contract, bad faith, and fraudulent-concealment claims.
For the aforementioned reasons, Defendant’s Motion for Summary Judgment is GRANTED.
IT IS SO ORDERED.
TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:
Pursuant to the Order issued on February 8, 2017, Defendant The Travelers Companies, Inc.’s Motion for Summary Judgment is GRANTED.
Judgment is entered in favor of Defendant The Travelers Companies, Inc.
Dated: February 8, 2017
/s/ Jesus G. Bernal
THE HONORABLE JESUS G. BERNAL
United States [*27] District Judge