Preview
1 MATTHEW S. FOY (SBN: 187238)
FLETCHER C. ALFORD (SBN: 152314)
2 MOLLY J. MROWKA (SBN: 190133)
ELECTRONICALLY
GORDON REES SCULLY MANSUKHANI, LLP
3 275 Battery Street, Suite 2000 F I L E D
Superior Court of California,
San Francisco, CA 94111 County of San Francisco
4 Telephone: (415) 875-3174
Facsimile: (415) 986-8054 03/29/2021
5 mfoy@grsm.com Clerk of the Court
BY: YOLANDA TABO-RAMIREZ
falford@grsm.com Deputy Clerk
6 mmrowka@grsm.com
7 Attorneys for Defendant
CSAA INSURANCE EXCHANGE
8
9 SUPERIOR COURT OF CALIFORNIA
10 COUNTY OF SAN FRANCISCO
11 CHARLOTTE HORNE and WILBERT ) CASE NO. CGC-20-584261
HORNE, individually and On Behalf of All )
12 Others Similarly Situated, ) DEFENDANT CSAA INSURANCE
) EXCHANGE’S REPLY
13 Plaintiffs, ) MEMORANDUM IN SUPPORT OF
) ITS DEMURRER TO THE SECOND
14 vs. AMENDED COMPLAINT
)
15 CSAA INSURANCE EXCHANGE and )
DOES 1 to 100, inclusive, ) Party Filing Demurrer: Defendant CSAA
16 ) Insurance Exchange
Defendants. )
17 ) Party Subject to Demurrer: Plaintiffs
) Charlotte Horne and Wilbert Horne
18 )
) Hearing:
19 )
) Date: April 6, 2021
20 Time: 10:00 a.m.
)
Dept: 304
21 )
)
22 ) Complaint Filed: April 28, 2020
)
23 )
24
25
26
27
28
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 I. INTRODUCTION
2 CSAA’s Opening Memorandum (“Opening”) sets forth in detail the fatal defects in
3 plaintiffs’ claims. Nothing in plaintiffs’ Opposition cures those defects. Instead, plaintiffs’
4 Opposition ignores key case law cited in the Opening, fundamentally misrepresents other case
5 law, and continues to assert theories directly at odds with the very policy and disclosure
6 documents plaintiffs themselves cite as supposed bases for their claims. When all legalese is
7 pared away, itremains inescapably clear that plaintiffs’ claims are premised on the essential
8 allegation that CSAA – and not plaintiffs – was responsible for determining the sufficiency of
9 plaintiffs’ policy limits. But the law is to the contrary. That much is made clear even by the
10 key case plaintiffs themselves cite: Paper Savers, Inc. v. Nacsa (1996) 51 Cal.App.4th 1090,
11 1096 (holding that “the onus is squarely on the insured” to determine appropriate policy limits).
Gordon Rees Scully Mansukhani, LLP
Plaintiffs have had more than ample opportunity to plead viable claims. But they have
275 Battery Street, Suite 2000
12
San Francisco, CA 94111
13 not done so. Further leave to amend will not erase the fundamental legal defects in their theories.
14 CSAA respectfully requests that the Court sustain this demurrer without further leave to amend.
15 II. ARGUMENT
16 A. Plaintiffs’ Opposition Confirms That They Have Not Pleaded, And Cannot
Plead, Actionable Fraud-Based Claims
17
In its Opening, CSAA points out that each of plaintiffs’ fraud-based claims is premised
18
on the same core allegation: That the Renewal Declaration (referred to as the “Notice page” in
19
the Second Amended Complaint) and the California Residential Property Insurance Disclosures
20
(the “Disclosures”) somehow “‘represented to plaintiffs that the replacement cost policy limit .
21
. . would be sufficient to replace their home in the event of a total loss.’” See Opening, at pgs.
22
7:24-8:5 (citing and quoting the Second Amended Complaint, at ¶¶ 72-74,86-88, 100-102, 114-
23
115, and 123-125).1 In their Opposition, plaintiffs confirm that CSAA has not misapprehended
24
25 1
In a last-ditch effort to salvage some part of their case, plaintiffs assert – erroneously – that CSAA has waived its
right to demur to the concealment/fraudulent omission claim (the fifth cause of action) by allegedly failing to
26 address that claim in its Opening. See Opposition, at p. 9:22-23. Not so. As CSAA points out in its Opening (at
pp. 7:24-8:5), the concealment claim is premised on the very same allegation as the other fraud-based claims: That
27 CSAA somehow “represented to plaintiffs that their policy limit would be sufficient to replace their home.” See
Second Amended Complaint, at Concealment Claim, ¶¶ 101-102. Further, at pages 7-11 of its Opening, CSAA
28 discusses this very allegation and explains at length why it – and the identical language from the other fraud-based
claims – fails to state a viable cause of action.
In short, there is nothing to plaintiffs’ waiver argument.
-1-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 the basis for their fraud claims – and that indeed those claims are based on the theory that the
2 Renewal Declaration and Disclosures allegedly include representations that plaintiffs’ policy
3 limit would be sufficient to replace their home. See Opposition, at, e.g., p. 7:11-13 (“Plaintiffs
4 allege that CSAA[’s policy and disclosure documents] . . .misrepresented the sufficiency of
5 Plaintiffs’ replacement cost coverage”); p. 10:20-22 (arguing that plaintiffs understood the
6 Disclosures as a representation “that their replacement cost limit was sufficient”) (italics in
7 original); p. 11:14-17 (arguing that the policy documents “misrepresented the sufficiency of
8 Plaintiffs’ policy limits.”).
9 But plaintiffs fail to identify any language in the Renewal Declaration or the Disclosures,
10 or any other document for that matter, that could even arguably be construed as a promise that
11 the limits would be sufficient to replace their home. At the same time, plaintiffs ignore language
Gordon Rees Scully Mansukhani, LLP
275 Battery Street, Suite 2000
12 in those documents that says exactly the opposite. While plaintiffs would seemingly have this
San Francisco, CA 94111
13 Court adopt a rule that Defendant assumed a duty to afford what is ostensibly “Guaranteed
14 Replacement Cost Coverage” (i.e., for the full cost to replace their home regardless of limits),
15 plaintiffs knew such coverage was not being provided as was made clear in the Disclosures, and
16 as was also made clear in the Declarations page in the Policy which set forth stated limits based
17 on an estimate. Moreover, California law recognizes that any duty to procure insurance “does
18 not include the obligation to procure a policy affording the client complete liability protection,
19 as appellants seek to impose here.” Jones v. Grewe (1987) 189 Cal.App.3d 950, 956.
20 As pointed out in CSAA’s Opening, and which will not be repeated verbatim here, the
21 policy documents repeatedly stress – in clear, conspicuous, non-technical language – the
22 uncertain nature of future replacement costs; the many factors that could influence those future
23 costs (e.g., “demand surge”); the inability to predict them in advance with certainty; the resulting
24 risks to the insured; and the specific steps the insured should undertake to reduce those risks.
25 See Opening, at pp. 8-10 (quoting at length from the Renewal Declaration and the Disclosures).
26 The Opposition was plaintiffs’ opportunity to identify specific language in the policy documents
27 by which CSAA allegedly promised or represented that the policy limits would be sufficient to
28 replace their home. Plaintiffs have not done so in Opposition and cannot do so.
-2-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 Plaintiffs point to the statutorily-mandated language in the Renewal Declaration that the
2 policy limits are “based on an estimate of the cost to rebuild your home.” But no one could
3 reasonably construe an estimate of future costs as a promise of sufficiency. The commonly-
4 understood meaning of “estimate” is “a rough or approximate calculation.” Merriam-
5 Webster.com/estimate (emphasis added). Moreover, the California Department of Insurance
6 (“DOI”) has specifically recognized that the “regulations do not require that the estimate be
7 entirely accurate, or that it guarantees the amount estimated will be sufficient to rebuild the
8 house.” See DOI’s Final Statement of Reasons, File No. REG-2010-00001, Regulations on
9 Standards and Training for Estimating Replacement Value on Homeowner’s Insurance,
10 Summary and Response to Comments, at pp. 111 and 113.
11 Under California law, “an actionable misrepresentation must be made about past or
Gordon Rees Scully Mansukhani, LLP
275 Battery Street, Suite 2000
12 existing facts; statements regarding future events are merely deemed opinions.” San Francisco
San Francisco, CA 94111
13 Design Center Assoc. v. Portman Cos. (1995) 41 Cal.App.4th 29, 43-44. Thus, for example, a
14 representation that the cash flow of a business “would be positive at the end of the first quarter”
15 is “nonactionable as opinion or prediction.” Apollo Capital Fund, LLC v. Roth Capital Partners,
16 LLC (2007) 158 Cal.App.4th 226, 241. Expressions of opinion are not treated as representations
17 of fact, and are not grounds for a misrepresentation claim. Neu-Visions Sports, Inc. v. Soren
18 (2000) 86 Cal.App.4th 303, 308-310 (stating, in part, that “[v]alue is quintessentially a matter of
19 opinion, not a statement of fact”).
20 Plaintiffs’ contention their fraud claims are based on actionable misrepresentations in the
21 policy documents – somehow that the stated limits in the policy would be sufficient to replace
22 their home in the event of a total loss – lacks merit. Aside from the fact that no such
23 misrepresentation is set forth in the policy documents, the purported representations plaintiffs
24 nonetheless seek to rely on relate to an unknown, future event – i.e., the amount it would cost at
25 some future date to rebuild their home in the event of a then-unknown covered peril or disaster
26 of some kind. The setting of limits estimated to cover losses in the event of a future covered
27 peril of unknown nature or kind does not support an actionable claim for misrepresentation.
28
-3-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 Plaintiffs cite only one case as supposed authority for their position that an “estimate” can
2 support a fraud claim: Paper Savers, Inc. v. Nacsa (1996) 51 Cal.App.4th 1090 (cited at p. 8:19-
3 22 of the Opposition). Unfortunately, plaintiffs blatantly misrepresent the holding of that case.
4 It has nothing whatsoever to do with a fraud claim premised on an estimate. Instead, and to the
5 contrary, the Papers Savers decision makes clear that plaintiffs are solely responsible for
6 insuring the adequacy of their policy limits. Id. at 1096.
7 In Paper Savers, the insured alleged that his agent specifically represented that the type
8 of policy the agent recommended would cover the full cost of replacing his property, irrespective
9 of the policy limits. Paper Savers, supra, 51 Cal.App.4th at 1093. The insured alleged that, in
10 reliance on this representation, he agreed to purchase the recommended policy. Id. The property
11 was subsequently destroyed by fire, and the estimated cost of replacement was $2 million, or
Gordon Rees Scully Mansukhani, LLP
275 Battery Street, Suite 2000
12 $1.5 million more than the $500,000.00 limit. Id. The insured subsequently sued the agent and
San Francisco, CA 94111
13 the carrier for negligence only – not fraud. Id. at 1094. The trial court granted summary
14 judgment for the defendants, and the insured/plaintiff appealed. The Court of Appeal explained:
15 In the absence of an express agreement to ensure adequate coverage or a holding
out by the agent to assume greater duties than otherwise implied in the agency
16
relationship, the onus is thus squarely on the insured to inform the agent of the
17 insurance he requires.
18 Id. at 1096 (citing multiple cases) (emphasis added). However, the Court of Appeal concluded
19 that summary judgment should not have been granted because there was a triable issue of fact
20 as to whether the agent had assumed a special duty to the insured by allegedly representing that
21 the coverage he recommended would allow for replacement of the property even if the cost of
22 such replacement exceeded the policy limits. Id. at 1099-1104.
23 One scours Paper Savers in vain for any discussion of the proposition plaintiffs cite it for:
24 that an estimate can form the basis of a fraud claim. But, despite plaintiffs’ misrepresentation
25 of the Paper Savers holding, it is nevertheless relevant here. The decision makes clear that
26 absent specific “holding out” by the agent – none of which is alleged in this case – the onus is
27 squarely on the insured to determine the amount and type of coverage he or she needs. Id. at
28 1096; see also Everett v. State Farm General Ins. Co. (2008) 162 Cal.App.4th 649, 660 (“[i]t is
-4-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 up to the insured to determine whether he or she has sufficient coverage for his or her needs”);
2 see also King v. Ameriprise Auto & Home Ins. (N.D. Cal. Sept. 22, 2020) 2020 WL 5677375, at
3 *1 (“California law makes plain that it is the homeowner’s duty to ensure that the limits set out
4 in his insurance policy are sufficient to cover his dwelling in the event of a complete loss”).
5 Plaintiffs argue that the statutorily-mandated language in the Renewal Declaration – “the
6 limit of liability is based on an estimate of the cost to rebuild your home” – required that CSAA
7 perform an estimate upon each policy renewal date using all of the factors set forth in 10 CCR
8 section 2695.183, and CSAA committed fraud by allegedly failing to do so. Opposition, at p.
9 12:7-18. But this is simply another way of impermissibly avoiding black letter law holding that
10 an estimate – and, by necessary implication, the absence of one – cannot form the basis for a
11 fraud claim. Plaintiffs also entirely ignore the clear and unambiguous ruling of the California
Gordon Rees Scully Mansukhani, LLP
275 Battery Street, Suite 2000
12 Supreme Court cited in CSAA’s Opening: California law “does not require an insurer to …
San Francisco, CA 94111
13 provide an estimate of the cost to rebuild or replace a home.” Assoc. of Calif. Ins. Companies
14 v. Jones (2017) 2 Cal.5th 376, 384. See also 10 CCR section 2695.183(m), which provides that
15 nothing in the regulation “shall be construed as requiring a licensee to estimate replacement cost
16 or to set or recommend a policy limit.” Plaintiffs argue for the imposition of a duty on CSAA
17 that the law has clearly rejected.
18 Perhaps realizing they cannot build fraud claims around the “based on an estimate”
19 language in the insurance contract, plaintiffs grasp for other language in the policy documents
20 upon which to premise those claims. But the language plaintiffs rely on is also unavailing.
21 Plaintiffs point to language in the statutorily-mandated Disclosures which provides that,
22 “Replacement cost coverage is intended to provide for the cost to repair or replace the damage
23 or destroyed dwelling, without a deduction for physical depreciation.” Second Amended
24 Complaint, at ¶ 34 (quoting the Disclosures); Opposition at 7:15-16. But plaintiffs ignore a
25 sentence appearing just several lines below the quote they rely on, which specifies that:
26 “Coverage only pays for replacement costs up to the limits specified in your policy.” Second
27 Amended Complaint, at ¶ 34 (quoting the Disclosures) (emphasis added). Plaintiffs also point
28 to language in paragraph 14 of the actual CSAA policy, defining replacement cost as “equivalent
-5-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 construction without deduction for depreciation.” See Opposition at 7:17-18. But,
2 conspicuously, plaintiffs do not allege that these statements were false or that CSAA did not
3 comply with them. “Depreciation” is defined as “a loss in the value of property due to physical
4 deterioration and wear.” Merriam-Webster.com/depreciation. Plaintiffs’ Second Amended
5 Complaint is devoid of any allegation that CSAA avoided paying the full limits of their policy
6 (as specifically stated on the Declarations page) by applying depreciation or some estimate based
7 on inferior construction techniques. Indeed, and to the contrary, it is undisputed that CSAA paid
8 the full, stated limits under the insurance contract. While plaintiffs contend those limits were
9 insufficient to replace their home, they do not (and cannot) explain how that amounts to a viable
10 theory of fraud – particularly given the unambiguous language of the very document they cite,
11 which makes clear that the insurer’s obligation is capped by the stated policy limits.
Gordon Rees Scully Mansukhani, LLP
275 Battery Street, Suite 2000
12 Additionally, and as set forth in CSAA’s Opening brief, Plaintiffs have not (and cannot)
San Francisco, CA 94111
13 establish the justifiable reliance element required to state their fraud or misrepresentation claims.
14 See Opening at pp. 11:6-12:2, citing Sheahan v. State Farm Gen. Ins. Co. (N.D. Cal. March 4,
15 2020) 442 F.Supp.3d 1178, 1187-1190. Plaintiffs attempt to distinguish Sheahan, arguing that
16 the Court held only that the plaintiffs there failed to allege any specific misrepresentations of
17 fact. Opposition, at p. 13:9-11. As pointed out above, plaintiffs also fail to allege any specific
18 misrepresentations of fact in this case. But, even more fundamentally, plaintiffs misrepresent
19 the holding of Sheahan. The Sheahan Court did not simply hold that the plaintiffs in that case
20 had made an error of pleading. Rather, the Court held that the very same Disclosures at issue
21 in this case preclude any reasonable reliance on an alleged promise as to the sufficiency of
22 the policy limits as a matter of law. Sheahan, supra, 442 F. Supp.3d at 1190 (concluding in a
23 similar underinsurance fire case that where the insurer provided its insured with the same types
24 of disclaimers contained in the Disclosures, the plaintiffs could not demonstrate justifiable
25 reliance compelling dismissal of their negligence misrepresentation claim); see also Nelson v.
26 American Family Mut. Ins. Co. (8th Cir. 2018) 899 F.3d 475, 481 (dismissal of underinsurance
27 claims due to policy disclaimers). Plaintiffs conspicuously fail to distinguish this critical aspect
28 of Sheahan or explain how it does not mandate dismissal of their fraud-based claims (as it does).
-6-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 For each of these reasons, CSAA respectfully submits that plaintiffs’ fraud-based claims
2 fail as a matter of law and should be dismissed without further leave to amend.
3 B. Plaintiffs Cannot Circumvent The Safe Harbor That Bars Their UCL Claims
4 Plaintiffs attempt to circumvent the safe harbor doctrine in two ways. First, they assert
5 that some of the alleged misrepresentations that form the basis of their fraud claim are not found
6 in the statutorily-mandated Disclosures or Renewal Declaration. See Opposition, at p. 15:9-14,
7 citing paragraphs 35 and 39 of the Second Amended Complaint.
8 But paragraph 39 of plaintiff’s Second Amended Complaint only cites to the statutorily-
9 mandated Renewal Declaration (which plaintiffs sometimes refer to as the “Notice”). Further,
10 paragraph 35 of the Second Amended Complaint alleges simply that “replacement cost” is
11 defined as “equivalent construction without deduction for depreciation.” However, as set forth
Gordon Rees Scully Mansukhani, LLP
275 Battery Street, Suite 2000
12 above, plaintiff’s operative complaint does not allege that CSAA evaded paying full policy
San Francisco, CA 94111
13 limits after the fire based on some depreciation deduction or an estimate that was not based on
14 equivalent construction techniques. Moreover, as plaintiffs themselves acknowledge in their
15 operative complaint, this same “without deduction for depreciation” language appears in the
16 statutorily-mandated Disclosures. See Second Amended Complaint, at ¶ 34. Plaintiffs concede
17 that those Disclosures also expressly provides that, “Replacement Cost Coverage only pays for
18 replacement costs up to the limits specified in your policy.” Second Amended Complaint, at ¶
19 34 (quoting the Disclosures). Given the undisputed fact that CSAA paid plaintiffs full policy
20 limits, and given that the mandated Disclosures make clear that the insurer’s replacement cost
21 obligation is bounded by those limits, plaintiffs cannot be heard to argue that CSAA somehow
22 violated the UCL by defining “replacement cost” with reference to “equivalent construction.”
23 In short, plaintiffs fail to allege any language actionable under the UCL independent of
24 the statutorily-mandated Disclosures. Plaintiffs admit receiving full policy limits, and the
25 statutorily-mandated Disclosures make clear that they were entitled to no more than those limits.
26 Plaintiffs’ second attempt to circumvent the safe harbor is to assert that their UCL claims
27 is premised in part on a theory that CSAA failed to act in conformity with the Disclosures.
28 Specifically, according to plaintiffs, CSAA violated the UCL by not preparing a 2695.183-
-7-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 compliant estimate at the time their policy was last renewed in 2017. This attempt is also
2 unavailing for at least two reasons. First, and as noted above, CSAA was not required to prepare
3 a replacement cost estimate at policy renewal as alleged by plaintiffs. See Jones, supra, 2 Cal.5th
4 at 384; 10 CCR section 2695.183(m) (nothing in the regulation “shall be construed as requiring
5 a licensee to estimate replacement cost or to set or recommend a policy limit”). Thus, this theory
6 too is barred by the safe harbor doctrine. Second, because the statutorily-mandated Disclosures
7 make clear that CSAA’s replacement cost obligation was bounded by the specific dollar limits
8 of the policy, CSAA’s undisputed payment of those limits precludes a UCL claim predicated on
9 a theory that it should have paid more.
10 For each of these reasons, CSAA respectfully submits that plaintiffs’ UCL claims are
11 barred by the safe harbor doctrine and should also be dismissed without further leave to amend.
Gordon Rees Scully Mansukhani, LLP
C. Because Plaintiffs’ Contract-Based Claims Seek To Impose Obligations
275 Battery Street, Suite 2000
12
San Francisco, CA 94111
Directly Contrary To The Express Terms Of The Insurance Contract, Those
13 Claims Fail As A Matter Of Law
14 Plaintiffs argue that the covenant of good faith and fair dealing is implied in every contract
15 and, thus, that a breach of the implied covenant is a breach of the contract. Plaintiffs also argue
16 that a claim for breach of the implied covenant does not necessarily require that an express term
17 of the contract was breached.
18 Aside from the legal merit of these arguments, there is another legal principal associated
19 with the law of “bad faith” that plaintiffs fail to acknowledge, and which dooms their contract-
20 based claims: Because the implied covenant serves only to effectuate the express terms of the
21 insurance contract, it cannot impose obligations contrary to those expressly agreed to the
22 contract. See Court’s Order on CSAA’s prior demurrer, attached to Opening as Ex. “C,” at p.
23 11:8-10 (citing Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349-350). As applied to insurance
24 contracts, this rule has been stated as follows: “1) benefits due under the policy must have been
25 withheld; and 2) the reason for withholding benefits must have been unreasonable or without
26 proper cause.” Love v. Fire Ins. Exch. (1990) 221 Cal.App.3d 1136, 1151.
27 Given the undisputed fact that CSAA paid plaintiffs the policy limits specifically stated
28 in their insurance contract, the Second Amended Complaint does not allege – and could not in
-8-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 good faith be further amended to allege – that any benefits due under the policy were withheld.
2 Instead, plaintiffs allege that CSAA violated the implied covenant by not paying more than the
3 policy limits. See Opposition, at p. 17:2-8. In other words, plaintiffs seek to use the implied
4 covenant to nullify an express term of the contract – the policy limits – which is precisely what
5 the Supreme Court has made clear plaintiffs cannot do. See Guz, supra, 24 Cal.4th at 349-350.
6 Similarly, plaintiffs argue that CSAA violated the implied covenant by allegedly failing
7 to perform an accurate estimate of the cost of replacing plaintiffs’ home for purposes of setting
8 the policy limits when the policy was last renewed. See Opposition, at p. 17:9-16. Aside from
9 the fact, noted above, that the law did not require CSAA to perform a replacement cost estimate
10 at renewal of the at-issue policy, plaintiffs’ argument in this regard is simply a round-about way
11 of alleging that the parties should have entered into a contract different from the one they
Gordon Rees Scully Mansukhani, LLP
275 Battery Street, Suite 2000
12 actually entered into – i.e., a policy with higher limits. But, given that the implied covenant
San Francisco, CA 94111
13 operates only to effectuate the terms actually set forth in the insurance contract, plaintiffs’ claim
14 for breach of the implied covenant, and for breach of contract as well, cannot be predicated on
15 a theory that the parties should have entered into a contract different than the one issued.
16 For each of these reasons, CSAA respectfully submits that plaintiffs’ contract-based
17 claims also fail as a matter of law and should be dismissed without further leave to amend.2
18 D. Derivative Claims For Reformation And Declaratory Relief Also Necessarily
Fail As A Matter Of Law
19
Because plaintiffs’ causes of action for reformation and declaratory relief are necessarily
20
derivative of their substantive claims discussed above, they share the same fatal defects inherent
21
in those claims and should be dismissed for those same reasons.
22
Plaintiffs’ reformation claim is based on allegations that they “intended and reasonably
23
expected that the contract of insurance between them and defendant would provide replacement
24
cost coverage for plaintiffs’ home in an amount sufficient to repair or replace the home” –
25
apparently irrespective of the policy limits – and that “defendants intended and reasonably
26
2
27 In this regard, CSAA further notes that plaintiffs have not sufficiently alleged their contract based claims with
specificity or based on sufficient facts to apprise CSAA of conduct that violates the contract, let alone allegations
28 “traced” to any contract term or “tethered” to any defined contract obligation or term. The Court required such
allegations in its Order on CSAA’s prior demurer. See Exhibit C to CSAA’s Opening Brief, at pp. 10:17-14:7.
-9-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 expected the same.” See Second Amended Complaint, at ¶ 143. But that allegation is flatly
2 inconsistent with the statutorily-mandated policy language and Disclosures which, as discussed
3 above, provide in clear and unambiguous terms the policy limits were based on an estimate, that
4 CSAA’s obligations are bounded by the stated policy limits set forth in the insurance contract,
5 that there is inevitable risk those limits may prove insufficient to replace plaintiffs’ home, and
6 that plaintiffs have an obligation to take specific measures to limit that risk. In short, plaintiffs
7 have not alleged, and cannot truthfully allege, that the policy document fails to reflect the mutual
8 intent of the parties. They have thus failed to plead a viable theory of reformation.
9 For similar reasons, plaintiffs have not pleaded that there is any actual, good faith
10 controversy between the parties regarding their rights and obligations under the policy
11 warranting declaratory relief. There is no allegation, for example, that the policy suffers from
Gordon Rees Scully Mansukhani, LLP
275 Battery Street, Suite 2000
12 an ambiguity requiring judicial interpretation. Once again, the plaintiffs simply ask the Court
San Francisco, CA 94111
13 to re-write the policy to impose terms different than those actually agreed to: a higher policy
14 limit, or a policy without a specified dollar limit (i.e., a “guaranteed replacement cost” policy)
15 – neither of which plaintiffs purchased or bargained for. For these reasons, there is no allegation
16 of a genuine, actual controversy as required for plaintiffs to maintain their claim for declaratory
17 relief. Accordingly, this claim too should be dismissed without further leave to amend.
18 III. CONCLUSION
19 For each of these reasons, CSAA respectfully requests that its demurrer be sustained
20 without further leave to amend.
21 Dated: March 29, 2021 GORDON REES SCULLY MANSUKHANI, LLP
22
23 By:
Matthew S. Foy
24 Fletcher C. Alford
Molly J. Mrowka
25 Attorneys for Defendant
CSAA INSURANCE EXCHANGE
26
27
28
-10-
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS
DEMURRER TO THE SECOND AMENDED COMPLAINT
1 PROOF OF SERVICE
2 Charlotte Horne and Wilbert Horne, et al., v. CSAA Insurance Exchange, et al.
Superior Court, County of San Francisco – Case Number CGC-20-584261
3
I am a resident of the State of California, over the age of eighteen years, and not a party
4 to the within action. My business address is: Gordon Rees Scully Mansukhani, LLP 275 Battery
Street, Suite 2000, San Francisco, CA 94111. On the date below, I served the within documents:
5
DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN
6 SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT
7
Via E-Mail: Only by e-mailing the document(s) to the persons at the e-mail address(es)
below. This is necessitated during the declared national emergency due to the Coronavirus
8 (COVID-19) pandemic because staff in this office is working remotely, and is unable to
send physical mail as usual. Therefore, the document(s) referenced above is/are served
9 only by using electronic mail. We will provide a physical copy, upon request only, when
we return to the office at the conclusion of the national emergency.
10
Via Court Approved Efiling & Eservice Vendor: by transmitting via electronic service
the document(s) listed above to the parties and/or email address(es) set forth below.
11
Gordon Rees Scully Mansukhani, LLP
Attorneys for Plaintiffs: Attorneys for Plaintiffs:
275 Battery Street, Suite 2000
12
San Francisco, CA 94111
Robert S. Arns, Esq. E. Gerard Mannion, Esq.
13 Jonathan E. Davis, Esq. Demián I. Oksenendler, Esq.
Shounak S. Dharap, Esq. Karen Hayashi, Legal Secretary
14 Marta Carreño MANNION LOWE &
THE ARNS LAW FIRM OKSENENDLER
15 A Professional Corporation 601 Montgomery Street, Suite 1090
515 Folsom Street, 3rd Floor San Francisco, CA 94111
16 San Francisco, CA 94109 Tel: (415) 733-1050
Tel: (415) 495-7800 Fax: (415) 434-4810
17 Fax: (415) 495-7888 Email: gerry@mlolawyers.com
Email: rsa@arnslaw.com Email: demian@mlolawyers.com
18 Email: jed@arnslaw.com Email: karen@mlolawyers.com
Email: ssd@arnslaw.com
19 Email: mec@arnslaw.com
20
I am readily familiar with the firm’s practice of
Preview
1 MATTHEW S. FOY (SBN: 187238) FLETCHER C. ALFORD (SBN: 152314) 2 MOLLY J. MROWKA (SBN: 190133) ELECTRONICALLY GORDON REES SCULLY MANSUKHANI, LLP 3 275 Battery Street, Suite 2000 F I L E D Superior Court of California, San Francisco, CA 94111 County of San Francisco 4 Telephone: (415) 875-3174 Facsimile: (415) 986-8054 03/29/2021 5 mfoy@grsm.com Clerk of the Court BY: YOLANDA TABO-RAMIREZ falford@grsm.com Deputy Clerk 6 mmrowka@grsm.com 7 Attorneys for Defendant CSAA INSURANCE EXCHANGE 8 9 SUPERIOR COURT OF CALIFORNIA 10 COUNTY OF SAN FRANCISCO 11 CHARLOTTE HORNE and WILBERT ) CASE NO. CGC-20-584261 HORNE, individually and On Behalf of All ) 12 Others Similarly Situated, ) DEFENDANT CSAA INSURANCE ) EXCHANGE’S REPLY 13 Plaintiffs, ) MEMORANDUM IN SUPPORT OF ) ITS DEMURRER TO THE SECOND 14 vs. AMENDED COMPLAINT ) 15 CSAA INSURANCE EXCHANGE and ) DOES 1 to 100, inclusive, ) Party Filing Demurrer: Defendant CSAA 16 ) Insurance Exchange Defendants. ) 17 ) Party Subject to Demurrer: Plaintiffs ) Charlotte Horne and Wilbert Horne 18 ) ) Hearing: 19 ) ) Date: April 6, 2021 20 Time: 10:00 a.m. ) Dept: 304 21 ) ) 22 ) Complaint Filed: April 28, 2020 ) 23 ) 24 25 26 27 28 DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 I. INTRODUCTION 2 CSAA’s Opening Memorandum (“Opening”) sets forth in detail the fatal defects in 3 plaintiffs’ claims. Nothing in plaintiffs’ Opposition cures those defects. Instead, plaintiffs’ 4 Opposition ignores key case law cited in the Opening, fundamentally misrepresents other case 5 law, and continues to assert theories directly at odds with the very policy and disclosure 6 documents plaintiffs themselves cite as supposed bases for their claims. When all legalese is 7 pared away, itremains inescapably clear that plaintiffs’ claims are premised on the essential 8 allegation that CSAA – and not plaintiffs – was responsible for determining the sufficiency of 9 plaintiffs’ policy limits. But the law is to the contrary. That much is made clear even by the 10 key case plaintiffs themselves cite: Paper Savers, Inc. v. Nacsa (1996) 51 Cal.App.4th 1090, 11 1096 (holding that “the onus is squarely on the insured” to determine appropriate policy limits). Gordon Rees Scully Mansukhani, LLP Plaintiffs have had more than ample opportunity to plead viable claims. But they have 275 Battery Street, Suite 2000 12 San Francisco, CA 94111 13 not done so. Further leave to amend will not erase the fundamental legal defects in their theories. 14 CSAA respectfully requests that the Court sustain this demurrer without further leave to amend. 15 II. ARGUMENT 16 A. Plaintiffs’ Opposition Confirms That They Have Not Pleaded, And Cannot Plead, Actionable Fraud-Based Claims 17 In its Opening, CSAA points out that each of plaintiffs’ fraud-based claims is premised 18 on the same core allegation: That the Renewal Declaration (referred to as the “Notice page” in 19 the Second Amended Complaint) and the California Residential Property Insurance Disclosures 20 (the “Disclosures”) somehow “‘represented to plaintiffs that the replacement cost policy limit . 21 . . would be sufficient to replace their home in the event of a total loss.’” See Opening, at pgs. 22 7:24-8:5 (citing and quoting the Second Amended Complaint, at ¶¶ 72-74,86-88, 100-102, 114- 23 115, and 123-125).1 In their Opposition, plaintiffs confirm that CSAA has not misapprehended 24 25 1 In a last-ditch effort to salvage some part of their case, plaintiffs assert – erroneously – that CSAA has waived its right to demur to the concealment/fraudulent omission claim (the fifth cause of action) by allegedly failing to 26 address that claim in its Opening. See Opposition, at p. 9:22-23. Not so. As CSAA points out in its Opening (at pp. 7:24-8:5), the concealment claim is premised on the very same allegation as the other fraud-based claims: That 27 CSAA somehow “represented to plaintiffs that their policy limit would be sufficient to replace their home.” See Second Amended Complaint, at Concealment Claim, ¶¶ 101-102. Further, at pages 7-11 of its Opening, CSAA 28 discusses this very allegation and explains at length why it – and the identical language from the other fraud-based claims – fails to state a viable cause of action. In short, there is nothing to plaintiffs’ waiver argument. -1- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 the basis for their fraud claims – and that indeed those claims are based on the theory that the 2 Renewal Declaration and Disclosures allegedly include representations that plaintiffs’ policy 3 limit would be sufficient to replace their home. See Opposition, at, e.g., p. 7:11-13 (“Plaintiffs 4 allege that CSAA[’s policy and disclosure documents] . . .misrepresented the sufficiency of 5 Plaintiffs’ replacement cost coverage”); p. 10:20-22 (arguing that plaintiffs understood the 6 Disclosures as a representation “that their replacement cost limit was sufficient”) (italics in 7 original); p. 11:14-17 (arguing that the policy documents “misrepresented the sufficiency of 8 Plaintiffs’ policy limits.”). 9 But plaintiffs fail to identify any language in the Renewal Declaration or the Disclosures, 10 or any other document for that matter, that could even arguably be construed as a promise that 11 the limits would be sufficient to replace their home. At the same time, plaintiffs ignore language Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000 12 in those documents that says exactly the opposite. While plaintiffs would seemingly have this San Francisco, CA 94111 13 Court adopt a rule that Defendant assumed a duty to afford what is ostensibly “Guaranteed 14 Replacement Cost Coverage” (i.e., for the full cost to replace their home regardless of limits), 15 plaintiffs knew such coverage was not being provided as was made clear in the Disclosures, and 16 as was also made clear in the Declarations page in the Policy which set forth stated limits based 17 on an estimate. Moreover, California law recognizes that any duty to procure insurance “does 18 not include the obligation to procure a policy affording the client complete liability protection, 19 as appellants seek to impose here.” Jones v. Grewe (1987) 189 Cal.App.3d 950, 956. 20 As pointed out in CSAA’s Opening, and which will not be repeated verbatim here, the 21 policy documents repeatedly stress – in clear, conspicuous, non-technical language – the 22 uncertain nature of future replacement costs; the many factors that could influence those future 23 costs (e.g., “demand surge”); the inability to predict them in advance with certainty; the resulting 24 risks to the insured; and the specific steps the insured should undertake to reduce those risks. 25 See Opening, at pp. 8-10 (quoting at length from the Renewal Declaration and the Disclosures). 26 The Opposition was plaintiffs’ opportunity to identify specific language in the policy documents 27 by which CSAA allegedly promised or represented that the policy limits would be sufficient to 28 replace their home. Plaintiffs have not done so in Opposition and cannot do so. -2- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 Plaintiffs point to the statutorily-mandated language in the Renewal Declaration that the 2 policy limits are “based on an estimate of the cost to rebuild your home.” But no one could 3 reasonably construe an estimate of future costs as a promise of sufficiency. The commonly- 4 understood meaning of “estimate” is “a rough or approximate calculation.” Merriam- 5 Webster.com/estimate (emphasis added). Moreover, the California Department of Insurance 6 (“DOI”) has specifically recognized that the “regulations do not require that the estimate be 7 entirely accurate, or that it guarantees the amount estimated will be sufficient to rebuild the 8 house.” See DOI’s Final Statement of Reasons, File No. REG-2010-00001, Regulations on 9 Standards and Training for Estimating Replacement Value on Homeowner’s Insurance, 10 Summary and Response to Comments, at pp. 111 and 113. 11 Under California law, “an actionable misrepresentation must be made about past or Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000 12 existing facts; statements regarding future events are merely deemed opinions.” San Francisco San Francisco, CA 94111 13 Design Center Assoc. v. Portman Cos. (1995) 41 Cal.App.4th 29, 43-44. Thus, for example, a 14 representation that the cash flow of a business “would be positive at the end of the first quarter” 15 is “nonactionable as opinion or prediction.” Apollo Capital Fund, LLC v. Roth Capital Partners, 16 LLC (2007) 158 Cal.App.4th 226, 241. Expressions of opinion are not treated as representations 17 of fact, and are not grounds for a misrepresentation claim. Neu-Visions Sports, Inc. v. Soren 18 (2000) 86 Cal.App.4th 303, 308-310 (stating, in part, that “[v]alue is quintessentially a matter of 19 opinion, not a statement of fact”). 20 Plaintiffs’ contention their fraud claims are based on actionable misrepresentations in the 21 policy documents – somehow that the stated limits in the policy would be sufficient to replace 22 their home in the event of a total loss – lacks merit. Aside from the fact that no such 23 misrepresentation is set forth in the policy documents, the purported representations plaintiffs 24 nonetheless seek to rely on relate to an unknown, future event – i.e., the amount it would cost at 25 some future date to rebuild their home in the event of a then-unknown covered peril or disaster 26 of some kind. The setting of limits estimated to cover losses in the event of a future covered 27 peril of unknown nature or kind does not support an actionable claim for misrepresentation. 28 -3- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 Plaintiffs cite only one case as supposed authority for their position that an “estimate” can 2 support a fraud claim: Paper Savers, Inc. v. Nacsa (1996) 51 Cal.App.4th 1090 (cited at p. 8:19- 3 22 of the Opposition). Unfortunately, plaintiffs blatantly misrepresent the holding of that case. 4 It has nothing whatsoever to do with a fraud claim premised on an estimate. Instead, and to the 5 contrary, the Papers Savers decision makes clear that plaintiffs are solely responsible for 6 insuring the adequacy of their policy limits. Id. at 1096. 7 In Paper Savers, the insured alleged that his agent specifically represented that the type 8 of policy the agent recommended would cover the full cost of replacing his property, irrespective 9 of the policy limits. Paper Savers, supra, 51 Cal.App.4th at 1093. The insured alleged that, in 10 reliance on this representation, he agreed to purchase the recommended policy. Id. The property 11 was subsequently destroyed by fire, and the estimated cost of replacement was $2 million, or Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000 12 $1.5 million more than the $500,000.00 limit. Id. The insured subsequently sued the agent and San Francisco, CA 94111 13 the carrier for negligence only – not fraud. Id. at 1094. The trial court granted summary 14 judgment for the defendants, and the insured/plaintiff appealed. The Court of Appeal explained: 15 In the absence of an express agreement to ensure adequate coverage or a holding out by the agent to assume greater duties than otherwise implied in the agency 16 relationship, the onus is thus squarely on the insured to inform the agent of the 17 insurance he requires. 18 Id. at 1096 (citing multiple cases) (emphasis added). However, the Court of Appeal concluded 19 that summary judgment should not have been granted because there was a triable issue of fact 20 as to whether the agent had assumed a special duty to the insured by allegedly representing that 21 the coverage he recommended would allow for replacement of the property even if the cost of 22 such replacement exceeded the policy limits. Id. at 1099-1104. 23 One scours Paper Savers in vain for any discussion of the proposition plaintiffs cite it for: 24 that an estimate can form the basis of a fraud claim. But, despite plaintiffs’ misrepresentation 25 of the Paper Savers holding, it is nevertheless relevant here. The decision makes clear that 26 absent specific “holding out” by the agent – none of which is alleged in this case – the onus is 27 squarely on the insured to determine the amount and type of coverage he or she needs. Id. at 28 1096; see also Everett v. State Farm General Ins. Co. (2008) 162 Cal.App.4th 649, 660 (“[i]t is -4- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 up to the insured to determine whether he or she has sufficient coverage for his or her needs”); 2 see also King v. Ameriprise Auto & Home Ins. (N.D. Cal. Sept. 22, 2020) 2020 WL 5677375, at 3 *1 (“California law makes plain that it is the homeowner’s duty to ensure that the limits set out 4 in his insurance policy are sufficient to cover his dwelling in the event of a complete loss”). 5 Plaintiffs argue that the statutorily-mandated language in the Renewal Declaration – “the 6 limit of liability is based on an estimate of the cost to rebuild your home” – required that CSAA 7 perform an estimate upon each policy renewal date using all of the factors set forth in 10 CCR 8 section 2695.183, and CSAA committed fraud by allegedly failing to do so. Opposition, at p. 9 12:7-18. But this is simply another way of impermissibly avoiding black letter law holding that 10 an estimate – and, by necessary implication, the absence of one – cannot form the basis for a 11 fraud claim. Plaintiffs also entirely ignore the clear and unambiguous ruling of the California Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000 12 Supreme Court cited in CSAA’s Opening: California law “does not require an insurer to … San Francisco, CA 94111 13 provide an estimate of the cost to rebuild or replace a home.” Assoc. of Calif. Ins. Companies 14 v. Jones (2017) 2 Cal.5th 376, 384. See also 10 CCR section 2695.183(m), which provides that 15 nothing in the regulation “shall be construed as requiring a licensee to estimate replacement cost 16 or to set or recommend a policy limit.” Plaintiffs argue for the imposition of a duty on CSAA 17 that the law has clearly rejected. 18 Perhaps realizing they cannot build fraud claims around the “based on an estimate” 19 language in the insurance contract, plaintiffs grasp for other language in the policy documents 20 upon which to premise those claims. But the language plaintiffs rely on is also unavailing. 21 Plaintiffs point to language in the statutorily-mandated Disclosures which provides that, 22 “Replacement cost coverage is intended to provide for the cost to repair or replace the damage 23 or destroyed dwelling, without a deduction for physical depreciation.” Second Amended 24 Complaint, at ¶ 34 (quoting the Disclosures); Opposition at 7:15-16. But plaintiffs ignore a 25 sentence appearing just several lines below the quote they rely on, which specifies that: 26 “Coverage only pays for replacement costs up to the limits specified in your policy.” Second 27 Amended Complaint, at ¶ 34 (quoting the Disclosures) (emphasis added). Plaintiffs also point 28 to language in paragraph 14 of the actual CSAA policy, defining replacement cost as “equivalent -5- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 construction without deduction for depreciation.” See Opposition at 7:17-18. But, 2 conspicuously, plaintiffs do not allege that these statements were false or that CSAA did not 3 comply with them. “Depreciation” is defined as “a loss in the value of property due to physical 4 deterioration and wear.” Merriam-Webster.com/depreciation. Plaintiffs’ Second Amended 5 Complaint is devoid of any allegation that CSAA avoided paying the full limits of their policy 6 (as specifically stated on the Declarations page) by applying depreciation or some estimate based 7 on inferior construction techniques. Indeed, and to the contrary, it is undisputed that CSAA paid 8 the full, stated limits under the insurance contract. While plaintiffs contend those limits were 9 insufficient to replace their home, they do not (and cannot) explain how that amounts to a viable 10 theory of fraud – particularly given the unambiguous language of the very document they cite, 11 which makes clear that the insurer’s obligation is capped by the stated policy limits. Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000 12 Additionally, and as set forth in CSAA’s Opening brief, Plaintiffs have not (and cannot) San Francisco, CA 94111 13 establish the justifiable reliance element required to state their fraud or misrepresentation claims. 14 See Opening at pp. 11:6-12:2, citing Sheahan v. State Farm Gen. Ins. Co. (N.D. Cal. March 4, 15 2020) 442 F.Supp.3d 1178, 1187-1190. Plaintiffs attempt to distinguish Sheahan, arguing that 16 the Court held only that the plaintiffs there failed to allege any specific misrepresentations of 17 fact. Opposition, at p. 13:9-11. As pointed out above, plaintiffs also fail to allege any specific 18 misrepresentations of fact in this case. But, even more fundamentally, plaintiffs misrepresent 19 the holding of Sheahan. The Sheahan Court did not simply hold that the plaintiffs in that case 20 had made an error of pleading. Rather, the Court held that the very same Disclosures at issue 21 in this case preclude any reasonable reliance on an alleged promise as to the sufficiency of 22 the policy limits as a matter of law. Sheahan, supra, 442 F. Supp.3d at 1190 (concluding in a 23 similar underinsurance fire case that where the insurer provided its insured with the same types 24 of disclaimers contained in the Disclosures, the plaintiffs could not demonstrate justifiable 25 reliance compelling dismissal of their negligence misrepresentation claim); see also Nelson v. 26 American Family Mut. Ins. Co. (8th Cir. 2018) 899 F.3d 475, 481 (dismissal of underinsurance 27 claims due to policy disclaimers). Plaintiffs conspicuously fail to distinguish this critical aspect 28 of Sheahan or explain how it does not mandate dismissal of their fraud-based claims (as it does). -6- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 For each of these reasons, CSAA respectfully submits that plaintiffs’ fraud-based claims 2 fail as a matter of law and should be dismissed without further leave to amend. 3 B. Plaintiffs Cannot Circumvent The Safe Harbor That Bars Their UCL Claims 4 Plaintiffs attempt to circumvent the safe harbor doctrine in two ways. First, they assert 5 that some of the alleged misrepresentations that form the basis of their fraud claim are not found 6 in the statutorily-mandated Disclosures or Renewal Declaration. See Opposition, at p. 15:9-14, 7 citing paragraphs 35 and 39 of the Second Amended Complaint. 8 But paragraph 39 of plaintiff’s Second Amended Complaint only cites to the statutorily- 9 mandated Renewal Declaration (which plaintiffs sometimes refer to as the “Notice”). Further, 10 paragraph 35 of the Second Amended Complaint alleges simply that “replacement cost” is 11 defined as “equivalent construction without deduction for depreciation.” However, as set forth Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000 12 above, plaintiff’s operative complaint does not allege that CSAA evaded paying full policy San Francisco, CA 94111 13 limits after the fire based on some depreciation deduction or an estimate that was not based on 14 equivalent construction techniques. Moreover, as plaintiffs themselves acknowledge in their 15 operative complaint, this same “without deduction for depreciation” language appears in the 16 statutorily-mandated Disclosures. See Second Amended Complaint, at ¶ 34. Plaintiffs concede 17 that those Disclosures also expressly provides that, “Replacement Cost Coverage only pays for 18 replacement costs up to the limits specified in your policy.” Second Amended Complaint, at ¶ 19 34 (quoting the Disclosures). Given the undisputed fact that CSAA paid plaintiffs full policy 20 limits, and given that the mandated Disclosures make clear that the insurer’s replacement cost 21 obligation is bounded by those limits, plaintiffs cannot be heard to argue that CSAA somehow 22 violated the UCL by defining “replacement cost” with reference to “equivalent construction.” 23 In short, plaintiffs fail to allege any language actionable under the UCL independent of 24 the statutorily-mandated Disclosures. Plaintiffs admit receiving full policy limits, and the 25 statutorily-mandated Disclosures make clear that they were entitled to no more than those limits. 26 Plaintiffs’ second attempt to circumvent the safe harbor is to assert that their UCL claims 27 is premised in part on a theory that CSAA failed to act in conformity with the Disclosures. 28 Specifically, according to plaintiffs, CSAA violated the UCL by not preparing a 2695.183- -7- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 compliant estimate at the time their policy was last renewed in 2017. This attempt is also 2 unavailing for at least two reasons. First, and as noted above, CSAA was not required to prepare 3 a replacement cost estimate at policy renewal as alleged by plaintiffs. See Jones, supra, 2 Cal.5th 4 at 384; 10 CCR section 2695.183(m) (nothing in the regulation “shall be construed as requiring 5 a licensee to estimate replacement cost or to set or recommend a policy limit”). Thus, this theory 6 too is barred by the safe harbor doctrine. Second, because the statutorily-mandated Disclosures 7 make clear that CSAA’s replacement cost obligation was bounded by the specific dollar limits 8 of the policy, CSAA’s undisputed payment of those limits precludes a UCL claim predicated on 9 a theory that it should have paid more. 10 For each of these reasons, CSAA respectfully submits that plaintiffs’ UCL claims are 11 barred by the safe harbor doctrine and should also be dismissed without further leave to amend. Gordon Rees Scully Mansukhani, LLP C. Because Plaintiffs’ Contract-Based Claims Seek To Impose Obligations 275 Battery Street, Suite 2000 12 San Francisco, CA 94111 Directly Contrary To The Express Terms Of The Insurance Contract, Those 13 Claims Fail As A Matter Of Law 14 Plaintiffs argue that the covenant of good faith and fair dealing is implied in every contract 15 and, thus, that a breach of the implied covenant is a breach of the contract. Plaintiffs also argue 16 that a claim for breach of the implied covenant does not necessarily require that an express term 17 of the contract was breached. 18 Aside from the legal merit of these arguments, there is another legal principal associated 19 with the law of “bad faith” that plaintiffs fail to acknowledge, and which dooms their contract- 20 based claims: Because the implied covenant serves only to effectuate the express terms of the 21 insurance contract, it cannot impose obligations contrary to those expressly agreed to the 22 contract. See Court’s Order on CSAA’s prior demurrer, attached to Opening as Ex. “C,” at p. 23 11:8-10 (citing Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349-350). As applied to insurance 24 contracts, this rule has been stated as follows: “1) benefits due under the policy must have been 25 withheld; and 2) the reason for withholding benefits must have been unreasonable or without 26 proper cause.” Love v. Fire Ins. Exch. (1990) 221 Cal.App.3d 1136, 1151. 27 Given the undisputed fact that CSAA paid plaintiffs the policy limits specifically stated 28 in their insurance contract, the Second Amended Complaint does not allege – and could not in -8- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 good faith be further amended to allege – that any benefits due under the policy were withheld. 2 Instead, plaintiffs allege that CSAA violated the implied covenant by not paying more than the 3 policy limits. See Opposition, at p. 17:2-8. In other words, plaintiffs seek to use the implied 4 covenant to nullify an express term of the contract – the policy limits – which is precisely what 5 the Supreme Court has made clear plaintiffs cannot do. See Guz, supra, 24 Cal.4th at 349-350. 6 Similarly, plaintiffs argue that CSAA violated the implied covenant by allegedly failing 7 to perform an accurate estimate of the cost of replacing plaintiffs’ home for purposes of setting 8 the policy limits when the policy was last renewed. See Opposition, at p. 17:9-16. Aside from 9 the fact, noted above, that the law did not require CSAA to perform a replacement cost estimate 10 at renewal of the at-issue policy, plaintiffs’ argument in this regard is simply a round-about way 11 of alleging that the parties should have entered into a contract different from the one they Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000 12 actually entered into – i.e., a policy with higher limits. But, given that the implied covenant San Francisco, CA 94111 13 operates only to effectuate the terms actually set forth in the insurance contract, plaintiffs’ claim 14 for breach of the implied covenant, and for breach of contract as well, cannot be predicated on 15 a theory that the parties should have entered into a contract different than the one issued. 16 For each of these reasons, CSAA respectfully submits that plaintiffs’ contract-based 17 claims also fail as a matter of law and should be dismissed without further leave to amend.2 18 D. Derivative Claims For Reformation And Declaratory Relief Also Necessarily Fail As A Matter Of Law 19 Because plaintiffs’ causes of action for reformation and declaratory relief are necessarily 20 derivative of their substantive claims discussed above, they share the same fatal defects inherent 21 in those claims and should be dismissed for those same reasons. 22 Plaintiffs’ reformation claim is based on allegations that they “intended and reasonably 23 expected that the contract of insurance between them and defendant would provide replacement 24 cost coverage for plaintiffs’ home in an amount sufficient to repair or replace the home” – 25 apparently irrespective of the policy limits – and that “defendants intended and reasonably 26 2 27 In this regard, CSAA further notes that plaintiffs have not sufficiently alleged their contract based claims with specificity or based on sufficient facts to apprise CSAA of conduct that violates the contract, let alone allegations 28 “traced” to any contract term or “tethered” to any defined contract obligation or term. The Court required such allegations in its Order on CSAA’s prior demurer. See Exhibit C to CSAA’s Opening Brief, at pp. 10:17-14:7. -9- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 expected the same.” See Second Amended Complaint, at ¶ 143. But that allegation is flatly 2 inconsistent with the statutorily-mandated policy language and Disclosures which, as discussed 3 above, provide in clear and unambiguous terms the policy limits were based on an estimate, that 4 CSAA’s obligations are bounded by the stated policy limits set forth in the insurance contract, 5 that there is inevitable risk those limits may prove insufficient to replace plaintiffs’ home, and 6 that plaintiffs have an obligation to take specific measures to limit that risk. In short, plaintiffs 7 have not alleged, and cannot truthfully allege, that the policy document fails to reflect the mutual 8 intent of the parties. They have thus failed to plead a viable theory of reformation. 9 For similar reasons, plaintiffs have not pleaded that there is any actual, good faith 10 controversy between the parties regarding their rights and obligations under the policy 11 warranting declaratory relief. There is no allegation, for example, that the policy suffers from Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000 12 an ambiguity requiring judicial interpretation. Once again, the plaintiffs simply ask the Court San Francisco, CA 94111 13 to re-write the policy to impose terms different than those actually agreed to: a higher policy 14 limit, or a policy without a specified dollar limit (i.e., a “guaranteed replacement cost” policy) 15 – neither of which plaintiffs purchased or bargained for. For these reasons, there is no allegation 16 of a genuine, actual controversy as required for plaintiffs to maintain their claim for declaratory 17 relief. Accordingly, this claim too should be dismissed without further leave to amend. 18 III. CONCLUSION 19 For each of these reasons, CSAA respectfully requests that its demurrer be sustained 20 without further leave to amend. 21 Dated: March 29, 2021 GORDON REES SCULLY MANSUKHANI, LLP 22 23 By: Matthew S. Foy 24 Fletcher C. Alford Molly J. Mrowka 25 Attorneys for Defendant CSAA INSURANCE EXCHANGE 26 27 28 -10- DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 1 PROOF OF SERVICE 2 Charlotte Horne and Wilbert Horne, et al., v. CSAA Insurance Exchange, et al. Superior Court, County of San Francisco – Case Number CGC-20-584261 3 I am a resident of the State of California, over the age of eighteen years, and not a party 4 to the within action. My business address is: Gordon Rees Scully Mansukhani, LLP 275 Battery Street, Suite 2000, San Francisco, CA 94111. On the date below, I served the within documents: 5 DEFENDANT CSAA INSURANCE EXCHANGE’S REPLY MEMORANDUM IN 6 SUPPORT OF ITS DEMURRER TO THE SECOND AMENDED COMPLAINT 7 Via E-Mail: Only by e-mailing the document(s) to the persons at the e-mail address(es) below. This is necessitated during the declared national emergency due to the Coronavirus 8 (COVID-19) pandemic because staff in this office is working remotely, and is unable to send physical mail as usual. Therefore, the document(s) referenced above is/are served 9 only by using electronic mail. We will provide a physical copy, upon request only, when we return to the office at the conclusion of the national emergency. 10 Via Court Approved Efiling & Eservice Vendor: by transmitting via electronic service the document(s) listed above to the parties and/or email address(es) set forth below. 11 Gordon Rees Scully Mansukhani, LLP Attorneys for Plaintiffs: Attorneys for Plaintiffs: 275 Battery Street, Suite 2000 12 San Francisco, CA 94111 Robert S. Arns, Esq. E. Gerard Mannion, Esq. 13 Jonathan E. Davis, Esq. Demián I. Oksenendler, Esq. Shounak S. Dharap, Esq. Karen Hayashi, Legal Secretary 14 Marta Carreño MANNION LOWE & THE ARNS LAW FIRM OKSENENDLER 15 A Professional Corporation 601 Montgomery Street, Suite 1090 515 Folsom Street, 3rd Floor San Francisco, CA 94111 16 San Francisco, CA 94109 Tel: (415) 733-1050 Tel: (415) 495-7800 Fax: (415) 434-4810 17 Fax: (415) 495-7888 Email: gerry@mlolawyers.com Email: rsa@arnslaw.com Email: demian@mlolawyers.com 18 Email: jed@arnslaw.com Email: karen@mlolawyers.com Email: ssd@arnslaw.com 19 Email: mec@arnslaw.com 20 I am readily familiar with the firm’s practice of