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JAMES MILLS, SBN 203783

LAW OFFICE OF JAMES MILLS
1300 CLAY STREET, SUITE 600
OAKLAND, CA 94612
Tel: 510-521-8748
Fax: 510-277-1413
james@jamesmillslaw.com
Attorneys for Plaintiff
CHANNEL PARK DEVELOPMENT, LLC

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SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF ALAMEDA

UNLIMITED JURISDICTION

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Plaintiff,
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v.
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CLARENDON NATIONAL INSURANCE
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COMPANY doing business as CLARENDON )
AMERICA INSURANCE COMPANY, and )
DOES 1 through 10, inclusive,
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Defendants.
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)

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I.

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CHANNEL PARK DEVELOPMENT, LLC

CASE NO. RG09490071

OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT
Date: December 17, 2010
Time: 9:00 a.m.
Dept. 16
Reservation No.: R-1111328

INTRODUCTION
Plaintiff Channel Park Development, LLC (hereinafter Channel Park), by way of its

second amended complaint, seeks to have its day in court.

The Demurrer of defendants

Clarendon National Insurance Company and Clarendon America Insurance Company

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(hereinafter jointly referred as Clarendon) exaggerates the bright-line rule on which it seeks
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a premature and unjustifiable summary adjudication of a lengthy and convoluted claims process
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that resulted from the actions of its own agents. Clarendons wrongful conduct must not be
rewarded at the pleading stage. The repeated the mantra of the existence of a suit being a

OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

mandatory prerequisite to Channel Park enjoying the contractual benefits under the insurance

policy is belied by the glaring exception contained in the supplementary payments provision of

the same.

II.

THE DEMURRER SHOULD BE OVERRULED

Legal Standard on Demurrer and Objection to Exhibits

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In determining the merits of a demurrer, all material facts pleaded in the complaint and
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those that arise by reasonable implication, but not conclusions of fact or law, are deemed
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admitted by the demurring party. Rodas v. Spiegel (2001) 87 Cal. App. 4th 513, 517. It is not
the ordinary function of a demurrer to test the truth of plaintiffs allegations or the accuracy with

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which he describes the defendants conduct. Committee on Childrens Television v. General

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Foods Corp. (1983) 35 Cal. 3d 197, 213-214 (superceded by statute on other grounds).

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The court is to give the operative complaint a reasonable interpretation by reading it as a

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whole and all its parts in their contexts. See Randi W. v. Muroc Joint Unified School Dist. (1997)

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14 Cal. 4th 1066, 1075; Blank v. Kirwan (1985) 39 Cal. 3d 311, 318.

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Significantly, the

allegations of the complaint must be liberally construed, with the view to substantial justice
between the parties. Cal. Code Civ. Proc. 452 (Emphasis added); Stevens v. Sup. Ct. (1999)
75 Cal. 4th 594, 601. A court should examine the complaints factual allegations in order to

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determine whether they state a cause of action on any available legal theory. See Wolfe v. State
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Farm Fire & Casualty Ins. Co. (1996) 46 Cal. App. 4th 554, 560. Finally, should a pleading
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deficiency be found, great liberality should be exercised in permitting plaintiff to amend his

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complaint. Lemoges Elec. v. San Mateo County (1956) 46 Cal. 2d 659, 664. It is an abuse of

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discretion for the court to sustain a demurrer and deny leave to amend, where there is a

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reasonable possibility that the plaintiff can state a cause of action. Goodman v. Kennedy (1976)

OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

18 Cal. 3d 335, 339; Okun v. Sup. Ct. (1981) 29 Cal. 3d 442, 460. While Channel Park believes

that each of the claims is properly pleaded, it also requests leave to amend to address any

deficiencies that the Court might find.

III.

ARGUMENT

A.
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The Cause of Action for Breach of Contract States Facts to Constitute Causes
of Action Against Clarendon

The general allegations state that the claims that are the subject to this lawsuit are

covered under the Contract, specifically the supplementary payments provision, which states in

pertinent part the following:

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[Clarendon] will pay, with respect to any claim we investigate or settle, or any suit
against an insured we defend: . . . .
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All reasonable expenses incurred by the insured at our request to assist us in the
investigation or defense of the claim or suit including actual loss of earning up to $250
a day because of time off from work.
Clarendon America Insurance Commercial General Liability policy No. WT0991195,
Commercial General Liability Form p. 6 of 13 (Emphasis added.)

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Clarendon demurs that if was no pending lawsuit on the subject claims, then ipso facto,
Channel Park is out of luck, relying primarily on Foster-Gardner, Inc. v. National Union Fire

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Inc. Co. of Pittsburgh, PA (1998) 18 Cal. 4th 857. However, the bright-line rule is neither so

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bright, nor clearly a line that bars Channel Park claims, as Clarendon avers, as the contractual

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benefits under which damages are sought are contained in the supplementary payments

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provision, which applies to claims and not only to suits.

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The policy states in part that We will pay those sums that the insured becomes legally

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obligated to pay as damages because of bodily injury or property damage to which this

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insurance applies. See Second Amended Complaint, Exhibit A at p. 1 of 13. The policy states

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further that [n]o other obligation or liability to pay sums or perform acts or services is covered
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unless explicitly provided for under SUPPLEMENTARY PAYMENTS COVERAGES A

OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

AND B. Id. (Emphasis added.) Clarendon again mistakenly argues that a suit is a necessary

prerequisite to Channel Park enjoying the benefits of the policy, despite the plain language of the

supplementary payments provision, which provides for the reimbursement of reasonable

expenses incurred by the insured at Clarendons request to assist us in the investigation or

defense of the claim.

The supplementary payments provision is disjunctive rather than

conjunctive, permitting supplementary payment reimbursement for costs arising out of the
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investigation of a claim.

There is clearly no requirement that a suit or other judicial

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proceeding having commenced to invoke the supplementary payments provision of the Contract.
Despite Clarendons lengthy recitation and self-serving characterization of the

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authorities, Channel Park is entitled to the policy benefits for sums that it expended in assisting

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Clarendon in the investigation and adjustment of the claim.

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The California Supreme Court stated the following with respect to the distinction

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between claim and suit in Powerine Oil Company v. Superior Court:

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Sums that the insured becomes legally obligated to pay through adjudication denote
court-ordered money damages. But sums the insured becomes legally obligated to pay
through compromise or the settlement, adjustment and investigation of claims do not
necessarily reflect an underlying court suit. As the Court of Appeal observed, A
compromise may be reached in order to avert a lawsuit altogether. Moreover, as we
explained in Foster-Gardner, a claim is not a suit. A claim can be any number of
things, none of which rise to the formal level of a suit . While a claim may ultimately
ripen into a suit, claim and suit are not synonymous. [Citations.]
Powerine Oil Co. v. Sup. Ct. (2005) 37 Cal. 4th 377 at p. 397, quoting Foster-Gardner, supra, 18
Cal.4th at p. 879, quoting Fireman's Fund Ins. Co. v. Superior Court (1997) 65 Cal.App.4th
1205, 1216 [78 Cal. Rptr. 2d 418], italics original.)

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While Clarendon is correct that no underlying suit had been filed by the owners of the

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damaged condominiums, such a suit was not a prerequisite to Channel Park being entitled to its

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rightful insurance policy benefits.

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obligation were emergent and exigent, and the claims were presented to Clarendon for

OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

The circumstances surrounding Channel Parks legal

investigation and adjustment. As the second amended complaint states at paragraphs 7 through

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7.
On or about February 2006, PLAINTIFF discovered that un-level hardwood
floors were present throughout the units 255 Berry. On or about March 2006, the claim
was reported to CLARENDON via North American Risk Services, as claim number
2020060221001. The expenses incurred by PLAINTIFF under the CONTRACT totaled
$103,373.63.
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CLARENDON accepted claim number 2020060221001, and through its agent
North American Risk Services, adjusted and reviewed the claim until finally denying
coverage on January 3, 2008.
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On or about January 2006, PLAINTIFF discovered water damage throughout
units 255 Berry, rendering the occupied units uninhabitable and presented an urgent
health risk to the occupants. On or about February 2006, the claim was reported to
CLARENDON via North American Risk Services, as claim number 2020060221001,
mistakenly being associated with the un-level hardwood floor claim. On or about July
2007, CLARENDON acknowledged the claim via North American Risk Services, as
claim number CMCA07070003. The expenses incurred by PLAINTIFF during the
intervening 16 months of investment [sic] and adjustment totaled $171,188.32.
10.
The outlay of funds by PLAINTIFF to assist CLARENDON in the investigation
of the claim benefited CLARENDON, as well as the inhabitants of the occupied units,
avoiding the increased costs of providing alternative housing and avoiding the time, cost
and expense of a lawsuit by the same. PLAINTIFF incurred these expenses at the request
of CLARENDON, as was the custom and practice of CLARENDONS handling of
PLAINTIFFS claims under the SUPPLEMENTARY PAYMENTS provision of the
CONTRACT.

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Clarendon is correct that State Farm involved a different policy than herein. The subject
policy language discussed in State Farm is distinguishable from the supplementary payments
provision in the policy issued by Clarendon in that the supplementary payments language of the
policy in State Farm was limited to costs incurred by the insurer or ordered by a court, rather
than expenses paid by the insured. State Farm General Insurance Company v. Minin Mintarish
(2009) 175 Cal. App. 4th 274. The costs in State Farm were incurred in a suit. There is no
suit herein to which the holding of State Farm applies.
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OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

Clarendon is also mistaken in its assertion that Golden Eagle is on point. Again, there is

no suit herein, to which the holding in Golden Eagle applies. The supplementary payments

provision construed by the court of appeal in Golden Eagle stated the following:

Under the policies supplementary payments provisions for coverage A and coverage B,
Golden Eagle promised to pay, with respect to ... any suit against an insured we
defend, [a]ll costs taxed against the insured in the suit. The policies define the word
suit as a civil proceeding in which damages because of bodily injury, property
damage, personal injury or advertising injury to which this insurance applies are
alleged.
Golden Eagle Ins. Corp. v. Cen-Fed, Ltd. (2007) 148 Cal. App. 4th 976 at 992.

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The supplementary payments provision herein includes the expenses incurred by the
insured in assisting Clarendon in the investigation of claims, not only the defense of suits.
Channel Park did not draft the broad contractual language of the supplementary payments
provision herein. All of the authorities on which Clarendon relies involve policy benefits limited
by contractual language to suits. The Clarendon insurance policy language contains no such
limitation.
Clarendon seeks the entry of an order upon a dispositive motion that does not lie at the
pleading stage.

The second amended complaint states facts showing that Channel Park is

entitled to the insurance policy benefits wrongfully denied by Clarendon. The language of the
insurance policy does not require that a suit is a condition precedent, but rather that among
Clarendons obligations were the reimbursement of contractually provided for supplementary
payments expended by Channel Park in assisting Clarendon in the investigation of the claim.
Clarendon is seeking relief from the express terms of an insurance policy that it conceived,
drafted and drafted. Channel Park accepted the terms of the insurance policy by paying timely
insurance premiums and providing timely notice of covered claims. It would be a manifest
injustice if Clarendon were permitted obviate its contractual obligations based on the phantom
requirement of a suit.

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OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

B.

The Cause of Action for Breach of the Implied Covenant of Good Faith and
Fair Dealing (Bad Faith) States Facts to Constitute a Cause of Action
Against Clarendon

The gravamen of Clarendons demurrer to the bad faith claim is that there is no

contractual obligation upon which it could have acted in bad faith. As argued above, the

existence of a suit was not a prerequisite to Channel Parks entitlement to policy benefits of

reimbursement for supplementary payments expended in Clarendons investigation of the claims,

and thus has stated the contractual obligations breached by Clarendon in bad faith.

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C.

The Cause of Action for Negligence States Facts to Constitute a Cause of

Action Against Clarendon

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The second amended complaint states that Clarendon hired insurance adjusters to review

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and analyze Channel Parks claims, as set forth in paragraphs 7 and 22 of the second amended

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complaint, cited above. The authority on which Clarendon relies is inapposite. The court in

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Sanchez v. Lindsey Morden Claims Service, Inc. (1999) 72 Cal. App. 4th 249 was addressing the

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negligence claims pleaded by an insured against the insurance adjuster hired by the insurer, not

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the negligence claims, as here, of an insured against an insurer. Clarendon hired North American
Risk Services to adjust the Channel Parks claims under the subject insurance policy. Channel

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Park asserts that Clarendon is liable to Channel Park for the negligent handling of the claims by
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it agent, North American Risk Services. Burkle v. Sup. Ct. (1963) 59 Cal. 2d 370. Additionally,
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extending Clarendons analogy regarding an insurers potential negligence liability for failure to
employ competent defense counsel, the argument holds that Clarendon could similarly be held

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liable for failure to employ competent insurance adjusters. Merritt v. Reserve Ins. Co. (1973) 34

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Cal. App. 3d 858 at pp. 881-882. The Merritt citation was not merely obiter dictum, but a

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statement that the independent contractor attorney may be liable for negligence (malpractice),

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rather than the insurer as a principal. Here, North American Risk Services was acting as an

OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

agent of Clarendon. The negligence in adjusting Channel Parks claims by North American Risk

Services is imputed Clarendon.

D.

Channel Park Should Be Permitted to File an Amended Complaint to Cure

any Defective Pleading

An amendment should be allowed where the defect, though one of substance, may

possibly be cured by supplying omitted allegations, and the plaintiff has not had a fair

opportunity to do so . . . . Grieves v. Superior Court (1984) 157 Cal. App. 3d 159, 168. It has

long been established that in ruling on a demurrer, the trial court is obligated to look past the

form of a pleading to its substance. Erroneous or confusing labels attached by the inept pleader

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are to be ignored if the complaint pleads facts which would entitle the plaintiff to relief.

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Saunders v. Cariss (1990) 224 Cal. App. 3d 905, 908. The reviewing court cannot sustain the

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demurrer if the complaint states a cause of action under any possible theory, and it is an abuse of

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discretion to sustain a demurrer without leave to amend if there is a reasonable opportunity that

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the plaintiff can amend the complaint to allege necessary facts or state a cause of action. Aubry

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v. Tri-City Hospital Dist. (1992) 2 Cal. 4th 962, 967.

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The critical point is that Channel Park has pleaded a statement of the facts constituting

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the causes of action in ordinary and concise language as required by section 425.10 of the

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California Code of Civil Procedure. If the court concludes that Channel Park has failed to

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sufficiently plead the causes of action asserted in the first amended complaint, then Channel Park

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respectfully request that the court permit the filing of an amended complaint to cure any defects

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that presently exist on the face of the first amended complaint.

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OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

SERVICE LIST

Channel Park v. Clarendon, et al.

Alameda County Superior Court Case No. RG09490071

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Attorneys for Clarendon National Insurance

Company and Clarendon America Insurance
Company
Alan E. Swerdlow, Esq.
Boorzanian, Jensen & Garthe, PC
555 12th Street, Suite 1800
Oakland, CA 94604-2925
Tel: 510-834-4350
Fax: 510-839-1897
E-mail: aswerdlow@bjg.com

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OPPOSITION TO DEMURRER TO
SECOND AMENDED COMPLAINT

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