Jones v. Grewe

• Decision Date: 24 February 1987
• Citation: 234 Cal.Rptr. 717,189 Cal.App.3d 950
• Court: California Court of Appeals
• Parties: Leonard P. JONES, et al., Cross-Complainants and Appellants, v. Carl F. GREWE, et al., Cross-Defendants and Respondents. B012541.

Page 717

234 Cal.Rptr. 717

189 Cal.App.3d 950

Leonard P. JONES, et al., Cross-Complainants and Appellants, v. Carl F. GREWE, et al., Cross-Defendants and Respondents.

B012541.

Court of Appeal, Second District, Division 3, California.

Feb. 24, 1987.

Review Denied May 14, 1987. ^*

Girardi, Keese & Crane, James B. Kropff, Los Angeles, for cross-complainants and appellants.

Stockdale, Peckham & Werner, Richard W. McLain, Los Angeles, for cross-defendants and respondents.

KENNARD, Associate Justice. ^*

Cross-complainants Leonard and Mary Jones (appellants) appeal from an order of dismissal entered after the trial court sustained a demurrer of cross-defendants Carl F. Grewe, Grewe Agency, and Stelling and Grewe Insurance (respondents) to appellants' third amended cross-complaint. Affirmed.

BACKGROUND

On September 28, 1979, Linda Leriget, a minor, sustained serious injuries when she fell into the swimming pool of an apartment building in which her parents were tenants and which was owned by appellants. The Lerigets brought an action against appellants for negligence. Under a stipulated judgment entered on August 6, 1982, appellants agreed to settle the case for $1.5 million. The Lerigets agreed not to record, enter, or execute on the $1.5 million judgment provided appellants would (1) pay the Lerigets a total of $200,000, and (2) transfer to the Lerigets any legal rights appellants had against respondents, who were the insurance brokers who had sold appellants $300,000 in liability insurance for the apartment building in question.

Appellants filed a cross-complaint against respondents. In a cause of action for negligence, appellants' third amended cross-complaint alleged that respondents had a fiduciary duty towards appellants, and that respondents breached that duty when they failed to provide appellants with liability insurance sufficient to protect their personal assets and satisfy the $1.5 million judgment entered against them in August 1982. The complaint also alleged that respondents held themselves out as insurance consultants and experts; that respondents had taken care of appellants' insurance needs for ten years, during which time appellants relied on respondents' expertise; and that respondents "expressly and impliedly" represented to appellants that their insurance protection was adequate. The complaint further alleged that on November 28, 1977, appellants bought a liability insurance policy through respondents covering appellants' apartment building for an amount up to $300,000. The policy was in effect on September 28, 1979, the date on which the young child of tenants in appellants' apartment building fell into the swimming pool.

Respondents demurred, arguing that they did not have a duty to provide appellants with liability insurance sufficient to "cover every conceivable eventuality," and therefore the complaint had failed to state a cause of action for negligence. The trial court agreed, and sustained the demurrer to the third-amended cross complaint without leave to amend. This appeal by appellants followed.

ISSUE

In a case of first impression we are asked to decide whether respondents owed appellants a legal duty of care to provide them with a policy of liability insurance sufficient to protect their personal assets and to satisfy any judgment against appellants arising out of the latter's negligent acts.

DISCUSSION

Because this appeal arises from a judgment entered after the sustaining of a demurrer, we must assume the truth of all properly pleaded material allegations of the complaint in evaluating the propriety of the trial court's action. (Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170, 164 Cal.Rptr. 839, 610 P.2d 1330; Baldwin v. Zoradi (1981) 123 Cal.App.3d 275, 278, 176 Cal.Rptr. 809.) A pleading must allege facts and not mere conclusions. (Vilardo v. County of Sacramento (1942) 54 Cal.App.2d 413, 418, 129 P.2d 165.) "The function of a demurrer is to test the legal sufficiency of the challenged pleading by raising questions of law." (Baldwin v. Zoradi, supra.)

A complaint in an action for negligence must allege (1) the defendant's legal duty of care towards the plaintiff, (2) the defendant's breach of that duty, (3) injury to the plaintiff as a proximate result of the breach, and (4) damage to the plaintiff. (4 Witkin, Cal. Procedure (3d ed. 1985) Pleading § 527, p. 558.) A complaint which lacks facts to show that a duty of care was owed is fatally defective. (Peter W. v. San Francisco Unified Sch. Dist. (1976) 60 Cal.App.3d 814, 820, 131 Cal.Rptr. 854.)

Whether a duty of care exists is a question of law for the court. (Wilson v. All Service Ins. Corp. (1979) 91 Cal.App.3d 793, 796, 153 Cal.Rptr. 121; Raymond v. Paradise Unified School Dist. (1963) 218 Cal.App.2d 1, 8-9, 31 Cal.Rptr. 847.) Also, whether, and the extent to which, a new duty is recognized is ultimately a question of public policy. (Raymond v. Paradise Unified School Dist., supra.)

Ordinarily, an insurance agent assumes only those duties normally found in any agency relationship. This includes the obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured. (3 Couch on Insurance (2d ed. 1984) Duties and Liabilities of Agent, § 25:37, p. 336.) The mere existence of such a relationship imposes no duty on the agent to advise the insured on specific insurance matters. (Sandbulte v. Farm Bureau Mut. Ins. Co. (Iowa 1984) 343 N.W.2d 457, 464; 16A Appleman, Insurance Law and Practice, § 8836, pp. 64-66.) "An agent may point out to [the insured] the advantages of additional coverage and may ferret out additional facts from the insured applicable to such coverage, but he is under no obligation to do so; nor is the insured under an obligation to respond." (Hill v. Grandey (1974) 132 Vt. 460, 321 A.2d 28, 34.)

An agent may, however, assume additional duties by an express agreement or a holding out. (Sandbulte v. Farm Bureau Mut. Ins. Co., supra, 343 N.W.2d 457, 464; 16A Appleman, Insurance Law and Practice, supra, § 8836, pp. 65-66.) Accordingly, the agent may be liable to the insured for losses which resulted as a breach of that special duty. (Sandblute v. Farm Bureau Mut. Ins. Co., supra, at pp. 464-465; 16A Appleman, Insurance Law and Practice, supra, § 8836, pp. 64-66.) The insured may sue for breach of the agreement, or he may sue in tort for negligent breach of the duty imposed by the agreement. (Haurat v. Superior Court (1966) 241 Cal.App.2d 330, 334, 50 Cal.Rptr. 520; 72 A.L.R.3d 747.)

In arguing that appellants breached their duty in not providing respondents with adequate liability coverage, respondents rely on Greenfield v. Insurance Inc. (1971) 19 Cal.App.3d 803, 97 Cal.Rptr. 164 and Westrick v. State Farm Insurance (1982) 137 Cal.App.3d 685, 187 Cal.Rptr. 214. Such reliance is misplaced. Neither case stands for the proposition that an insurance agent or broker has a duty to obtain liability coverage for an insured in an amount sufficient to satisfy any judgment arising out of an action for negligence brought against the insured by a third party.

Greenfield involved the negligent failure of an agent to obtain the coverage requested by his client. In the case before us, appellants sought liability insurance, and respondents did procure such coverage.

In Westrick, the insurance agent negligently failed to inform the insured that a welding truck which the insured sought to insure and which was later involved in an accident was not covered by the insured's existing policy. Unlike the situation in Westrick, the present case does not involve a failure by respondents to explain any exclusions in the policy.

Both Greenfield and Westrick involved a breach of the general duty owed by the agent to the insured. In Greenfield the court observed that an insurer has a duty to exercise reasonable care in seeking coverage as requested by the insured, and violates that duty by not obtaining the coverage. (Id. 19 Cal.App.3d at p. 811, 97 Cal.Rptr. 164.) In Westrick, based on the insured's prior inquiries regarding coverage of a welding truck under his existing policy and the agent's superior knowledge of the scope of an automatic coverage clause under the policy, the court held the agent had a duty to explain the limiting provisions to the insured. (Id., 137 Cal.App.3d at p. 692, 187 Cal.Rptr. 214.) Westrick's holding reiterates what California courts have recognized for some time, namely, that it is an insurer's duty to inform the insured of his rights and obligations under the policy, particularly when an insured's apparent lack of knowledge may result in a loss of benefits or a forfeiture of rights. (See e.g. Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 428, 158 Cal.Rptr. 828, 600 P.2d 1060; Walker v. Occidental Life Ins. Co. (1967) 67 Cal.2d 518, 523-524, 63 Cal.Rptr. 45, 432 P.2d 741; Hawkins v. Oakland Title Ins. & Guar. Co. (1958) 165 Cal.App.2d 116, 125, 331 P.2d 742.) This obligation is included in the implied duty of good faith and fair dealing which an insurer owes its insured. (Davis v. Blue Cross of Northern California, supra, 25 Cal.3d at pp. 427-428, 158 Cal.Rptr. 828, 600 P.2d 1060.)

The general duty of reasonable care which an insurance agent owes his client does not include the obligation to procure a policy affording the client complete liability protection, as appellants seek to impose here.

The issue we must resolve is whether the complaint has alleged facts from which a special or greater duty could reasonably be inferred. The complaint did not allege the existence of an express agreement creating a broader agency relationship in which respondents were to advise, suggest and procure for appellants liability insurance in an amount sufficient to protect appellants' personal assets and satisfy any judgment against appellants arising out of the latter's negligent acts.

The mere allegation in a complaint, as in this...