Kurtz, Richards, Wilson & Co. v. Insurance Communicators Marketing Corp., No. B056950

• Decision Date: 27 January 1993
• Docket Number: No. B056950
• Citation: 16 Cal.Rptr.2d 259,12 Cal.App.4th 1249
• Parties: , 16 Employee Benefits Cas. 2210 KURTZ, RICHARDS, WILSON & CO., INC., Cross-Complainant and Appellant, v. INSURANCE COMMUNICATORS MARKETING CORPORATION, et al., Cross-Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

Page 259

16 Cal.Rptr.2d 259

12 Cal.App.4th 1249, 16 Employee Benefits Cas. 2210

KURTZ, RICHARDS, WILSON & CO., INC., Cross-Complainant and Appellant, v. INSURANCE COMMUNICATORS MARKETING CORPORATION, et al., Cross-Defendants and Respondents.

No. B056950.

Court of Appeal, Second District, Division 4, California.

Jan. 27, 1993.

As Modified Feb. 5, 1993.

Review Denied April 22, 1993.

Pillsbury Madison & Sutro, Matthew A. Schumacher, Teri L. Paul and John Y. Liu, Los Angeles, for cross-complainant and appellant.

Hart, King & Coldren and Michael J. Schroeder, Santa Ana, for cross-defendants and respondents.

EPSTEIN, Associate Justice.

Kurtz, Richards, Wilson & Co., Inc., (KRW) appeals from a judgment that it takes nothing on its cross-complaint against respondents, entered after a demurrer was sustained without leave to amend as to two causes of action and summary judgment was granted as to the remaining cause of action. We reverse the judgment and remand the case to the trial court with directions to sustain the demurrer with leave to amend and to deny the motion for summary judgment.

FACTUAL AND PROCEDURAL SUMMARY ¹

In 1985, as part of its search for group medical, life, and accident insurance for its employees, KRW contacted respondents Insurance Communicators Marketing Corporation (ICMC) and William Hoge, ICMC president. Through them, KRW obtained a policy from Union Central Life Insurance Company (Union). KRW's officers and employees were not knowledgeable in the field of medical, life, and accident insurance, and throughout the process of obtaining insurance they relied on ICMC and Hoge, who held themselves out as expert brokers and agents in the field. ICMC and Hoge were insurance brokers for Union.

As part of the process of applying for the Union policy, KRW treasurer Howard Wilson signed a "Certification of Non-Applicability of Medicare Provisions of TEFRA to a Group Plan" (the TEFRA certificate) which, according to the complaint, stated " 'we believe that our group plan is not subject to the Medicare provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).' " The Medicare provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (42 U.S.C. § 1395y) make a company's private medical insurance primary to Medicare if the company has more than 20 employees.

Before signing the TEFRA certificate, Wilson asked Hoge what it meant. Hoge advised Wilson that KRW was not subject to the Medicare provisions of TEFRA and urged him to sign the certificate. Wilson signed the certificate in reliance on the expertise of ICMC and Hoge.

Also as part of the application process, ICMC and Hoge informed Union that KRW had only 12 employees, although KRW had truthfully informed ICMC and Hoge that KRW had 30 employees.

In 1987, large claims were made against the Union policy due to the serious illness of a KRW employee. Union paid some of the claims, then informed KRW that it was not required to pay for the employee's treatment. Late in 1987, Union cancelled the policy and later demanded that KRW reimburse it for amounts it had paid under the policy. In March 1989, Union sued KRW seeking rescission of the policy, reimbursement for all benefits paid, and punitive damages. Union's claims were based on its contention that KRW's TEFRA certificate was inaccurate, and that KRW had led Union to believe that its policy would be secondary to Medicare coverage.

KRW filed a cross-complaint against Union, ICMC, and Hoge. Its second amended cross-complaint is the charging pleading for purposes of this appeal. Against Union, KRW alleged breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, and unfair business practices under Business and Professions Code section 17200 et seq. KRW's causes of action against ICMC and Hoge were for fraud, negligent misrepresentation, and negligence. ²

KRW alleged that it had been damaged "in that it has lost the insurance protection it paid for; its officers and employees have been forced to expend time and effort searching for new insurance and defending KRW against Union's action; its officers, including Howard Wilson, have been harassed and, in Wilson's case, sued; it has been forced to incur legal costs and other expenses in connection with this action; its creditworthiness has been injured; it has been exposed to potential liability in this action; and in other ways has suffered both general and special damages."

In the actions between KRW and Union, summary judgments were granted against each party as plaintiff. KRW's summary judgment apparently was granted on the ground that Union's lawsuit was barred by an incontestability clause in the policy. Union's motion was granted on the basis that the Employee Retirement Income Security Act of 1974, 29 United States Code section 1001 et seq. (ERISA) preempted the action.

ICMC and Hoge demurred to all causes of action in KRW's cross-action against them. The demurrer was sustained as to each cause of action except that for fraud. Later, the trial court granted a motion for summary judgment as to the fraud cause of action, and entered a judgment that KRW take nothing on its cross-complaint.

DISCUSSION

I

"In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law....' (Serrano v. Priest [, supra, ] 5 Cal.3d 584, 591, 96 Cal.Rptr. 601, 487 P.2d 1241....) Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Speegle v. Board of Fire Underwriters (1946) 29 Cal.2d 34, 42, 172 P.2d 867....) When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. (See Hill v. Miller (1966) 64 Cal.2d 757, 759, 51 Cal.Rptr. 689, 415 P.2d 33....)" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) Tested by these standards, we find that KRW's cross-complaint states causes of action against both ICMC and Hoge for negligence and negligent misrepresentation.

The demurrer challenged the sufficiency of the allegations of duty and proximate cause. As to the claims against Hoge, whom respondents described as "merely the president of ICMC," the supporting papers for the demurrer argued that the cross-complaint was fatally unclear as to the wrongdoing attributed to Hoge as an individual.

On the element of duty, respondents argued that KRW had not and could not allege that ICMC or Hoge had breached any duty to KRW, because an insurance agent who is known to the insured to be an agent of the insurance company has no duty to the insured, but only to the insurer. Even if that were a correct statement of the law, the demurrer was improperly granted, since the complaint does not allege that the relationship of ICMC and Hoge to Union was disclosed to KRW, but only that it existed. More importantly, it is not a correct statement of the law.

At a minimum, an insurance agent has a duty to use reasonable care, diligence, and judgment in procuring the insurance requested by its client. An agent may assume additional duties by an agreement or by holding himself or herself out as having specific expertise. (Jones v. Grewe, supra, 189 Cal.App.3d at p. 954, 234 Cal.Rptr. 717.) These duties do not disappear because the agent is also an agent for an insurer. Dual agencies are not uncommon, and do not negate the agent's duty to the client. (See Westrick v. State Farm Insurance (1982) 137 Cal.App.3d 685, 187 Cal.Rptr. 214 and Greenfield v. Insurance Inc. (1971) 19 Cal.App.3d 803, 97 Cal.Rptr. 164 [agents of the insurer held to have duty of care to the insured]; 16 Appleman, Insurance Law and Practice (1981) § 8736, pp. 411-412; and 16A Appleman, supra, § 8841, pp. 180, 185.)

KRW's cross-complaint alleges that ICMC and Hoge were agents for Union, but it also alleges facts that if true would establish that they entered into a relationship with KRW which gave rise to a duty of care, including a special duty assumed when they held themselves out as experts on TEFRA.

Lippert v. Bailey (1966) 241 Cal.App.2d 376, 50 Cal.Rptr. 478, a case cited by ICMC and Hoge in support of their claim that they owed no duty to KRW, is in accord. That case holds that an insurance agent's liability for negligence in procuring insurance is dependent on the disclosure of any agency relationship with the insurer. Where the agent contracts in the name of the insurer and does not exceed that authority, the insurer is liable, and not the agent. Here, as in Lippert, a dual agency is alleged, and here, as in Lippert, the existence of a dual agency is a question for the trier of fact. (Id. at pp. 382-383, 50 Cal.Rptr. 478.) If a dual agency exists, the law does not foreclose recovery by the insured.

When an insurance agent deliberately misrepresents a material fact in an application for insurance presented on behalf of a client who is unaware of the misrepresentation, the agent breaches the duty of reasonable care owed to the client. This is true whether or not those actions might also constitute a breach of a duty owed by the agent to the insurer. The cross-complaint thus states a cause of action for negligence.

The cause of action for negligent misrepresentation is based on the allegation that, through negligence, ICMC and Hoge represented to KRW that it was not subject to the Medicare provisions of TEFRA, when in fact KRW was subject to that law. Such a material false statement would violate both the general duty to use reasonable care and judgment in procuring insurance, and the special duty ICMC and Hoge allegedly took on as TEFRA experts. The complaint thus states a cause of action for negligent misrepresentation. (See Eddy v. Sharp (1988) 199 Cal.App.3d 858, 864, 245 Cal.Rptr. 211.)

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