Newell v. State Farm Gen. Ins. Co., B157114.

• Decision Date: 26 April 2004
• Docket Number: No. B157114.,B157114.
• Citation: 118 Cal.App.4th 1094,13 Cal.Rptr.3d 343
• Court: California Court of Appeals Court of Appeals
• Parties: Diane NEWELL et al., Plaintiffs and Appellants, v. STATE FARM GENERAL INSURANCE CO. et al., Defendants and Respondents.

13 Cal.Rptr.3d 343

118 Cal.App.4th 1094

Diane NEWELL et al., Plaintiffs and Appellants, v. STATE FARM GENERAL INSURANCE CO. et al., Defendants and Respondents.

No. B157114.

Court of Appeal, Second District, Division 7.

April 26, 2004.

Rehearing Denied June 15, 2004.

Review Denied August 11, 2004.

Law Offices of Gretchen M. Nelson and Gretchen M. Nelson, Los Angeles; Levy, Ram & Olson and Karl Olson, San

Francisco; Girardi & Keese, Thomas V. Girardi and Robert M. Keese, Los Angeles; Alexander, Hawes & Audet, William M. Audet and Ryan M. Hagan, San Jose; Law Offices of Stephen C. Ball and Stephen C. Ball, Pasadena; Law Offices of George Hernandez and George Hernandez, Oakland, for Plaintiffs and Appellants.

Sedgwick, Detert, Moran & Arnold, Christina J. Imre and Robert M. Brava-Partain; Robie & Mathai, James R. Robie and Natalie A. Kouyoumdjian, Los Angeles, for Defendant and Respondent State Farm General Insurance Company.

Barger & Wolen, Steven H. Weinstein and Richard G. De La Mora, Los Angeles, for Defendants and Respondents Farmers Insurance Exchange and Mid-Century Insurance Company.

PERLUSS, P.J.

Plaintiffs, proposed class representatives, appeal from the trial court's order sustaining a demurrer without leave to amend to the class action allegations in their complaint against their homeowners' insurance carriers regarding claims for policy benefits for damages incurred by the Northridge earthquake. The trial court found there was no reasonable possibility plaintiffs could satisfy the community of interest requirement for class certification and class treatment was not the superior method for resolving the litigation. We agree and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Lawsuit and Class Allegations

The named plaintiffs in the operative third amended complaint are homeowners who were insured, including earthquake insurance, at the time of the Northridge earthquake. Diane Newell, individually and as a proposed class representative, brings suit against Farmers Insurance Exchange and Mid-Century Insurance Exchange (collectively, Farmers), and Maria Parra and Barbara Inkman, individually and as proposed class representatives, bring suit against State Farm General Insurance Company.¹ The named plaintiffs allege with respect to their insurance carrier that they and members of the class they propose to represent were wrongfully denied policy benefits for damage caused to their homes by the Northridge earthquake. Through causes of action for declaratory relief, breach of contract, breach of the implied covenant of good faith and fair dealing and unfair competition pursuant to Business and Professions Code section 17200, plaintiffs seek compensatory and punitive damages, injunctive relief, attorney fees, prejudgment interest and costs.

The complaint is divided into subclasses, one against Farmers and one against State Farm. Each subclass consists of: "All persons and entities who had or have an ownership interest in a residential structure that was insured under an earthquake insurance policy with the [insurer defendant] and who submitted a claim for damages to said residential structure arising out of the Northridge Earthquake and (a) the claim was reduced or denied based upon depreciation reductions and/or the [insurer defendant] failed to explain the depreciation reductions; (b) who were denied benefits based upon the contention that the damages were below the class member's deductible; (c) the [insurer defendant] failed to provide a written factual basis for the denial or reduction of the claim; (d) the [insurer defendant] failed to explain in writing the available coverage; and/or (e) who still have pending an unresolved claim with the [insurer defendant] on their earthquake policy for damage arising from the Northridge Earthquake. The class is comprised of those individuals who were not represented by counsel and which counsel signed a written compromised settlement agreement between the class member and the [insurer defendant], and which counsel was admitted to the practice of law in California at the time of the settlement."²

The named plaintiffs allege they meet the requirements for class certification because (1) the members of each subclass are so numerous that joinder is impracticable; (2) common questions of law and fact as to all proposed class members predominate over questions affecting only individual class members; (3) the claims of the proposed class plaintiffs are typical of those of each putative class member; (4) the proposed class plaintiffs are adequate representatives; and (5) a class action is the superior method to resolve the litigation because individual lawsuits would be burdensome and expensive for both the parties and the judicial system. According to the named plaintiffs the common issues include the practices and procedures used by Farmers and State Farm in settling Northridge earthquake claims.

2. The Demurrer to the Class Action Allegations and the Trial Court's Ruling

State Farm filed a demurrer to the class action allegations in the third amended complaint, contending plaintiffs could not satisfy the commonality or superiority requirements for certification; and Farmers joined in the demurrer. The trial court sustained the demurrer without leave to amend, ruling, although plaintiffs have claims typical of the proposed class and are adequate representatives, they "have not, and cannot sufficiently allege a prima facie `community of interest.'" The court found "resolution of the `common questions' alleged in [the complaint] would require the Court to make individualized determinations as to the Insurer Defendants' liability as to each putative class member. For all practical purposes, the `common questions' alleged in [the complaint] would not predominate over individual issues in the litigation" and, therefore, "a class action would not be the superior means of resolving this dispute." The court "reache[d] this finding after numerous discussions in the instant matter and after hearing six class certification motions, for which full class discovery was afforded, in other Northridge Earthquake cases involving the same Plaintiffs' counsel or equally competent counsel." (Fn.omitted.)

Plaintiffs filed a timely notice of appeal. (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435, 97 Cal.Rptr.2d 179, 2 P.3d 27 ["denial of certification to an entire class is an appealable order"] (Linder).)³

CONTENTION

Plaintiffs contend the trial court erred by sustaining without leave to amend the demurrer to their class action allegations because there is a reasonable possibility they can meet the requirements for class action certification.

DISCUSSION

1. Standard of Review

In an appeal based on an order sustaining a demurrer without leave to amend, "[t]he reviewing court gives the complaint a reasonable interpretation and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.]" (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967, 9 Cal.Rptr.2d 92, 831 P.2d 317.)

"`Where the complaint is defective, "[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his complaint, and it ordinarily constitutes an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment. [Citations.]"' [Citations.]" (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 970-971, 9 Cal.Rptr.2d 92, 831 P.2d 317.) The plaintiff has the burden to demonstrate how he or she can amend the complaint to change the legal effect of the pleading. (Wilner v. Sunset Life Ins. Co. (2000) 78 Cal.App.4th 952, 959, 93 Cal.Rptr.2d 413; see also Goodman v. Kennedy (1976) 18 Cal.3d 335, 349, 134 Cal.Rptr. 375, 556 P.2d 737 [plaintiff must show "in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading"].) "[L]eave to amend should not be granted where ... amendment would be futile." (Vaillette v. Fireman's Fund Ins. Co. (1993) 18 Cal.App.4th 680, 685, 22 Cal.Rptr.2d 807.)

2. The Trial Court Properly Sustained a Demurrer Without Leave to Amend to Plaintiffs' Class Action Allegations

a. Requirements for Certification of a Class Action

Class actions are statutorily authorized "when the question is one of common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court...." (Code Civ. Proc., § 382.) "The certification question is `essentially a procedural one that does not ask whether an action is legally or factually meritorious.' [Citation.]" (Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096, 1104, 131 Cal.Rptr.2d 1, 63 P.3d 913 (Lockheed Martin).) "`Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification.' [Citation.]" (Id. at p. 1106, 131 Cal.Rptr.2d 1, 63 P.3d 913.)

"`The burden is on the party seeking certification to establish the existence of both an ascertainable class and a well-defined community of interest among the class members.' [Citation.]" (Lockheed Martin, supra, 29 Cal.4th at p. 1104 131 Cal.Rptr.2d 1, 63 P.3d 913.) "`The community of interest requirement ... embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.' [Citation.]" (Ibid.) "`[T]his means "each member must not be required to individually litigate numerous and substantial questions to determine his [or her] right to recover following the class judgment; and the issues which may be jointly tried, when compared with those...