Stop Loss Ins. Brokers v. Btmg

• Decision Date: 06 October 2006
• Docket Number: No. A110074.,A110074.
• Citation: 143 Cal.App.4th 1036,49 Cal.Rptr.3d 609
• Court: California Court of Appeals Court of Appeals
• Parties: STOP LOSS INSURANCE BROKERS, INC., et al., Cross-Complainant and Appellant, v. BROWN & TOLAND MEDICAL GROUP, Cross-Defendant and Respondent.

49 Cal.Rptr.3d 609

143 Cal.App.4th 1036

STOP LOSS INSURANCE BROKERS, INC., et al., Cross-Complainant and Appellant, v. BROWN & TOLAND MEDICAL GROUP, Cross-Defendant and Respondent.

No. A110074.

Court of Appeal, First District, Division 3.

October 6, 2006.

Jones, Bell, Abbott, Fleming & Fitzgerald, Michael J. Abbott, John L. Erikson, Jr., William M. Turner and Jill M. Buresh, Los Angeles, for Cross-complainant and Appellant.

Hanson, Bridgett, Marcus, Vlahos & Rudy, Michael A. Duncheon and Jahmal T. Davis, San Francisco, for Cross-defendant and Respondent.

McGUINESS, P.J.

After it was sued for breach of contract and negligence by the Regents of the University of California (Regents), Stop Loss Insurance Brokers, Inc. (Stop Loss) filed a cross-complaint for comparative indemnity against Brown & Toland Medical Group (BTMG). Following two rounds of amendments, the trial court sustained a demurrer to the cross-complaint without leave to amend. We affirm the judgment.

BACKGROUND

As operator of the University of California at San Francisco Medical Center (UCSF Medical Center), the Regents participated in a capitated health care program, through which they contracted with various health care plans to provide services for patients in exchange for fixed, or "capitated," payments. Such payments were made to the Regents through BTMG, and UCSF Medical Center was a designated hospital provider for BTMG plan members. Hospitals participating in this capitated health care program were required to carry insurance coverage for charges exceeding a fixed amount. In March 2000, the Regents sought bids from insurance brokers to obtain the necessary insurance coverage. Shortly thereafter, the Regents retained Stop Loss and instructed it to procure a $1 million per-claim insurance policy.

Under the policy Stop Loss procured, the Regents were required to notify the insurer of any potential and actual claims exceeding 50 percent of the policy's deductible. BTMG and Stop Loss worked together to provide this information to the insurer on a monthly basis. Every month, BTMG analyzed the Regents' claims to identify the ones that required notice to the insurer. BTMG sent this information to Stop Loss, and Stop Loss prepared the necessary claims forms. Stop Loss then sent the forms to BTMG for approval, and, once approved, BTMG forwarded the forms to the insurer for payment.

In 2001, a new insurance policy Stop Loss had procured expressly precluded coverage for any preexisting claim not disclosed by the Regents. The Regents signed a binder that purported to disclose all reportable claims, but unbeknownst to them the binder did not include a disclosure of the claim made by a BTMG plan member who had been repeatedly hospitalized for renal failure. When this patient's claim was submitted to the insurer for payment later in 2001, it was denied.

On October 6, 2003, the Regents filed a complaint against Stop Loss for breach of contract and negligence. The Regents alleged BTMG had submitted timely information to Stop Loss about the patient's renal failure claim but Stop Loss failed to prepare the form for reporting it in a timely fashion. As a result, the complaint claimed Stop Loss breached its contractual agreement with the Regents and also breached its professional duty of care as the Regents' insurance broker, causing the Regents to suffer a loss of over $1 million in unreimbursed expenses for the claim.

Stop Loss answered the complaint and filed a cross-complaint against BTMG. After the trial court sustained a demurrer to this pleading, Stop Loss filed a second amended cross-complaint against BTMG for comparative equitable indemnity and declaratory relief. In it, Stop Loss described the procedure it had established with BTMG to report claims to the Regents' insurer, though it noted this system "was not established pursuant to a contract."¹ Because BTMG knew its failure to analyze claims properly and submit information to Stop Loss in a timely fashion could result in the denial of insurance coverage for such claims, the cross-complaint alleged "BTMG owed a duty to [the Regents] to analyze claims properly, provide claims information to Stop Loss timely, and submit claim forms to the reinsurer timely." (Fn.omitted.) Stop Loss alleged BTMG breached this duty to the Regents because it did not make Stop Loss aware of the subject claim until well after the Regents had signed the disclosure form for the new insurance policy. As a result, the cross-complaint claimed BTMG was obligated to partially or fully indemnify Stop Loss for any damages it might be compelled to pay to the Regents. The trial court sustained a demurrer to Stop Loss's second amended cross-complaint without leave to amend, noting the cross-complaint "fail[ed] to state sufficient facts to give rise to a duty owed by BTMG to [the Regents] sounding in tort." This appeal followed.

DISCUSSION

"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. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

It is well-settled in California that equitable indemnity is only available among tortfeasors who are jointly and severally liable for the plaintiff's injury. (Leko v. Cornerstone Bldg. Inspection Service (2001) 86 Cal.App.4th 1109, 1115, 103 Cal.Rptr.2d 858; Munoz v. Davis (1983) 141 Cal.App.3d 420, 425, 190 Cal.Rptr. 400.) With limited exception, there must be some basis for tort liability against the proposed indemnitor. (Munoz v. Davis, supra, 141 Cal.App.3d at p. 425, 190 Cal. Rptr. 400.) "Generally, it is based on a duty owed to the underlying plaintiff [citations], although vicarious liability [citation] and strict liability [citation] also may sustain application of equitable indemnity. In addition, implied contractual indemnity between the indemnitor and the indemnitee can provide a basis for equitable indemnity. [Citation.]" (BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004) 119 Cal.App.4th 848, 852, 14 Cal.Rptr.3d 721.)²

The cross-complaint here does not allege vicarious or strict liability, nor an implied contractual obligation for BTMG to indemnify Stop Loss. Rather, after describing the process by which BTMG and Stop Loss analyzed claims and gave notice to the insurer, and alleging BTMG understood the consequences that could result from the failure to disclose a qualifying claim to the insurer, the cross-complaint simply asserts "BTMG owed a duty to Plaintiff [the Regents] to analyze claims properly, provide claims information to Stop Loss timely, and submit claims forms to the reinsurer timely." Asserting this legal conclusion does not make it so, however. The question is whether, with respect to the claims analysis, BTMG owed the Regents a duty of care sounding in tort. While the cross-complaint alleges that "BTMG . . . assumed and understood its duties" under the parties' system for disclosing claims, this obligation could only have arisen out of the business relationship between BTMG and the Regents. The law imposes no duty on strangers to promptly process another's data that is comparable to the duty imposed on all persons to exercise due care to avoid injuring others. (See, e.g., Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 59, 77 Cal.Rptr.2d 709, 960 P.2d 513 ["With rare exceptions, a business entity has no duty to prevent financial loss to others with whom it deals directly"].) At most, if BTMG assumed a duty to process claims in a timely fashion, and the Regents relied on BTMG to do so, BTMG's performance was undertaken pursuant to an implied contract.

"A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations. Instead, `"[c]ourts will generally enforce the breach of a contractual promise through contract law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies."' [Citation.]" (Aas v. Superior Court (2000) 24 Cal.4th 627, 643, 101 Cal.Rptr.2d 718, 12 P.3d 1125, superseded by statute on another ground as stated in Rosen v. State Farm General Ins. Co. (2003) 30 Cal.4th 1070, 1079-1080, 135 Cal. Rptr.2d 361, 70 P.3d 351.) Despite the cross-complaint's use of negligence terminology, the alleged misconduct by BTMG describes, at most, a breach of contract, not a breach of a legal duty of care. In short, "This is an improper attempt to recast a breach of contract cause of action as a tort claim. Nor is there any social policy that would demand resort to tort remedies. Without any action sounding in tort, there is no basis for a finding of potential joint and several liability on the part of [cross-]defendant[BTMG], thereby precluding a claim for equitable indemnity." (BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc., supra, 119 Cal.App.4th at p. 853, 14 Cal.Rptr.3d 721.)

Nevertheless, Stop Loss argues a duty of care on the part of BTMG can be inferred from the factors outlined in Biakanja v. Irving (1958) 49 Cal.2d 647, 650, 320 P.2d 16 (Biakanja), and...