Tran v. Farmers Group, Inc.

• Citation: 128 Cal.Rptr.2d 728,104 Cal.App.4th 1202
• Decision Date: 27 December 2002
• Docket Number: No. A093437.,A093437.
• Parties: Ngoc TRAN, Plaintiff and Appellant, v. FARMERS GROUP, INC., et al., Defendants and Respondents.
• Court: California Court of Appeals

128 Cal.Rptr.2d 728

104 Cal.App.4th 1202

Ngoc TRAN, Plaintiff and Appellant, v. FARMERS GROUP, INC., et al., Defendants and Respondents.

No. A093437.

Court of Appeal, First District, Division 3.

December 27, 2002.

Modified on Denial of Rehearing January 27, 2003.

Review Denied March 26, 2003.

Michael J. Kinane, Oakland, Counsel for Appellant.

Ropers, Majeski, Kohn & Bentley; Mark G. Bonino, Rachael A. Campbell, San Jose, Counsel for Respondent.

PARRILLI, J.

This case involves the fiduciary and contractual duties owed to an insured by a reciprocal insurer's attorney-in-fact. The attorney-in-fact acts as the insurer's managerial agent, deriving its authority from a power of attorney executed by the insured. (Insurance Code section 1305; Lee v. Interinsurance Exchange (1996) 50 Cal. App.4th 694, 704, 57 Cal.Rptr.2d 798.) We hold that the attorney-in-fact owes the insured a limited fiduciary duty under the power of attorney. We also hold that the attorney-in-fact may be liable for breach of the covenant of good faith and fair dealing implied in the insurance contract, if the insured can establish the conditions for application of the "alter ego" or "single enterprise" doctrine.

Ngoc Tran appeals from an order sustaining a demurrer without leave to amend and an order granting summary adjudication, which together disposed of all her causes of action against respondents Farmers Group, Inc., Truck Underwriters Association, and Fire Insurance Exchange. A final judgment was entered after the notice of appeal was filed. We shall treat the notice of appeal as filed after the entry of judgment. (Lee Newman, M.D., Inc. v. Wells Fargo Bank (2001) 87 Cal.App.4th 73, 78,104 Cal.Rptr.2d 310.)¹

Respondents accurately point out that Tran's briefing is defective in many respects. We ignore Tran's statement of facts, which is devoid of record references. There are, however, sufficient citations to the record in the body of Tran's argument to allow us to assess the merits of the appeal.² We reverse the judgment, and direct the trial court to overrule the demurrer and deny the motion for summary adjudication as to Farmers Group and Truck Underwriters Association.

BACKGROUND

Farmers Insurance Exchange, Truck Insurance Exchange, and Fire Insurance Exchange are reciprocal insurers operating within the Farmers Insurance Group. (See, e.g., Jade K. v. Viguri (1989) 210 Cal.App.3d 1459, 1470, 258 Cal.Rptr. 907; Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805, 823, 105 Cal.Rptr.2d 59.) While the record is not entirely clear on this point, Farmers Group is attorney-in-fact for at least some of the Farmers Group exchanges. Truck Underwriters Association is attorney-in-fact for Truck Insurance Exchange.³

Tran's first and second amended complaints included causes of action for breach of the covenant of good faith and fair dealing; breach of fiduciary duty; fraud; conspiracy to defraud; and intentional infliction of emotional distress. She alleged the following facts: All the insurance company defendants share the same general management, accounting system, trademarks, and advertising. On December 4, 1996, Farmers Insurance Group agent David Song sold Tran a new commercial insurance policy for her grocery store. Tran increased her coverage from the level in her original policy from Farmers Insurance Exchange, which was issued in November 1995. She signed a loan agreement for an annual premium of $13,505, and paid $2,264.80 for the first two months' installments. Tran did not receive a copy of her policy, and relied on Song's representations that the substantially increased premiums would provide adequate coverage for her business. On December 5, 1996, Tran's store was fire-bombed by an arsonist and nearly burned to the ground. Three other grocery stores in the neighborhood suffered similar attacks.

Tran was unable to get a copy of her policy from defendants after the fire, and the processing of her claim was delayed. On January 30, 1997, defendants produced a Truck Insurance Exchange policy made out to Tran, in which they retroactively altered her premium to $9,279 annually, which reduced Tran's coverage by over $400,000. The fire cost Tran over a million dollars in lost business and property damage. By reducing her coverage after the fire, defendants lowered Tran's coverage to less than half of her actual losses. Furthermore, defendants deducted from Tran's property coverage expenses for asbestos clean-up services that were neither authorized nor justified.

Farmers Group, Truck Underwriters Association, and Fire Insurance Exchange demurred to the cause of action in the first amended complaint for breach of fiduciary duty. The trial court sustained the demurrer without leave to amend. The same defendants moved for summary adjudication of the remaining causes of action in the second amended complaint, contending that because they issued no policies to Tran and did not participate in the adjustment or handling of her claim, they could not be held liable. They relied on declarations by employees of Truck Insurance Exchange and Farmers Insurance Exchange to support these factual claims.

Tran's response to the summary adjudication motion was unintelligible. The court gave her counsel another month to clarify his statement of facts and memorandum of points and authorities. Tran's amended response was somewhat more focused. She presented a Securities and Exchange Commission (SEC) filing explaining the relationship between Farmers Group and the three insurance exchange defendants, referred to as the P & C Group. This filing states that the P & C Group insurers are owned by their policyholders, not by Farmers Group. The policyholders appoint Farmers Group as their exclusive attorney-in-fact to provide management services. "As manager of the P & C Group, the Company selects risks, issues policies, prepares and mails invoices, collects premiums, manages the investment portfolios and performs certain other administrative functions. The insurers of the P & C Group are responsible for the claims functions, including the settlement and payment of claims and claims adjustment expenses. They are also responsible for the payment of commissions, benefits for agents and district managers, and their respective premium and income taxes."

Tran also provided an installment policy payment agreement dated December 4, 1996 showing total premiums of $13,505; a declarations page from a Farmer's Insurance Exchange policy No. 60164-7-70 in her name for the period from December 4, 1996 to December 4, 1997, showing limits of $200,000 for personal property and $60,000 for lost business income, with a corresponding invoice for a premium of $3,974; a Truck Insurance Exchange policy with the same number, for the same period, showing limits of $300,000 for personal property and $60,000 for lost business income with a total premium of $9,279; and another Truck Insurance Exchange policy with the same number, for the same period, showing limits of $400,000 for personal property and $60,000 for business income, with an invoice dated April 3, 1997, reflecting a change in coverage but no total premium amount.

Tran presented deposition excerpts from various Farmers employees. Jeffrey Abston identified himself as an employee of Farmers Insurance Exchange, but explained that he investigated claims on behalf of both Farmers Insurance Exchange and Truck Insurance Exchange. He investigated Tran's claim, and concluded she had nothing to do with the arson. Abston had signed a letter regarding Tran's coverage in his capacity as claims representative for Truck Insurance Exchange, although the letter referred to a Farmers Insurance Exchange policy issued to Tran in December 1996. Abston could only explain this discrepancy by saying he may have made a mistake.

Michelle Mason was a commercial service representative for Farmers Insurance Group in 1996. She testified that she had reinstated Tran's account on December 4, 1996 after speaking with agent David Song. She authorized Song to reinstate the account, and he set it up for a premium of $13,505. Song's normal procedure after receiving a check from an insured would have been to deposit it into a general Farmers account, which Farmers Group would "sweep," taking the money and applying it "to where it belongs." The underwriting department of Farmers Insurance Group made the decision whether a policy was issued by Farmers Insurance Exchange or Truck Insurance Exchange.

Sharon Larsen, a commercial service team manager employed by Farmers Group, testified that she understood neither Farmers Insurance Exchange nor Truck Insurance Exchange had any employees of their own. Larsen identified Truck Underwriters Association as "the management company for the exchanges," though to her knowledge it also had no employees of its own. Employees of Farmers Group would issue policies on behalf of the exchanges, acting as the exchanges' representatives, and following guidelines provided by the exchanges. However, Larsen acknowledged that all the guidelines were generated by the home office of Farmers Group. An analyst or underwriter on Larsen's team would decide whether to insure a particular person or business, and which exchange would issue the policy. The agent would initially bind the insured to certain policy limits, then the analyst or underwriter would verify that the limits were available and acceptable. Both the underwriter and the agent had a responsibility to make sure the policyholder was carrying adequate insurance.

Larsen could not explain why her group's computer generated policies for Tran from both Farmers Insurance Exchange and Truck Insurance Exchange for the same period; she had never seen that happen before. She testified that David Song was an agent authorized to represent all the Farmers insurance companies.

In her points and authorities, Tran argued the defendants were so inter-related that they all shared...