Opinion
No. C 01-01553 WIIA
June 25, 2001
ORDER GRANTING MOTION TO REMAND TO SAN FRANCISCO SUPERIOR COURT, DENYING MOTION FOR ATTORNEY'S FEES, AND CLOSING TIIE FILL.
INTRODUCTION
Defendant The Equitable Life Assurance Society of the United States removed this matter to federal court based on diversity jurisdiction pursuant to 28 U.S.C. § 1332 and 1441. Plaintiff Bonnie Sun seeks to remand the case on grounds that complete diversity did not exist at the time the action was filed. Plaintiff also seeks an award of attorney's fees. Plaintiffs motion to remand is GRANTED because plaintiff has properly alleged causes of action for negligence and negligent misrepresentation for which defendant Stewart M. Miller, a resident of the State of California like plaintiff, may be held personally liable. The essence of the claim is that Mr. Miller misrepresented the true scope of the disability policy he sold plaintiff and that he acted beyond the normal scope of his employment as an agent for the insurance company. Plaintiffs request for attorney's fees is DENIED because Equitable has presented more than a colorable basis for removal.
Plaintiff was issucd a disability insurance policy by Equitable on September 1, 1988. Plaintiff alleges that the policy provides "own occupation" coveragc to age 55 (Compl. ¶ 26). In June of 1989, plaintiff made a claim for total disability, and Equitable began paying plaintiff benefits under the policy. In July of 2000, plaintiff submitted to a medical examination at the request of Equitable. Based on the results of this examination, Equitable determined that plaintiff was no longer totally disabled for purposes of her policy and notified her by letter dated September 5, 2000, that it planned to discontinue providing benefits.
On March 22, 2001, plaintiff filed a complaint in San Francisco Superior Court alleging, inter alia, that Mr. Millert sold the policy to plaintiff and that he had been acting "either as an individual or as an agent, representative or employee of the remaining defendants" (Compl. ¶ 2). The Complaint also alleged that Mr. Miller held himself out to plaintiff as an expert (Compl. ¶ 25); that Mr. Miller represented that plaintiff "would be covered if she became disabled from her occupation as a dental hygienist to age 65" (Compl. ¶ 25); and that Mr. Miller, despite his knowledge thereof; failed to apprise plaintiff that "as a condition of paying disability benefits, Equitable would require that such disability be supported and corroborated by what Equitable would determine to be objective evidence and would disregard any and all information supporting and establishing her disability that was subjective in nature" (Compl. ¶ 35). Although the complaint is silent as to plaintiffs age, at oral argument, both sides agreed that she is around 50 years of age but not yet 55. As an element of damages, plaintiff pursues all future benefits for the life of the policy all her future disability benefits through age 65. Equitable removed the case herein, arguing that Mr. Miller is a sham defendant and that plaintiff joined him solely for the purpose of defeating diversity (Opp. 2). Defendant relied tile fact that plaintiff pursues all future benefits to satisfy the $75,000 required for diversity jurisdiction. On May 17, 2001, plaintiff filed a motion to renland tile case to state court.
ANALYSIS
In order to avoid remand, a defendant must prove fraudulent joinder, i.e., that a plaintiff has named defendants against whom no cause of action lies and their joinder defeats diversity jurisdiction. McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). A defendant is fraudulently joined when there is no possibility that the plaintiff will succeed in establishing his or her liability. Good v. Prudendal his. Co. of Am., 5 F. Supp. Cd 804, 807 (N.D. Cal. 1998). A defendant bears the burden of establishing fraudulent joinder. McCabe, 811 F.3d at 1339. Doubts as to removability are resolved in favor of remand. Gaus v. Miles, 980 F.2d 564, 566 (9th Cir. 1992). Equitable contends that Mr. Miller is a "sham defendant" on two grounds: (1) Mr. Miller cannot be liable for any wrongdoing alleged in the complaint because he acted within the course and scope of his agency with Equitable (Opp. 2); and (2) plaintiffs negligent misrepresentation and negligence causes of action are time-barred (Opp. 6-7). "This order will address each argument in turn.
Mr. Miller's Personal Liability
Equitable argues that Mr. Miller was acting in the scope of his employment with Equitable and therefore cannot be held personally liable (Opp. 2). Under California law, an agent of an insurance company acting within the course and scope of its agency cannot be held liable to the insured. Lippert v. Bailey, 241 Cal.App.2d 376, 382, 50 Cal.Rptr. 478, 481-82 (1966). One California Court of Appeal, however, identified three exceptions to the general rule announced in Lippert. An agent may assume a greater duty towards his insured by (1) entering into "an express agreement to ensure adequate coverage"; (2) "a holding out by the agent to assume a greater duty toward an insured"; and by (3) "misrepresenting the policy's terms or extent of coverage." Paper Savers, Inc. v. Nacsa, 51 Cal.App.4th 1090, 1097, 59 Cal.Rptr.2d 547, 551 (1996). California courts have held that an insurance agent may be personally liable for a violation of this greater duty: Butcher v. Truck Insurance Exchange, 77 Cal.App.4th 1442, 1465, 92 Cal.Rptr.2d 521, 538 (2000) (insurance agent could be held liable for negligent misrepresentation where agent misled insured into believing policy provided coverage it did not); Eddy v. Sharp, 199 Cal.App.3d 858, 866, 245 Cal.Rptr. 211, 214 (1998) (insurance agent that deliberately assumed responsibility for finding policy to specifically suit insured's needs had assumed special duty and could be liable for negligent misrepresentation); Clement v. Smith, 16 Cal.App.4th 39, 45, 19 Cal.Rptr.2d 676, 679 (1993) (judgment against insurance agent for negligently misrepresenting scope of coverage under policy upheld); JVeslrick V. Stale Farm Insurance, 137 Cal.App.3d 685, 692-93, 187 Cal.Rptr. 214, 219 (1982) (based on insurance agent's superior knowledge and insured's inquiries, agent could be held liable for negligence in failing to apprise insured that truck would not be covered under exisiting policy).
While plaintiff has made allegations falling within all of the exceptions stated in Paper Savers, this order needs only address the sufficiency of one — Mr. Miller's negligent misrepresentation of the scope of coverage under plaintiff;s policy. Plaintiff's complaint contains allegations sufficient to show that the instant case falls squarely within this exception. The complaint alleges that while Mr. Miller allegedly "represented to plaintiff that she would be covered is she became disabled and unable to practice her occupation as a dental hygienist to age 65," Equitable has "denied that Plaintiff would be entitled to disability benefits based upon her inability to perform her own occupation as a dental hygienist beyond the age of 55, at which time it claims she would need to be disabled from any other occupation for benefits to be payable to age 65" (Compl. ¶¶ 25, 26). Plaintiff's complaint also alleges that Mr. Miller's misrepresentations included a failure to apprise plaintiff of key aspects of her coverage: "MILLER failed to apprise Plaintiff that EQUITABLE would require Plaintiffs disability to be supported and evidenced by objective evidence and that in processing any claim for benefits would disregard subjective symptoms of disability as well as the opinions and conclusions of their treating physician supporting disability, which information MILLER concealed from Plaintiff despite his knowledge thereof' (Compl. ¶ 25). Significantly, at the hearing of plaintiff's motion to remand, Equitable refused to concede that it would admit liability for any and all of Mr. Miller's alleged misrepresentations.
In a footnote, Equitable attempts to distinguish Paper Savers, Westrick, and Butcher. Paper Savers, maintains Equitable, involved "a special duty to ensure coverage based on an alleged affirmative assertion made to induce the insured to purchase the policy" and is "outside of the ordinary general duty of care cases because there the agent "actively misled' the insured as to the effect of policy terms" (Opp. 6, n. 3). Equitable argues that the instant case is distinguishable because the complaint contains no allegation that Mr. Miller's failure to apprise plaintiff was an active attempt to mislead plaintiff (Opp. 6, n. 3). Plaintiffs complaint, however, alleges an affirmative misrepresentation that, as in Paper Savers, can be understood as an inducement to purchase the policy: while Mr. Miller allegedly represented that plaintiffs policy provided own occupation coverage to age (5, Fqiiitahle now allcgc(lhy coverage is provided only until age 55 (Compl. ¶¶ 25, 26).
Equitable also argues that Westrick and Butcher require that "an insured I ask] the agent a specific question regarding coverage, or [ask] the agent for a specific type of coverage, and the agent [fail] to provide a response or falsely [respond] thereto" (Opp. 6, n. 3). While Westrick and Butcher may require that insured ask a specific question, Equitable fails to address Eddy, Clement, or Paper Savers, which all held that an agent may assume a greater duty and be held personally liable for merely negligently misrepresenting the scope of coverage under a policy. Equitable has failed to demonstrate that there is no possibility that plaintiff can hold Mr. Miller liable.
Equitable also cites eight district court decisions in which an insurance agent was found to be fraudulently joined: Griffen v. Allstate his. Co., No. CV-9502537 RG RMCX, (C.D. Cal. 1995); Good v. Prudential Ins., Co. of America, 5 F. Supp. 233 (N.D. Cal. 1998); Gasnik v. State Farm Ins. Co., 825 F. Supp. 245 (E.D. Cal. 1992); Charlin v. Allstate Ins. Co., 19 F. Supp.2d 1137 (C.D. Cal. 1998); Cobarrubias v. Allstate his. Co., No. CV-98-4136 R CWX, 1998 WL 656571 (C.D. Cal. 1998); Kuebler v. Allstate Ins. Co., No. CV-98-2667 JMI JGX, 1998 WL 596733 (C.D. Cal. 1998); Duffy v. Allstate Ins. Co., No. SACV 97-231 -6LT (ANX), 1997 WL 809639 (C.D. Cal. 1997); Campbell v. Allstate Ins. Co., No. CV-95-1171-WDK, 1995 WL 376926 (C.D. Cal. 1995). Each decision correctly quotes Lippert for the proposition that an agent of an insurance company, acting within the scope of its agency, cannot be held liable to an insured. In seven of these eight cases cited by Equitable, however, the plaintiffs complaint clearly alleged that the defendant insurance agent was an employee of the insurance company and acted within the scope of his employment. The instant complaint alleges that Mr. Miller acted "either as an individual or as an agent" (Compl. ¶ 2). Specifically, the complaint alleges facts (e.g., Mr. Miller held himself out as an expert, misrepresented the scope of the coverage under the policy, and failed to apprise plaintiff of key aspects of this coverage) that create the possibility that Mr. Miller went beyond the scope of Equitable's agency (Compl. 25). The remaining case cited by Equitable is not on point because the insurance agent in Gasiiik was party to an express agreement with his agency whereby the agency promised to accept responsibility for his acts regardless of whether these acts where within or beyond the scope of employment. Gasnik, 825 F. Supp. at 249.
Equitable also attempts to argue that Mr. Millet was actittg witimiti time scope ol his employment by referring to the language of plaintiffs complaint itself:
Defendant STEWART M. MILLER ("MILLER") is an insurance agent residing in California. MILLER was, at all times, acting either as an individual or as an agent, representative or employee of the remaining defendants and, in such capacity, was acting in the course and scope of said employment and/or agency (Compl. ¶ 2).
Equitable interprets this allegation to "involve and relate to his [Mr. Miller's] actions taken within the course and scope of his agency with the Equitable" and to entail that all of the alleged misrepresentations and omissions attributed to Mr. Miller "relate solely to Miller's efforts in selling the Policy in connection with his agency with The Equitable" (Opp. 4). Plaintiff, however, is merely pleading in the alternative, i.e., alleging that Mr. Miller either acted as an individual or acted as an agent in the scope of his employment with Equitable.
Equitable argues that Mr. Miller was acting within the scope of his employment based on references contained in paragraphs 28, 29, and 30 of the complaint. There, Equitable argues, plaintiff alleges the elements of negligent misrepresentation and, in doing so, makes reference to "Defendants," i.e., Mr. Miller and Equitable acting together (Opp. 4-5). The paragraphs in question, however, were part of a section of the complaint entitled "Negligent Misrepresentation (against Mr. Miller and Does 11-20)" (Compl. ¶ 7). Such references were clearly to Mr. Miller and Does 11-20, not Mr. Miller and Equitable.
Statute of Limitations
In California, the statute of limitations for a deceit-based claim, such as negligent misrepresentation, is three years. Cal. Code Civ. Pro. 338. The statute of limitations for a professional negligence claim is two years. Cal. Code Civ. Pro. 339. Equitable correctly asserts that, in general, the statute of limitations begins to run upon the occurrence of the last essential element of the tort or breach. Mangini v. Aerojet-General Corp., 230 Cal.App.3d 1125, 1149-1150, 281 Cal.Rptr. 827, 842-A3 (1991). Equitable is also correct in asserting that, under the "discovery rule," the statute of limitations for deceit and negligence-based claims begins to run when the plaintiff suspects or should suspect that he has been wronged. Jolly v. Eli Lilly Co., 44 Cal.3d 1103, 1110-1111, 245 Cal.Rptr. 658, 662 (1988).
Equitable argues that plaintiff's negligent misrepresentation claim against Mr. Ni iller is time-barred because any misrepresentation made by Mr. Miller occurred before delivery of the insurance policy on September 1, 1988. In addition, Equitable argues that plaintiff is not entitled to the benefit of the "discovery rule" because she will be unable to meet the requirements imposed on a plaintiff suing for a deceit-based claim more than three years afier the relevant event. Such a plaintiff must plead and prove: "(1) [her] lack of knowledge of the operative facts, (2) the absence of means of obtaining that knowledge (i.e., exercising reasonable dingence, plaintiffs still could not have discovered the facts within three years), and (3) the time and manner of [her] actual discovery of the facts." Salveson v. Western States Bankcard Ass'n, 525 F. Supp. 566, 584 (N.D. Cal. 1981). After receipt of the insurance policy, Equitable argues, plaintiff could not allege that she "had no actual or presumptive knowledge of facts sufficient to put her on inquiry of the alleged misrepresentations" (Opp. 9) (internal quotations ommited). Equitable contends that an insured is under an obligation to read the material terms of coverage disclosed in his policy, Aetna Casualty Ins. Co. v. Richmond, 76 Cal.App.3d 645, 652, 143 Cal.Rptr. 75, 79 (1977), and is bound by the plain language of the insurance contract, even if he did not know or understand its terms. Hadland v. NNInvestors Life Ins. Co., 24 Cal.App.4th 1578, 1586, 30 Cal.Rptr.2d 88, 93 (1994). These cases, however, are not on point because they did not involve alleged negligent misrepresentation by the agent selling the policy.
Plaintiff is entitled to the benefit of the discovery rule. Under California law, policy holders have a right to rely on an agent's representations of coverage without verifying the policy's terms. "Absent some notice or warning, an insured should be able to rely on an agent's representations of coverage without independently verifying the accuracy of those representations by examining the relevant policy provisions." Clement v. Smith, 16 Cal.App.4th 39, 45, 19 Cal.Rptr.2d 676, 679 (1993). In Davies v. Krasna, the California Supreme (Court held that a limitations period "cannot run before plaintiff possesses a true cause of action, by which xve mean that events have developed to a point where plaintiff is entitled to a lrgal remedy." 14 Cal.3d 502, 513, 121 Cal.Rptr. 705, 712 (1975). Plaintiffs cause of action did not accrue until Equitable denied her clam, and she discovered that Mr. Miller's alleged representations as to her coverage were false. Because Plaintiff's claim for negligent misrepresentation is not time-barred, remand is proper and arguments regarding plaintiffs claim for negligence need not be addressed.
Defendant has failed to demonstrate that there is no possibility that plaintiff will succeed in establishing Mr. Miller's liability for negligent misrepresentation. Accordingly, plaintiffs motion to remand is granted.
Attoriiey's Fees
Plaintiff also requests an award of attorney's fees pursuant to 28 U.S.C. § 1447 (c), under which "[a]n order remanding the case may require payment ofjust costs and any actual expenses, including attorney fees, incurred as a result of the removal." The award of attorney's fees
"is not a punitive award against defendants; it is simply reimbursement to plaintiffs of wholly unnecessary litigation costs the defendant inflicted." Moore v. Permanente Medical Group, 981 F.2d 443, 447 (9th Cir. 1992). While no showing of bad faith by defendants is required to impose costs and fees, "[i]f the court finds that there was not a reasonable basis for removal, then the court has the discretion to award fees." Draper v. Erb, No. C-93-4600 MHP, 1994 WL 478821, at *2 (N.D. Cal. 1994). Plaintiff argues that an award of attorney's fees is appropriate. Equitable, plaintiff argues, removed the instant case only two months after receiving an order from Judge Chesney of this District, which granted a motion to remand in a case substantially similar to this one (Br. 14-15). Notwithstanding such an order, Equitable has presented at least a colorable basis for removal. While Equitable failed to meet its burden, an award of attorney's fees and costs is not warranted.
CONCLUSION
Plaintiffs motion to remand is GRANTED. The case is remanded to San Francisco Superior Court. Plaintiff's request for attorney's fees is DENIED. The Clerk SHALL close the file.
IT IS SO ORDERED.