Compensation Risk Managers of California, LLC (CRM), administered a self-insured workers' compensation program for contractors, Contractors Access Program of California (CAP). Diversified Risk Insurance Brokers (Diversified), later acquired by defendant HUB International Insurance Services, Inc. (HUB), marketed and sold CAP to plaintiffs Mark Tanner Construction, Inc., and Mt. Lincoln Construction, Inc.
After CAP failed, leaving plaintiffs exposed to considerable liability, plaintiffs brought suit against HUB for professional negligence and constructive fraud. While a defense motion for summary judgment was pending, plaintiffs obtained a copy of a regional field consultant agreement (Agreement) between CRM and Diversified that had not been provided to plaintiffs in discovery. Plaintiffs believed the Agreement "significantly alter[ed] the legal landscape in this action." They argued the Agreement established that rather than acting as a broker for them, Diversified instead was acting as the broker for CAP. Further, Plaintiffs argued that the Agreement revealed Diversified was part of a joint venture with CRM. These relationships had not been disclosed to plaintiffs.
Plaintiffs moved for leave to file a second amended complaint to add new allegations and new causes of action arising from legal relationships revealed by the Agreement. They also moved to continue the hearing on the summary judgment motion to permit additional discovery pursuant to Code of Civil Procedure section 437c, subdivision (h).
Plaintiffs contend the trial court abused its discretion in denying both the motion to amend the complaint and the motion to continue the summary judgment hearing. They contend the court erred in finding that an amendment to the complaint would prejudice HUB. They assert HUB's concealment of the Agreement in discovery is sufficient grounds to grant their motion to amend and they were entitled to a continuance because HUB withheld the Agreement. Finally, plaintiffs contend it was error to grant summary judgment because there are triable issues of fact as to whether Diversified was a broker for plaintiffs.
Plaintiffs Mark Tanner Construction, Inc. (Tanner), and Mt. Lincoln Construction, Inc. (Mt. Lincoln), are both general contractors located in Truckee. CAP is a self-insured workers' compensation program for the construction industry. The Department of Industrial Relations (the Department) regulates self-insured workers' compensation programs. (Lab. Code, § 3700, subd. (b); see Cal. Code Regs., tit. 8, § 15470 et seq.) The Department granted CAP a certificate of consent to self insure in 2004. CRM administers CAP and contracted with Diversified to market CAP.
California contractors were able to fulfill their obligation to obtain workers' compensation insurance by joining CAP. Membership in CAP required an agreement to be jointly and severally liable for the workers' compensation liability of all other members for that year of membership. Approximately 250 employers became members of CAP.
Tanner became a member of CAP on January 1, 2006, and was a member from that date until December 31, 2008, and again from August through December of 2009. Diversified was the broker of record for Tanner from January 1, 2006, until about August 2007. Mt. Lincoln became a member of CAP on October 1, 2006, and was a member for approximately two years. Diversified was the broker for Mt. Lincoln. HUB purchased Diversified on November 1, 2007.
On December 31, 2009, CAP was terminated. The Director of the Department revoked CAP's certificate to self-insure and CAP was placed into conservatorship. CAP's estimated exposure for unfunded liabilities was over $20 million. In the spring of 2010, members were sent assessments for the anticipated exposure. Tanner was assessed $150,258 and Mt. Lincoln was assessed $42,784. Later that year, CAP defaulted on payment of benefits for its workers' compensation liabilities.
In August 2010, Tanner, Mt. Lincoln, and two other companies sued HUB and others for professional negligence and constructive fraud.
The FAC further alleged that CAP failed in 2009. It was set up dependent on new members to fund existing operations, which the FAC characterized as a "Ponzi-type scheme." Due to the decrease in construction work and the failures in New York, other brokers stopped marketing CAP, but Diversified did not provide that information to plaintiffs. As a result, plaintiffs were assessed for outstanding claims and faced further liability. Plaintiffs paid premiums for reinsurance, but were then told that no reinsurance was offered.
The first cause of action of the FAC was for professional negligence. The FAC alleged Diversified had a duty to use reasonable care as a professional. This duty required Diversified "to investigate, engage in a reasonable inquiry, discover and inform Plaintiffs of all information that might effect [sic] their decision to enroll in the CRM administered [CAP] including, but not limited to, the failures in New York, CAP's operating deficit, the failure of other CRM administered [self-insured insurance programs] in California, and the fact that the promises made about the program, including its price compared to other insurance programs, were false," and Diversified's relationship as exclusive broker for CRM for CAP. The FAC alleged that Diversified breached this duty and that breach was the proximate cause of plaintiffs' damages.
In December 2011, HUB moved for summary judgment or summary adjudication, claiming both causes of action "lack[] merit." HUB argued that self-insured programs, such as CAP, were regulated by the Department, and it was the responsibility of the Department, not Diversified, to make "sure ... CAP met all mandated requirements." HUB argued, "Plaintiffs cannot demonstrate breach of a duty owed to them, because in California an insurance broker has no duty to investigate the financial condition of an insurer before placing insurance with it on the client's behalf. If a broker places insurance with an insurer which is properly conducting business, the duty of the broker has been fulfilled." HUB argued the claim for fraud failed "because there exists no fiduciary relationship between plaintiffs and HUB and Plaintiffs cannot show actual reliance on the alleged misrepresentations and/or non-disclosures attributed to" Diversified.
Plaintiffs' counsel took the depositions of representatives of HUB in early February 2012 while the summary judgment motion was pending. Counsel declared that HUB did not produce any contract between HUB and CRM despite a request for production of documents that requested all documents that relate to any contracts or agreement between HUB and CRM. Counsel declared that when he returned from the deposition he "was provided" with the Agreement between CRM as administrator/program field consultant and Diversified as regional field consultant. The source of the Agreement was not disclosed.
The Agreement's stated purpose was "to assist in the growth, continuity and success of [CAP] by setting forth the marketing, promotional and sales duties and responsibilities of both parties." Under the Agreement, Diversified was to develop and implement a marketing plan for CAP, use its best efforts to generate new members, and submit to CRM all necessary underwriting
In response to HUB's motion for summary judgment, plaintiffs requested a continuance pursuant to section 437c, subdivision (h). Plaintiffs stated that less than two weeks earlier, their counsel had learned "that HUB had withheld the most important evidence as it would relate to the legal and factual relationships" between plaintiffs, HUB, CRM, and CAP. They claimed the Agreement established that HUB, rather than being the broker for plaintiffs, was the agent for CRM and the broker for CAP. "In short, the contract turns the lawsuit on its head." Plaintiffs claimed the Agreement gave rise to new causes of action for fraud, negligent representation, unfair business practices, and the violation of the Insurance Code.
Plaintiffs argued that if the court denied the motion to continue, it must also deny HUB's motion for summary judgment. HUB had set forth as undisputed material facts that Diversified was the broker for Tanner and Mt. Lincoln. Plaintiffs disputed these facts, contending that under the Agreement, Diversified was the agent of CRM and the broker for CAP and these relationships were concealed. Plaintiffs further argued that if Diversified was their broker, Diversified owed them a fiduciary duty.
Shortly after filing their response to HUB's motion for summary judgment, plaintiffs moved to amend their complaint. They asserted there was no prejudice to HUB because no trial date had been set, and any prejudice was "occasioned by the concealment of the existence of recently discovered contracts by the Defendants and the failure to produce the documents when formally requested." Plaintiffs asserted the recent discovery of the Agreement provided good cause for the amendment.
Plaintiffs proposed to file a second amended complaint (SAC). The SAC added factual allegations about the Agreement. The SAC alleged that had CRM and the brokers not been paid excessive consideration, CAP would not
The trial court denied plaintiffs' motion to file the SAC. The court found that the motion failed to demonstrate good cause to amend when balanced against the prejudice to defendants. (Although the record is not clear, it appears other defendants opposed the filing of the SAC on the ground that they would be prejudiced.) The trial court found defendants were prejudiced because they had prepared their defense based on the prior pleadings. The Agreement did not establish good cause. The FAC already alleged that the brokers, including Diversified, were exclusive marketing agents for CRM. The court determined that while the Agreement supported the FAC, it added very little. It did not support the new allegations that Diversified was the general agent of CRM or that Diversified and CRM had a joint venture. The Agreement did not provide for the sharing of financial or confidential information except to the extent that if such information was shared, it was to remain confidential. Information that Diversified had a dual broker role was not new; the FAC alleged Diversified was the exclusive broker for CRM.
The trial court denied plaintiffs' request for a continuance. It found plaintiffs were dilatory in initiating discovery and that because the Agreement added little to the case, additional discovery based on this Agreement was not necessary.
The trial court granted HUB's motion for summary judgment. The court found that HUB was entitled to summary judgment on the professional negligence claim because insurance brokers had no duty to investigate the financial condition of the insurer, and "no facts were presented demonstrating that Defendants knew or should have known of the financial condition of CAP." As to the claim for constructive fraud, the court found a duty to disclose arose in an arm's length business transaction only if there was a fiduciary relationship, and "Plaintiffs have failed to demonstrate a triable issue of material fact demonstrating that Defendants have a fiduciary relationship."
Judgment was entered for HUB, and plaintiffs appealed.
Plaintiffs contend the trial court erred in granting HUB's motion for summary judgment. Plaintiffs contend there was a triable issue of material fact, namely, Diversified's role, whether it was as the broker for Tanner and Mt. Lincoln, or as the general agent for CRM and the broker for CAP.
"The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (§ 437c, subd. (c).) A defendant meets his burden of showing that a cause of action has no merit if he shows that one or more of the elements of the cause of action cannot be established, or that there is a complete defense. (§ 437c, subd. (p)(2).) Once the defendant has met that burden, the burden shifts to the plaintiff to show that a triable issue of material fact exists. (Ibid.)
We review the trial court's grant of summary judgment de novo. (State of California v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1017-1018 [90 Cal.Rptr.3d 1, 201 P.3d 1147].) We employ the same three-step analysis as the trial court. "`First, we identify the issues raised by the pleadings, since it is these allegations to which the motion must respond; secondly, we determine whether the moving party's showing has established facts which negate the opponent's claims and justify a judgment in movant's favor; when a summary judgment motion prima facie justifies a judgment, the third and final step is to determine whether the opposition demonstrates the existence of a triable, material factual issue. [Citations.]'" (Waschek v. Department of Motor Vehicles (1997) 59 Cal.App.4th 640, 644 [69 Cal.Rptr.2d 296].)
Plaintiffs, as appellants, have the burden to show error. (Claudio v. Regents of University of California (2005) 134 Cal.App.4th 224, 230 [35 Cal.Rptr.3d 837].) "[D]e novo review does not obligate us to cull the record for the benefit of the appellant in order to attempt to uncover the requisite triable
"[A]n insurance broker ... owes no duty to its clients to investigate the financial condition of an insurer before placing insurance with it on their behalf." (Wilson v. All Service Ins. Corp. (1979) 91 Cal.App.3d 793, 798 [153 Cal.Rptr. 121] (Wilson).) The Wilson court reasoned that the Insurance Code prescribes the financial requirements for an insurer and the Insurance Commissioner has the continuing duty to oversee that financial condition, thus it would be "superfluous" and "would create a conflict with the regulatory scheme" to impose on the broker "a similar duty to ascertain the financial soundness of an insurer." (Id. at pp. 797-798.) In the case of self-funded
In Kotlar v. Hartford Fire Ins. Co. (2000) 83 Cal.App.4th 1116, 1123 [100 Cal.Rptr.2d 246] (Kotlar), the court held an insurance broker has no duty to give a named insured notice of the insurer's intent to cancel the policy; that duty rests with the insurer. Relying on Kotlar, the court in Pacific Rim, supra, 203 Cal.App.4th at page 1284, held that an insurance broker had no duty to inform an additional insured (a subcontractor) of the insurer's insolvency. In declining to find a new duty on the part of insurance brokers, the Pacific Rim court concluded "that imposition of a duty requiring insurance brokers to inform an insured of `any adverse changes in the carrier's financial capability' postissuance of the insured's policy is properly the function of the Legislature because it would (a) fundamentally alter the nature and corresponding duties of insurance brokers, which would (b) increase the costs of procuring insurance." (Pacific Rim, supra, 203 Cal.App.4th at p. 1285.)
The first cause of action in the FAC alleged that Diversified breached its duty to use reasonable care by failing "to investigate, engage in reasonable inquiry, discover and inform Plaintiffs" of information, including the failures of CRM-managed self-insured workers' compensation programs in New York and California, CAP's deficit, the falsity of promises regarding price, and Diversified's relationship as an exclusive broker for CAP. Tellingly, the FAC did not allege that Diversified knew or should have known that representations it made about CAP were false.
HUB moved for summary judgment on the ground that Diversified fulfilled its duty by procuring insurance for plaintiffs. HUB argued Diversified had no additional duty to investigate the financial condition of the insurer. In support, HUB offered as undisputed facts that Diversified was the insurance broker for Tanner and Mt. Lincoln, who became members of CAP. To establish that Diversified was the broker for plaintiffs, HUB offered the allegations of the FAC which expressly so stated. In opposition, plaintiffs disputed these facts, citing as evidence the Agreement.
Plaintiffs contend Diversified's duty to them should be analyzed under Biakanja v. Irving (1958) 49 Cal.2d 647 [320 P.2d 16]. In Biakanja, our Supreme Court held that a defendant's negligent performance of a contractual obligation resulting in damage to the property or economic interests of a person not in privity could support recovery if the defendant was under a duty to protect those interests, and the court articulated a test for identifying such a duty. (Id. at pp. 648-650.) Here, as in Pacific Rim, Biakanja does not apply because plaintiffs' claims against HUB are based on negligence, not on a breach of any contractual duty. (Pacific Rim, supra, 203 Cal.App.4th at pp. 1291-1292.)
The trial court did not err in granting HUB summary judgment on the first cause of action for professional negligence.
The second cause of action in the FAC alleged constructive fraud. It alleged that Diversified was in a fiduciary relationship with plaintiffs. Due to that relationship, Diversified had an obligation to refrain from providing information it knew or should have known (or that was merely innocently transferred) was false, if such information may have been material to plaintiffs' decision to enroll in CAP. The factual representations Diversified provided were false, and it never disclosed its exclusive broker arrangement with CRM.
HUB moved for summary judgment, asserting that Diversified did not have a fiduciary relationship with plaintiffs and plaintiffs could not establish that Diversified had any reason to know of the financial troubles of CAP and CRM or mislead plaintiffs to their prejudice. In support, HUB offered a number of undisputed facts. CAP was granted a certificate to self-insure, the Department regulated CAP, and CAP had the required surety bond in place in
Plaintiffs did not dispute these facts. Instead, their opposition to summary judgment was based on the existence of the Agreement and their sole dispute was whether Diversified was their broker. Relying on Eddy, supra, 199 Cal.App.3d 858, they argued Diversified owed them a fiduciary duty.
The trial court did not err in granting summary judgment on the second cause of action for constructive fraud.
The judgment is affirmed. HUB shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)
Nicholson, Acting P. J., and Robie, J., concurred.
