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Tentative Ruling
Judge Thomas Anderle
Department 3 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107


James Knell et al vs HUB International Insurance Services In

Case No: 1413624
Hearing Date: Tue Jul 30, 2013 9:30

Nature of Proceedings: Motion Leave to Amend & to Stay Proceedings

Motion of Plaintiffs (1) for Leave to Amend and (2) to Stay Proceedings Ruling: For the reasons set forth herein, the motion of plaintiffs for leave to amend and to stay proceedings is denied. Background: On September 28, 2012, plaintiffs James P. Knell, SIMA Management Corp., and SIMA Corp. filed their complaint in this action against defendant HUB International Insurance Services, Inc. (“HUB”). The complaint asserts two causes of action against HUB: (1) negligence, and (2) breach of fiduciary duty. The complaint alleges that HUB was the insurance agent or broker for plaintiffs and plaintiffs relied upon HUB’s expertise to ensure that proper insurance coverage was secured for all plaintiffs. (Complaint, ¶ 13.) In March 2011, a complaint was filed against plaintiffs entitled Moreau, et al., v. Knell, et al., Santa Barbara County Superior Court case number 1379762 (the “Moreau Action”). Until the filing of the Moreau Action, plaintiffs believed that their insurance policies secured with the assistance of HUB would cover claims of the type asserted in the Moreau Action. (Complaint, ¶ 18.) However, after tendering the claim to insurer CNA, plaintiffs learned that they did not have the complete coverage expected and CNA refused to pay a substantial portion of the cost of defense. (Complaint, ¶ 19.) When the Moreau Action settled, plaintiffs had to pay a significant amount of the settlement out of pocket. (Complaint, ¶ 20.) Plaintiffs’ complaint in this action asserts liability against HUB based upon this discrepancy in insurance coverage. (Complaint, ¶¶ 28, 31.) This action has been actively litigated by the parties. HUB has filed a motion for summary judgment or alternatively for summary adjudication that is set for hearing on September 10, 2013. Trial is set for October 15, 2013. On July 3, 2013, plaintiffs filed this motion for leave to file an amended complaint and to stay proceedings. The proposed first amended complaint (“PFAC”) does not add any newly- named causes of action or legal theories to the original complaint. However, the PFAC adds new allegations relating to events occurring after the filing of the original complaint. In particular, the PFAC alleges that two new actions have been filed against plaintiffs, McDonough, et al., v. Knell, et al., Santa Barbara County Superior Court case number 1415007 (the “McDonough Action”), filed on December 21, 2012, and Wilson, et al., v. Carrington Briarwood LLC, et al., Santa Barbara County Superior Court case number 1416467 (the “Wilson Action”), filed on April 4, 2013. The PFAC alleges additional claims of negligence and breach of fiduciary duty arising out of the lack of sufficient insurance coverage for the McDonough Action and the Wilson Action. (PFAC, ¶¶ 22-25, 30, 32, 35, 36.) Plaintiffs further request that this Court stay the entire action, including and incorporating the PFAC, until the McDonough Action and the Wilson Action are completely resolved. HUB opposes the motion in both of its requests. HUB argues that plaintiffs’ supporting declaration does not comply with Rules of Court, rule 3.1324 by not explaining the delay in filing this motion, that the liberal policy of permitting amendments to the complaint does not apply to expand the action to new facts or issues to HUB’s prejudice, and the new allegations of the PFAC do not relate back to the original complaint. HUB further argues that it would be prejudiced by a stay of this action because it would not be able to conduct discovery. In reply, plaintiffs argue that they would be prejudiced by the denial of the motion because the new matters are not distinct claims and plaintiffs would be precluded from asserting the claims in a new action by principles of res judicata. Analysis: Without citing the relevant statutory authority, plaintiffs move for leave to amend. Generally, leave to amend is authorized by Code of Civil Procedure sections 473 and 576. “Any judge, at any time before or after commencement of trial, in the furtherance of justice, and upon such terms as may be proper, may allow the amendment of any pleading or pretrial conference order.” (Code Civ. Proc., § 576.) Similarly, “[t]he court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading or proceeding by adding or striking out the name of any party, or by correcting a mistake in the name of a party, or a mistake in any other respect; and may, upon like terms, enlarge the time for answer or demurrer. The court may likewise, in its discretion, after notice to the adverse party, allow, upon any terms as may be just, an amendment to any pleading or proceeding in other particulars; and may upon like terms allow an answer to be made after the time limited by this code.” (Code Civ. Proc., § 473, subd. (a)(1).) In making this motion, plaintiffs fail to note the longstanding distinction between an amended complaint and a supplemental complaint. “The complaint, whether original or amended, can properly speak only of things which occurred either before or concurrently with the commencement of the action. The office of a supplemental complaint is to bring to the notice of the court and the opposite party things which occurred after the commencement of the action, and which do or may affect the rights asserted and the relief asked in the action as originally instituted.” (California Farm & Fruit Co. v. Schiappa-Pietra (1907) 151 Cal. 732, 742-743.) The new allegations of the PFAC are of events occurring subsequent to the filing of the original complaint. Thus, plaintiffs effectively request not to file an amended complaint, but to file a supplemental complaint. (See Radar v. Rogers (1957) 49 Cal.2d 243, 247.) “The plaintiff and defendant, respectively, may be allowed, on motion, to make a supplemental complaint or answer, alleging facts material to the case occurring after the former complaint or answer.” (Code Civ. Proc., § 464, subd. (a).) The distinction between an amended complaint and a supplemental complaint is significant here. “[T]he right to file a supplemental complaint can be exercised only with reference to matters which may be consistent with and in aid of the case made by the original complaint, and it is not allowable to substitute a new and independent cause of action by way of supplemental complaint.” (Brown v. Valley View Mining Co. (1900) 127 Cal. 630, 634, internal quotation marks and citation omitted; accord, Flood v. Simpson (1975) 45 Cal.App.3d 644, 647.) The parties differ in their characterization of the allegations of the PFAC. HUB asserts that the allegations of the PFAC relating to the McDonough and Wilson Actions reflect distinct causes of action and do not relate to the causes of action in the original complaint. HUB points out that the claims in the McDonough and Wilson Actions involve different policy years, new policies and new and different reasons for non-coverage. (Harris decl., ¶ 6 & exhibits C, D, E; PFAC, ¶¶ 23, 24.) Plaintiffs assert that the allegations of the PFAC relating to the McDonough and Wilson Actions do not constitute causes of action distinct from the causes of action asserted in the original complaint relating to the Moreau Action. Plaintiffs are concerned that because the same primary rights are involved, plaintiffs would be precluded from bringing these claims in a separate action by principles of res judicata. In the complaint, plaintiffs allege that HUB breached its duties to plaintiffs by obtaining directors and officers insurance (“D&O Insurance”) for plaintiff SIMA Management through CNA, but did not obtain any D&O Insurance for SIMA Corporation. (Complaint, ¶ 14.) HUB also failed to ensure that the D&O Insurance policy for SIMA Management had broad enough language to include SIMA Corp. (Ibid.) HUB did not advise plaintiffs to obtain errors and omissions insurance (“E&O Insurance”) or that by having only D&O Insurance plaintiffs would be exposed to certain claims without insurance. (Complaint, ¶ 16.) In the PFAC, plaintiffs seek to add allegations that the CNA insurance policy that HUB had obtained did not possess an automatic “tail policy” whereby claims made against plaintiffs which were based on events that took place while the CNA policy was in effect but that were made after the CNA policy itself had expired, would still be covered by CNA. (PFAC, ¶ 14(c).) The PFAC also asserts that HUB allowed the CNA policy to expire without obtaining a replacement policy that did not possess a “prior acts exclusion.” (PFAC, ¶ 14(e), (f).) The Moreau Action was filed, and plaintiffs made claims against the CNA policy for the Moreau Action, while the CNA policy was in effect. (PFAC, ¶ 20.) The McDonough and Wilson Actions were based on events that took place while the CNA policy was in effect, but the Actions were not filed and claims based on those Actions were not made, until after the expiration of the CNA policy. (PFAC, ¶¶ 23, 24.) Res judicata and its corollary rule against splitting causes of action apply only where there are two actions assertion the same “cause of action.” “The essence of a cause of action is the existence of a primary right and one violation of that right, i.e., it arises out of an antecedent primary right and corresponding duty, and a breach of such primary right and duty by the person upon whom the duty rests. [Citations.] The primary right and duty and the delict or wrong constitute the cause of action in the legal sense. [Citations.] The cause of action is simply the obligation to be enforced. [Citations.] It should also be noted that a cause of action must be distinguished from the remedy which is simply the means by which the obligation or corresponding duty is effectuated and also from the relief sought.” (Elliott v. City of Pacific Grove (1975) 54 Cal.App.3d 53, 57, internal quotation marks omitted.) Given the flexibility that exists in the definition of “cause of action,” it is not unambiguously clear whether plaintiffs’ claims against HUB constitute a single cause of action with damages based on the expenses incurred in three separate lawsuits or whether plaintiffs’ claims arising out of the Moreau Action constitute a cause of action separate from plaintiffs’ claims arising out of the McDonough and Wilson Actions. HUB’s liability for damages arising from all three Actions depends upon plaintiffs’ claim that HUB failed to advise plaintiffs regarding the purchase of appropriate insurance. If HUB’s duty to advise is considered broadly to include all appropriate insurance, then HUB’s breach of that broad duty singly caused the damages arising from all three Actions. Even so, the claims arising from the McDonough and Wilson Actions depend further upon HUB’s alleged failure of advising of the need for a “tail policy.” This difference is significant because even if HUB had complied with the duties allegedly breached in the original complaint, the policies that would have been purchased would all have expired by the time of the claims under the McDonough and Wilson Actions. These claims therefore depend upon a different duty by HUB, and the cause of action for the breach of that duty did not arise until the filing of McDonough and Wilson Actions when plaintiffs were damaged by the breach of that separate duty. “Res judicata is not a bar to claims that arise after the initial complaint is filed. These rights may be asserted in a supplemental pleading, but if such a pleading is not filed, a plaintiff is not foreclosed from asserting the rights in a subsequent action. [Citation.] The general rule that a judgment is conclusive as to matters that could have been litigated ‘does not apply to new rights acquired pending the action which might have been, but which were not, required to be litigated [citations].’ [Citation.]” (Allied Fire Protection v. Diede Construction, Inc. (2005) 127 Cal.App.4th 150, 155.) Consequently, the more persuasive argument is that claims arising out of the McDonough and Wilson Actions are separate causes of action which are not appropriately brought by supplemental complaint. This resolution is also the more practical result here. Plaintiffs request a stay of the entire action pending resolution of the McDonough and Wilson Actions because the pendency of those actions would affect the disposition of this action were the supplemental amendments permitted. By reserving claims against HUB arising out of the McDonough and Wilson Action for subsequent litigation, as argued by HUB (Opposition, at p. 8), this action can be most expeditiously resolved. The Court agrees with HUB on this point. Moreover, reservation of claims for future litigation is a recognized exception to the bar of res judicata even where the effect is to improperly split a cause of action. (Cason v. Glass Bottle Blowers Association (1951) 37 Cal.2d 134, 141 [“It is not res judicata, however, as to any matters which the court expressly refused to determine and which it directed should be litigated in another forum or in another action.”]; Allstate Ins. Co. v. Mel Rapton, Inc. (2000) 77 Cal.App.4th 901, 909 [“Because the prohibition against splitting a cause of action exists for the benefit of the defendant, the defendant may waive it and will be deemed to have acquiesced in the plaintiff’s splitting of a cause of action if the defendant fails to object.”].) Accordingly, the Court will deny plaintiffs’ motion to file the PFAC. As HUB points out, this result does not preclude plaintiffs from filing a new, separate action asserting these claims. Because plaintiffs’ request for a stay of proceedings depends upon amending this action to include claims based upon the McDonough and Wilson Actions, plaintiffs’ request for a stay of proceedings will be denied as well. This disposition should not be construed as expressing any opinion as to the appropriateness of a stay of claims based upon the McDonough or Wilson Actions should those claims be brought in a separate action.
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