Filed 5/18/22 United Speciality Ins. Co. v. Zaracotas CA4/1

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COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

UNITED SPECIALTY INSURANCE 

COMPANY,

Plaintiff and Respondent,

v.

TIMOLEON ZARACOTAS et al.,

Defendants and Appellants.

 D079384

 (Super. Ct. No. 37-2020-

00019199-CU-IC-CTL)

APPEAL from a judgment of the Superior Court of San Diego County, 

Joel R. Wohlfeil, Judge. Affirmed.

Law Offices of Nick T. Reckas and Nick T. Reckas for Defendants and 

Appellants.

Lincoln Gustafson & Cercos, Christian W. Schmitthenner, and 

Melissa K. Mixer for Plaintiff and Respondent.

I

INTRODUCTION

Timoleon and Corinne Zaracotas owned two commercial buildings that 

were damaged during a fire. They sued Camelot Roofing (Camelot) for 
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negligence, alleging that Camelot negligently caused the fire damage at issue 

while performing roof repairs on the properties. Thereafter, Camelot’s 

commercial general liability insurer, United Specialty Insurance Company 

(United), filed the present action against Camelot and the Zaracotases, 

seeking a judicial declaration that it owed no duty to defend or indemnify 

Camelot in connection with the negligence lawsuit. 

The trial court granted summary adjudication and entered judgment 

for United on grounds that Camelot failed to pay a self-insured retention 

necessary to trigger coverage under the insurance policy. The Zaracotases 

appeal the judgment and contend the court erred when it sustained a 

demurrer to two of their affirmative defenses. 

We do not determine whether the trial court erred in sustaining the 

demurrer to the Zaracotases’ affirmative defenses because the asserted error 

was harmless. Even if the demurrer ruling was incorrect, the court would 

have entered judgment for United based on Camelot’s failure to pay the selfinsured retention. Thus, we affirm the judgment.

II

BACKGROUND

A

The Underlying Litigation

Sergio Anaya is a roofing contractor who does business under the

moniker Camelot. Camelot was the named insured of a commercial general 

liability insurance policy provided by United.1 The policy guaranteed up to 

$2,000,000 in aggregate liability coverage and up to $1,000,000 in per1 “ ‘Commercial general liability policies are designed to protect the 

insured against losses to third parties arising out of the operation of the 

insured’s business.’ ” (Sprinkles v. Associated Indemnity Corp. (2010) 188 

Cal.App.4th 69, 78.)
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occurrence liability coverage for covered losses, subject to various 

endorsements, exclusions, sublimits, and conditions. 

In June 2019, the Zaracotases hired Camelot to repair leaky roofs on 

two commercial buildings they owned. While the repairs were being 

performed, a fire erupted and caused substantial damage to the buildings. 

In November 2019, the Zaracotases filed a negligence action against 

Anaya and Camelot in the Superior Court for the County of Alameda, Case 

No. HG19043129 (hereafter, the Underlying Action). They alleged a Camelot 

employee negligently caused the fire while using a torch to apply rolled 

asphalt sheeting to the buildings’ roofs. United furnished Anaya and 

Camelot with a defense in the Underlying Action, subject to a reservation of 

rights. 

B

The Complaint for Declaratory Relief

In June 2020, United filed the present action against Anaya and the 

Zaracotases alleging three causes of action. The first cause of action sought a 

declaration that United had no duty to defend Camelot in the Underlying 

Action. The second cause of action requested a declaration that United had 

no duty to indemnify Camelot for any judgment the Zaracotases may obtain 

against Camelot in the Underlying Action. The third cause of action prayed 

for a declaration that, to the extent United owed a duty to defend or 

indemnify Camelot, its obligation was subject to a coverage limit of $50,000. 

United asserted it did not have a duty to defend or indemnify Camelot 

because its insurance policy with Camelot excluded coverage for “ ‘property 

damage’ arising out of, resulting from, caused by, or contributed to, alleged to 

be, or in any way related to ... the use of any ‘fire or heating devices’ by or on 

behalf of any insured.” The policy defined “fire or heating devices” to include 
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“a heat wand, welding equipment, open flame devices, torches, heaters, or 

any type of heat application, or any other equipment that generates heat or 

sparks in the normal course of its operation.” 

An endorsement to the policy amended the heating device exclusion to 

provide coverage of up to $50,000 for property damage that would otherwise 

fall within the exclusion. However, the endorsement required the insured 

(Camelot) to adhere to certain safety precautions as a condition precedent to 

coverage. According to United, Camelot did not satisfy the condition 

precedent and, therefore, it was not entitled to coverage under the 

endorsement. 

C

The Demurrers

Anaya did not respond to the complaint. Thus, at United’s request, the 

court clerk entered default against Anaya. 

The Zaracotases filed an answer generally denying the allegations of

the complaint. They also asserted several affirmative defenses in their 

answer, two of which are pertinent to this appeal. 

The first relevant defense was labeled “Fraud–Reformation of the 

Policy” (hereafter, the fraud defense). In connection with the fraud defense, 

the Zaracotases alleged that Anaya told Corrine Zaracotas he had “a milliondollar insurance policy in place.” They alleged he also gave them a certificate 

of liability insurance from United showing the policy had a coverage limit of 

$1,000,000 per occurrence.2 The certificate of liability insurance—which 

2 A certificate of insurance is “evidence that a policy has been issued; it 

identifies the types of policies issued, the dates of coverage and the dollar 

limits of coverage.” (Travelers Property Casualty Co. of Am. v. Superior Court 

(2013) 215 Cal.App.4th 561, 582.)
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they attached as an exhibit to the answer—identified United as the insurer, 

Camelot as the insured, Builders Direct Insurance Services (Builders Direct) 

as the insurance producer,3 and an individual named Agustin Jasso, Jr. as 

Anaya’s policy contact. 

According to the Zaracotases, Anaya’s statement to Corrine Zaracotas 

and the certificate of liability insurance were both misleading because they 

did not disclose the heating device exclusion. The Zaracotases alleged United 

and Builders Direct intended, or had reason to know, that the misleading 

statements would be conveyed to them. They also alleged they relied on 

these supposed misstatements by hiring Camelot to perform the roof repairs. 

Based on this alleged fraud, the Zaracotases asked the court to “reform 

[United’s] policy consistent with the terms contained” in the certificate of 

liability insurance. 

The Zaracotases also asserted an equitable estoppel affirmative defense 

(hereafter, the equitable estoppel defense). For this defense, the Zaracotases

incorporated the allegations underlying the fraud defense and requested that 

United “be estopped from asserting that its limit of liability under [the] policy 

... is fifty-thousand dollars ($50,000) ....”

3 A producer refers to a person or entity who solicits, sells, or negotiates 

insurance contracts. (Croskey, et al, Cal. Prac. Guide Insurance Litigation 

(The Rutter Group 2021) § 2:1.) There are two broad classifications of 

producers: insurance agents and insurance brokers. (Ibid.) “Insurance 

agents generally act on behalf of the insurer [citation]. An agent’s primary 

duty is to represent the insurer in transactions with insurance applicants and 

policyholders. (Id., § 2:1.1, p. 2-1.) “Insurance brokers generally act on 

behalf of the applicant for insurance (or, after insurance is purchased, the 

policyholder) .... A broker’s primary duty is to represent the 

applicant/insured, and his or her actions are not generally binding on the 

insurer.” (Id., § 2:1.6, p. 2-2.)
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United demurred to the fraud and equitable estoppel defenses. The 

trial court sustained the demurrer and granted the Zaracotases leave to 

amend their answer. 

The court sustained the demurrer to the fraud defense on two grounds. 

First, it reasoned the Zaracotases could not seek reformation of the insurance 

policy because they were not parties to the policy and were not alleged to be 

third-party beneficiaries of the policy. Second, the court found there were no 

allegations “supporting the theory that [United] made its own 

misrepresentations with the intent to defraud the class of persons that 

includes” the Zaracotases, nor were there sufficient allegations of an agency 

relationship between United and Builders Direct. 

The court sustained the demurrer to the equitable estoppel defense for 

two reasons as well. First, similar to its ruling on the fraud defense, the 

court found there were no allegations that United made misrepresentations 

to a class of persons encompassing the Zaracotases, and there were 

insufficient allegations of an agency relationship between United and 

Builders Direct. Second, the court determined “[t]he affirmative defense of 

estoppel cannot be used to create coverage where coverage would not 

otherwise exist.” In reaching this finding, the court noted that portions of 

Zaracotases’ answer “appear[ed] to acknowledge that the policy, as written, 

does not provide coverage for the underlying claim.” 

The Zaracotases filed an amended answer generally denying the 

allegations of the complaint and asserting modified versions of their 

affirmative defenses. The fraud defense, which previously was labeled 

“Fraud–Reformation of the Policy,” was relabeled “Conspiracy to Defraud.”

The equitable estoppel defense was not relabeled. 
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For the newly-relabeled fraud defense, the Zaracotases repeated their

prior allegations of fraud and added several new allegations. The 

Zaracotases alleged an entity called Safe Built Insurance Services Inc. dba

Structural Insurance Services (Structural) was the “managing agent of 

[United] placed in charge of its sales program of its general liability policies 

and other insurance products.” Structural allegedly entered into an

agreement with Jasso dba Builders Direct to place United’s business, deliver 

its policies, and collect premiums from its insureds. Jasso allegedly told 

Anaya that the policy had a “limit of one-million dollars for each accident,” 

yet he did not disclose the heating device exclusion. He allegedly gave Anaya 

“several [United] policies and/or certificates of liability insurance” containing 

the same misleading statements, including the certificate of liability 

insurance that was later provided to the Zaracotases. The Zaracotases 

alleged United, Structural, and Jasso dba Builders Direct “concealed and 

conspired to conceal” the heating device exclusion from them. The 

Zaracotases asked for a declaration that United “ha[d] a duty to defend and

indemnify” them—not merely the insured Camelot—for losses sustained as a 

result of the supposed fraud. 

The equitable estoppel defense incorporated the fraud allegations and 

requested that United be estopped from asserting the $50,000 liability limit. 

The amended answer contained a prayer for relief section as well. It

sought a declaration that United had “a duty to defend and indemnify its 

insured [Camelot] and the Zaracotas defendants in the underlying action up 

to one million [sic] worth of insurance coverage ....” (Italics added.)

United once again demurred to the affirmative defenses and the court 

once again sustained the demurrer—this time without granting the 

Zaracotases leave to amend the answer. 
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The court sustained the demurrer to the fraud defense for two reasons. 

First, it determined the Zaracotases appeared to seek compensatory relief to 

the extent they requested a declaration that United had a duty to defend or 

indemnify them in the Underlying Action. According to the court, such a 

request was improper in an answer and must be made, if at all, in a crosscomplaint. Second, the court concluded the Zaracotases, as a matter of law, 

could not allege they were owed a duty of defense or indemnity because they 

were merely incidental beneficiaries of the insurance policy. It reasoned the 

Zaracotases were not the named insureds under the policy and there were no 

allegations suggesting they were third-party beneficiaries of the policy. 

The court also sustained the demurrer to the equitable estoppel defense 

for two reasons. First, it found the Zaracotases lacked standing as mere 

incidental beneficiaries to assert coverage under the policy. Second, it noted 

the answer still “appear[ed] to acknowledge that the policy, as written, does 

not provide coverage for the underlying claim.” According to the court, “[t]he 

affirmative defense of estoppel cannot be used to create coverage where 

coverage would not otherwise exist.” 

D

The Motion for Summary Adjudication

A few months after the court sustained United’s demurrer, United filed 

a motion for summary adjudication as to its first and second causes of action 

(which sought a declaration that United had no duty to defend or indemnify 

Camelot). United argued no duty to defend or indemnify arose because the 

insurance policy required Camelot, as a condition precedent to coverage, to 

pay a $5,000 self-insured retention to United. According to United, Camelot 

failed to pay the self-insured retention despite repeated requests that it do so. 

Together with the motion for summary adjudication, United filed a copy of its 
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general liability insurance policy and several letters that were sent to 

Camelot on behalf of United requesting payment of the self-insured 

retention.4

No defendant opposed the motion for summary adjudication. 

The court granted summary adjudication for United and dismissed 

United’s third cause of action in light of the summary adjudication ruling. It 

entered judgment in favor of United and declared that United had no duty to 

defend or indemnify Camelot in connection with the Underlying Litigation or 

any other consolidated or related actions arising out of the fire that gave rise 

to the Underlying Litigation. 

III

DISCUSSION

The Zaracotases appeal the judgment and challenge the ruling

sustaining the demurrer to their fraud and equitable estoppel defenses. 

They contend the court erred in sustaining the demurrer to the fraud 

defense because they never sought compensatory relief in their amended 

answer and, in any event, the court had the power to grant them such relief 

despite their failure to file a cross-complaint against United. They assert the 

court erred by sustaining the demurrer to the equitable estoppel defense 

because they alleged the elements of equitable estoppel and the insurance 

policy at issue was procured through fraud. Finally, they argue the court 

erred in sustaining the demurrer to both defenses because they were third4 “ ‘ “Liability insurance policies often contain a ‘deductible’ or a ‘selfinsured retention’ (SIR) requiring the insured to bear a portion of a loss 

otherwise covered by the policy.” ’ [Citation.] ‘ “The term ‘retention’ (or 

‘retained limit’) refers to a specific sum or percentage of loss that is the 

insured’s initial responsibility and must be satisfied before there is any 

coverage under the policy. It is often referred to as a ‘self-insured retention’

or ‘SIR.’ ” ’ ” (Deere & Co. v. Allstate Ins. Co. (2019) 32 Cal.App.5th 499, 505.)
10

party beneficiaries of the policy entitled to coverage under the policy as well 

as reformation of the policy. 

It is unnecessary for us to assess the merits of these arguments because 

any asserted errors in the demurrer ruling were harmless. The California 

Constitution “generally ‘prohibits a reviewing court from setting aside a 

judgment due to trial court error unless it finds the error prejudicial.’ ” (F.P. 

v. Monier (2017) 3 Cal.5th 1099, 1108, citing Cal. Const. art. VI, § 13.) It 

requires us “ ‘to affirm the judgment, notwithstanding error, if error has not 

resulted “in a miscarriage of justice.” ’ ” (F.P., at p. 1108; see also Code Civ. 

Proc., § 475 [“No judgment, decision, or decree shall be reversed or affected by 

reason of any error, ruling, instruction, or defect, unless it shall appear from 

the record that such error, ruling, instruction, or defect was prejudicial”].) 

“ ‘[A] “miscarriage of justice” should be declared only when the court, “after 

an examination of the entire cause, including the evidence,” is of the 

“opinion” that it is reasonably probable that a result more favorable to the 

appealing party would have been reached in the absence of the error.’ ” 

(Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 800.)

Here, the Zaracotases have not established a reasonable probability 

that they would have achieved a better outcome in the absence of the 

demurrer ruling. In short, it is highly likely the trial court would have 

granted United’s unopposed motion for summary adjudication and entered 

judgment in United’s favor based on Camelot’s non-payment of the selfinsured retention, even if the demurrer ruling was incorrect. Thus, any 

alleged error in the demurrer ruling does not warrant reversal. (See Cohen v. 

Kabbalah Centre International, Inc. (2019) 35 Cal.App.5th 13, 23 [any error 

in order sustaining demurrer to cause of action harmless where court 

correctly granted summary judgment on fraud claims similar to cause of 
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action dismissed on demurrer]; Tanguilig v. Neiman Marcus Group, Inc. 

(2018) 22 Cal.App.5th 313, 334 [declining to address merits of order 

sustaining demurrer to portions of complaint because complaint would have 

been dismissed for failure to bring it to trial within five years].)

In their reply brief, and in a supplemental brief filed at our request, the 

Zaracotases argue the demurrer ruling was prejudicial because they 

purportedly would have opposed the motion for summary adjudication if the 

demurrer had been overruled.5 They claim that, in the absence of the 

demurrer ruling, they would have argued that the insurance policy was the 

product of fraud in the execution (sometimes known as fraud in the 

inception). They contend the court, presented with such an argument, would 

have found the entire policy—including the self-insured retention condition 

contained therein—void ab initio, such that it never had any legal effect. 

(See Brown v. Wells Fargo Bank, N.A. (2008) 168 Cal.App.4th 938, 958 

[“when a plaintiff alleges fraud in the execution, the plaintiff is asserting that 

it was deceived as to the very nature of contract execution, and did not know 

what it was signing. A contract fraudulently induced is voidable; but a 

contract fraudulently executed is void, because there never was an 

agreement”].)

The Zaracotases’ voidness argument is nonsensical. If the insurance 

policy between United and Camelot was void ab initio, United would seem to 

have no contractual duty to defend or indemnify Camelot (or any other 

person or entity) in connection with the Underlying Litigation for the simple 

5 We requested that the parties file supplemental briefs addressing 

whether the allegedly erroneous demurrer ruling was prejudicial, in light of 

the trial court’s subsequent order granting United’s motion for summary 

adjudication. We have reviewed and considered the parties’ supplemental 

briefs on this issue.
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reason that there was never an enforceable insurance policy in the first place. 

Stated differently, the claimed absence of an enforceable policy likely would 

have required the trial court to enter judgment in United’s favor because 

United and Camelot never would have entered into a valid policy requiring 

United to defend or indemnify Camelot or any third-party beneficiary.

Moreover, the Zaracotases’ own affirmative defenses seem to presume, 

and necessarily depend upon, the existence of an enforceable insurance 

policy. As part of the fraud defense, for example, the Zaracotases asked the 

court to reform the existing policy to reflect the contents of the certificate of 

insurance. However, no reformation of the existing policy would be possible if 

the policy was void ab initio. (See Oatman v. Niemeyer (1929) 207 Cal. 424, 

426–427 [“If the contract itself is void ... reformation is impossible, since 

there is no valid contract to reform.”]; McClure v. Cerati (1948) 86 Cal.App.2d 

74, 85 [“ ‘It is elementary that a void agreement has no standing in the law, 

and consequently it can neither be reformed nor enforced.’ ”].) 

Further, the Zaracotases admit in their appellate briefs that the 

insurance policy was the product of mutual assent, thus giving rise to an 

enforceable agreement. For instance, they state in their opening appellate 

brief “there was an objective manifestation of mutual intent between the 

parties” to the policy. They also maintain that they are third-party 

beneficiaries of the policy—an argument that would make no sense if the

policy was void ab initio. The Zaracotases’ unambiguous admission that the 

policy was a manifestation of mutual assent between United and Camelot, as 

well as their argument that they were third-party beneficiaries, fatally 

undermine their claim that the policy was void ab initio.

For all these reasons, we conclude the Zaracotases have failed to 

demonstrate a reasonable probability that they would have obtained a more 
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favorable result if the demurrer ruling had gone their way. Because they 

have not met their burden of establishing prejudice, the judgment must be 

affirmed.6

IV

DISPOSITION

The judgment is affirmed. United is entitled to its costs on appeal.

McCONNELL, P. J.

WE CONCUR:

AARON, J.

IRION, J.

6 In light of our conclusion that the allegedly erroneous demurrer ruling

was harmless, we deny United’s motion to dismiss the appeal as moot.