Court Opinion

ID: 4635581
Source: CourtListenerOpinion
Date Created: 2020-11-24 00:01:41.600651+00
Date Added: 2024-06-11T07:58:24.492879
License: Public Domain

Filed 11/23/20 Reliance Steel & Aluminum etc. v. IntelliLUM CA1/5
       NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
opinions not certified for publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         FIRST APPELLATE DISTRICT

                                    DIVISION FIVE

 Reliance Steel & Aluminum Co. dba
 MetalCenter,
          Plaintiff and Appellant,                             A157239

 v.                                                          (Alameda County
 IntelliLUM, Inc. et al.,                                    Super. Ct. No.
                                                             HG17858476)
          Defendants and Respondents.

        When one company sues another, may it also directly sue
an insurer whose policy would cover the claim? Case law in
California makes clear that the answer is generally “no” because
the insurer’s duties flow to the insured alone and not to the
injured party. (Royal Indemnity Co. v. United Enterprises, Inc.
(2008) 162 Cal. App. 4th 194, 205 (Royal Indemnity).) We conclude
that none of the possible exceptions to this rule have been shown
to apply in this case, and therefore affirm the trial court’s order
dismissing defendants Nationwide Insurance (Nationwide) and
Scottsdale Indemnity Company (Scottsdale) from this action filed
by plaintiff Reliance Steel & Aluminum Co. dba MetalCenter
(Reliance) after the court sustained their demurrer without leave
to amend to the second amended complaint (SAC).

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                         I. BACKGROUND
      On April 28, 2017, Reliance filed a complaint for breach of
contract and related common counts against IntelliLUM, Inc.,
(IntelliLUM) its owner, Gregory Brown, and Does 1–50. The
complaint alleged that defendants owed Reliance $66,790.03 for
the reasonable value of goods and services provided in 2015 and
2016, plus interest. IntelliLUM did not respond to the complaint
and a default was entered on July 21, 2017.
      IntelliLUM filed for Chapter 7 bankruptcy in the United
States Bankruptcy Court for the District of Nevada on August 3,
2017. Reliance filed a notice of the bankruptcy with the superior
court stating that actions against IntelliLUM were temporarily
stayed; IntelliLUM also filed a notice of the bankruptcy.
      IntelliLUM was apparently insured by Nationwide and
Scottsdale under one or more policies.1 Reliance alleges that its
claims against IntelliLUM are covered by this policy or by these
policies. In April 2018, the bankruptcy trustee issued an order
stating that the automatic stay “does not apply to prevent
Reliance Steel & Aluminum from naming IntelliLUM as a
nominal defendant and pursuing a claim against Nationwide

      1 The SAC alleges that IntelliLUM and Brown were insured
by “one or more insurance policies” issued by Nationwide and
Scottsdale, and that “Nationwide and Scottsdale are related
business entities by ownership, management, and/or control, and
Nationwide issues policies through Scottsdale and vice versa.” It
is unclear from the record whether one or more policies is
involved in this case.

                                2
Insurance; however, Reliance is precluded from asserting any
claim against the bankruptcy estate.”2
      On September 4 2018, Reliance filed a first amended
complaint (FAC) adding Nationwide as a defendant and adding
causes of action for misrepresentation, negligence and “Liability
of Nationwide Insurance.” Only this last cause of action was
asserted against Nationwide.
      Nationwide filed a demurrer to the cause of action alleging
Nationwide’s liability, arguing: (1) it was not the insurer because
Scottsdale actually issued the policy at issue; and (2) Reliance
was not in privity of contract with Nationwide and could not
assert a direct cause of action unless there had been a judgment
for bodily injury, death or property damage under Insurance
Code section 11580 (hereafter “section 11580”), and a breach of
contract claim did not qualify.
      In an order issued December 21, 2018, the court sustained
the demurrer without leave to amend. It rejected Nationwide’s

      2  On July 26, 2020, Reliance submitted a request that we
take judicial notice of six documents from the bankruptcy case:
(1) a proof of claim by Reliance against IntelliLUM; (2) Reliance’s
motion for an order authorizing claims against the insurance
companies; (3) a notice of hearing on that motion; (4) an order
granting the motion; (5) a docket showing there was no objection
filed to Reliance’s claim; and (6) a final decree. It also requests
that we take judicial notice of three documents from the superior
court case: (1) an order dropping IntelliLUM’s demurrer to the
second amended complaint due to its suspended corporate status;
(2) an order deeming admitted certain requests for admission
propounded to IntelliLUM; and an entry of default against
IntelliLUM dated July 21, 2020. We grant the request. (Evid.
Code, §§ 452, subd. (d), 459.)

                                  3
argument that it was not IntelliLUM’s insurer, noting that
IntelliLUM had asserted several times that Nationwide was its
insurer and that Reliance had alleged the same in its FAC. The
court found, however, that the second argument had merit. It
reasoned that this was an action for failure to pay under a
contract, not for “bodily injury, death, or property damage” as
required for a direct action under section 11580. It additionally
noted that Reliance had not obtained a judgment against
IntelliLUM, as section 11580 requires. The court found that no
amendment by Reliance could cure the defect. It did not reach
the issue of whether there was coverage under the Nationwide
policy.
      On January 14, 2019, Reliance filed the SAC, which names
IntelliLUM, Brown, Nationwide and Scottsdale as defendants. It
alleged causes of action for breach of contract, common counts,
intentional misrepresentation, negligent misrepresentation, and
breach of the implied covenant of good faith and fair dealing
against IntelliLUM and Brown, causes of action for declaratory
relief and enforcement of judgment against Nationwide and
Scottsdale, and a cause of action for “Strike Sham Pleadings”
against all defendants.
      The cause of action for declaratory relief alleged that
Nationwide and Scottsdale were related entities that had issued
one or more insurance policies to IntelliLUM and Brown, that the
claims by Reliance against IntelliLUM and Brown were covered
by these policies, and that Nationwide and Scottsdale were
providing IntelliLUM and Brown with a defense. The cause of

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action for enforcement of judgment alleged that Reliance was a
judgment creditor of IntelliLUM because Reliance had filed a
proof of claim against IntelliLUM in the bankruptcy case that
was deemed admitted, and that Reliance was entitled to enforce
this judgment against Nationwide and Scottsdale under section
11580, subdivision (b)(1) and (2). Under the cause of action for
“Strike Sham Pleadings,” Reliance alleged that IntelliLUM and
Brown had moved to set aside a default in this case at
Nationwide and Scottsdale’s direction and that Nationwide and
Scottsdale had falsely denied coverage.
      Nationwide and Scottsdale filed a demurrer alleging: (1)
Nationwide had already been dismissed from the lawsuit when
the demurrer to the FAC was sustained without leave to amend;
(2) the SAC did not allege “wrongful death, bodily injury, or
property damage” as necessary to bring an action directly against
the insurer under section 11580; (3) there was no coverage under
the insurance policy for breach of contract claims; and (4) the
claims for “Enforcement Of Judgment” and “Strike Sham
Pleadings” were not legally cognizable. The trial court sustained
the demurrer without leave to amend and entered judgment in
favor of Nationwide and Scottsdale.
                          II. DISCUSSION
      A. Violation of Rules of Court
      We begin by addressing a significant flaw in Reliance’s
appellate briefing. The California Rules of Court require
litigants to “[s]upport any reference to a matter in the record by a
citation to the volume and page number of the record where the

                                 5
matter appears.” (Cal. Rules of Court, rule 8.204(a)(1)(C).) Thus,
stating facts—whether in the statement of facts, the procedural
history, or the argument portion of the brief—without providing
any record cite, or citing to only a document rather than to a page
in the record, violates this rule. (See, e.g., Evans v. Centerstone
Development Co. (2005) 134 Cal. App. 4th 151, 166–167 (Evans);
Doppes v. Bentley Motors, Inc. (2009) 174 Cal. App. 4th 967, 990.)
      Reliance’s opening and reply briefs do not contain citations
to the appellate record. When, as here, a litigant repeatedly
provides no page citations to the record, the rule violation is
egregious, significantly burdening the opposing party and the
court. (Evans, supra, 134 Cal.App.4th at pp. 166–167.) The
consequences of violating the Rules of Court can be severe. “[I]t
is counsel’s duty to point out portions of the record that support
the position taken on appeal,” and “[t]he appellate court is not
required to search the record on its own seeking error.” (Del Real
v. City of Riverside (2002) 95 Cal. App. 4th 761, 768.) Accordingly,
“[a] violation of the rules of court may result in the striking of the
offending document, the waiver of the arguments made therein,
the imposition of fines and/or the dismissal of the appeal.” (Ibid.;
see also Cal. Rules of Court, rule 8.204(e) [court may decline to
file noncomplying brief, or may file it but return it for corrections,
strike it with leave to file a new brief, or disregard the
noncompliance].)
      Although it is within our discretion to strike Reliance’s
briefing and order it to file amended briefs, we will not do so.
Having reviewed the record, we are convinced that complete and

                                  6
accurate record citations would not change our conclusion about
the merits of Reliance’s appeal. We admonish counsel and warn
that future violations of this sort may result in sanctions or other
consequences. (See Evans, supra, 134 Cal.App.4th at p. 166.)
      B. Standard of Review
      “Because the function of a demurrer is to test the
sufficiency of a pleading as a matter of law, we apply the de novo
standard of review in an appeal following the sustaining of a
demurrer without leave to amend. [Citation.] We assume the
truth of the allegations in the complaint, but do not assume the
truth of contentions, deductions, or conclusions of law. [Citation.]
It is error for the trial court to sustain a demurrer if the plaintiff
has stated a cause of action under any possible legal theory, and
it is an abuse of discretion for the court to sustain a demurrer
without leave to amend if the plaintiff has shown there is a
reasonable possibility a defect can be cured by amendment.”
(California Logistics, Inc. v. State of California (2008) 161
Cal. App. 4th 242, 247.) An argument that leave to amend should
have been granted can be raised for the first time on appeal.
(Eghtesad v. State Farm Gen. Ins. Co. (2020) 51 Cal. App. 5th
406, 411 (Eghtesad).)
      C. Order Sustaining Demurrer to FAC Without Leave to
         Amend
      Nationwide argued below that because the court had
sustained the demurrer to the FAC without leave to amend, it
could not be named as a defendant in the SAC. The trial court
did not, in its order, state the reasons it sustained the demurrer

                                   7
to the SAC, and did not reference its previous order sustaining
Nationwide’s demurrer to the FAC without leave to amend. The
court’s failure to mention this ground in its order sustaining the
demurrer to the SAC would not preclude us from considering the
issue in our de novo review of that ruling. (Aubry v. Tri–City
Hospital Dist. (1992) 2 Cal. 4th 962, 967; Fremont Indemnity Co.
v. Fremont General Corp. (2007) 148 Cal. App. 4th 97, 111.) But
Nationwide and Scottsdale have not raised the issue on appeal,
and it has therefore been abandoned and forfeited. (Davies v.
Sallie Mae, Inc. (2008) 168 Cal. App. 4th 1086, 1096 [issue not
raised in opening brief was abandoned].) We therefore consider
whether the SAC states a cause of action against the two
insurers.
      D. General Rule: Third Party Claimants May Not Directly
            Sue Liability Insurers
      Generally, an insurer may not be joined as a
party-defendant in the underlying action against the insured by
the injured third party. (Royal Indemnity, supra, 162
Cal.App.4th at p. 205; Shaolian v. Safeco Ins. Co. (1999) 71
Cal. App. 4th 268, 271 (Shaolian).) This is because the insurer’s
duties flow to the insured. (Shaolian at p. 271; San Diego
Housing Com. v. Industrial Indemnity Co. (2002) 95 Cal. App. 4th
669, 685 (San Diego Housing); Harper v. Wasau Ins. Co. (1997) 56
Cal. App. 4th 1079, 1086 (Harper).) “[E]ven though a third party
making a liability claim against an insured will benefit from the
insurer’s payment under the policy, the benefit is only incidental,
and the claimant is not a third party beneficiary of the contract.”

                                     8
(Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1994) 21
Cal. App. 4th 1586, 1600, see Murphy v. Allstate Ins. Co. (1976) 17
Cal. 3d 937, 944.)
      There are exceptions to this general rule. A party may
obtain an assignment that allows a suit against the insurer
directly. (San Diego Housing, supra, 95 Cal.App.4th at p. 685;
Shaolian, supra, 71 Cal.App.4th at p. 271.) A claimant may also
sue the insurer as a third party beneficiary utilizing traditional
contract principles when the claim involves a policy provision
that flows directly in favor of a third party (e.g., a provision
requiring the payment of a third party’s medical payments,
regardless of fault). (Id. at pp. 271–272.) “This is because the
medical coverage provisions provide direct obligations on the part
of the insurer to the intended beneficiaries.” (Harper, supra, 56
Cal.App.4th at p. 1089.) And once a party has a final judgment
against the insured, the claimant becomes a third party
beneficiary of the insurance policy and may enforce the terms
which flow to its benefit pursuant to Insurance Code section
11580 if the judgment is for “bodily injury, death or property
damage.” (Id. at p. 1086, fn. 2.)
      Thus, a pleading in which a third party purports also to sue
the defendant’s insurer directly does not state a cause of action
unless it alleges facts showing that one of these exceptions
applies. The SAC does not allege that Reliance obtained an
assignment from IntelliLUM or some other party that allowed it
to sue under IntelliLUM’s policy. Nor does it allege facts showing
that the policy or policies issued by Nationwide and Scottsdale

                                    9
contained a provision conferring third party beneficiary rights to
Reliance.3 This leaves section 11580.
      E. Section 11580
      Section 11580, subdivisions (a) and (b)(2) require that an
insurance policy “shall not be issued or delivered to any person in
this state unless it contains the provision” “that whenever
judgment is secured against the insured or the executor or
administrator of a deceased insured in an action based upon
bodily injury, death, or property damage, then an action may be
brought against the insurer on the policy and subject to its terms
and limitations, by such judgment creditor to recover on the
judgment.” “If this direct action provision is not included in the
policy, it is read into the policy.” (People ex rel. City of Willits v.
Certain Underwriters at Lloyd’s of London (2002) 97 Cal. App. 4th
1125, 1127.)
      The SAC alleged that Reliance obtained a “judgment
against IntelliLUM” as contemplated by section 11580 because
its claim against IntelliLUM in bankruptcy court was approved.
We assume, without deciding, that the allegation of an approved
bankruptcy claim was sufficient to allege a final judgment within
the meaning of section 11580. (See Nathansan v. Hecker (2002)
99 Cal. App. 4th 1158, 1163–1166 [bankruptcy court’s allowance of
claim is final judgment for purposes of res judicata].)
      Even assuming there is a judgment, that judgment was
based on money owed under a contract and did not arise from a

      3 Reliance has not attached a copy of the insurance policy or
policies to the SAC as an exhibit.

                                   10
claim for “bodily injury, death or property damage” under section
11580, subdivision (b)(2). (See Xebec Development Partners, Ltd.
v. National Union Fire Ins. Co. (1993) 12 Cal. App. 4th 501, 527,
disapproved on other grounds in Essex Ins. Co. v. Five Star Dye
House, Inc. (2006) 38 Cal. 4th 1252, 1265, fn. 4. [§ 11580 did not
authorize direct action because lawsuit for diversion of research
and development funds was not based upon “bodily injury, death
or property damage”]; Rolf Homes, Inc. v, Superior Court of San
Mateo County (1960) 186 Cal. App. 2d 876, 880–881 [action for
malpractice and fraud did not allow action under § 11580].)
Reliance argues that its case against IntelliLUM and Brown
includes torts as well as an alleged breach of contract, but none of
the torts (intentional misrepresentation, negligent
misrepresentation, breach of implied covenant of good faith and
fair dealing) involve “bodily injury, death or property damage.” A
direct action against the insurer is not authorized by section
11580 for the claims in this case.
      F. Does section 11580 Even Apply, And What is the Effect
         of This?
      Although Reliance alleged in the SAC that section 11580
authorized the present direct action, it now argues on appeal that
it is not constrained by this provision because the insurance
policy at issue was not “issued or delivered to any person in this
state.” (§ 11580,subd. (a).) It does not indicate in its opening
brief where the operative policy or policies were “issued or
delivered,” but asserts that IntelliLUM is incorporated and does

                                 11
business in Nevada, and that Nationwide and Scottsdale are
Ohio insurers.
      The SAC did not allege where Nationwide and Scottsdale
are incorporated or do business, or where the policy or policies at
issue were issued or delivered.4 Reliance appears to be correct
that section 11580 does not apply to policies not issued or
delivered in California. (Roberts v. Home Ins. Indem. Co. (1975)
48 Cal. App. 3d 313, 318 (Roberts) [in case involving California
action for injuries suffered by California resident against
Louisiana hotel insured by a policy issued in Louisiana, section
11580 did not apply]; Phillips v. Noetic Specialty Ins. Co. (S.D.
Cal. 2013) 919 F. Supp. 2d 1089, 1094 [section 11580 did not apply
to policy issued in Virginia and delivered in Pennsylvania to New
Jersey corporation]; see Ahern v. Dillenback (1991) 1 Cal. App. 4th
36, 49 [only policies issued or delivered in California are subject
to section 11580.2 and its requirement that a policy contain
uninsured motorists coverage].)
      But allegations supporting the application of a law other
than section 11580 only assist Reliance if that other law supports
a direct action against the insurers. Reliance has not
demonstrated that this is the case. Other than alleging in the
SAC that section 11580 authorizes the present action (which it
now disavows), Reliance did not argue in the trial court that the
law of any particular forum should be applied. And on appeal,

      4The SAC alleges that IntelliLUM is qualified to do
business in California and is incorporated in Nevada (though its
corporate status is suspended) and that Brown has conducted
business in both California and Nevada.

                                  12
Reliance has failed to argue in favor of one state law over another
and has not explained how the application of that law allows the
instant action. It simply asserts that the parties are from
jurisdictions other than California, that the insurance policy at
issue was delivered and issued outside California and that
section 11580 does not apply.
      It is one thing to say that an appellate court can consider
the issue of leave to amend for the first time on appeal when the
question is whether the plaintiff could allege facts showing that
an issue is controlled by another state’s law. (Eghtesad, supra,
51 Cal.App.5th at p. 411.) It is another to absolve a party from
explaining on appeal how the pleading could be amended. To the
extent some other state’s law would be beneficial to Reliance (a
fact not demonstrated), Reliance has forfeited its claim on appeal.
(See AICCO, Inc. v. Insurance Co. of North America (2001) 90
Cal. App. 4th 579, 595 [rejecting argument by defendant on
demurrer that Pennsylvania law should apply: It “has not made
a serious attempt to support its argument. It does not discuss
conflict of laws, comity, or full faith and credit in any detail, or
analyze why, under each principle, Pennsylvania, as opposed to
California law would apply. We deem the issue waived.”].) And
to the extent it argues that some California law other than
section 11580 should apply, we would default to the general rule
of this state that third parties may not directly sue a liability
insurance company. (Royal Indemnity, supra, 162 Cal. App. 4th
at p. 205.)

                                  13
      G. Joinder and Intervention
      Reliance contends that because IntelliLUM’s corporate
status was suspended, Nationwide and Scottsdale had a right to
intervene in the lawsuit Reliance filed against IntelliLUM and
Brown. (Reliance Ins. Co. v. Superior Court (Wells) (2000) 84
Cal. App. 4th 383, 386–388.) Neither Nationwide nor Scottsdale
did intervene, and Reliance cites no authority for the proposition
that they could be required to do so. Reliance cites Royal Surplus
Lines Ins. Co. v. Ranger Ins. Co. (2002) 100 Cal. App. 4th 193, 199,
for the proposition that an insurer may be joined in a suit when
insurance issues are “inextricably intertwined” with liability
issues. That case, however, involved a first party insurance
claim, which the court contrasted with the general rule that an
insurer may not be joined with its insured in a case involving
third party liability. (Id. at p. 200.) Moreover, Reliance alleges
no facts suggesting coverage in this case was inextricably
intertwined with liability issues.
      Reliance also suggests that because Nationwide and
Scottsdale have provided a defense to IntelliLUM and Brown, it
has demonstrated that they issued an insurance policy or policies
that obligate them to indemnify IntelliLUM and Brown for
Reliance’s claims. To the extent this point is relevant, we
disagree. The duty to defend is broader than the duty to
indemnify and defending an action is not the same as admitting
an obligation to indemnify. (Scottsdale Ins. Co. v. MV Transp.
(2005) 36 Cal. 4th 643, 657; Buss v. Superior Court (1997) 16
Cal. 4th 35, 46.)

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         H. Bankruptcy Order That Action Against Insurers Does
            Not Violate Stay
         The order of the bankruptcy court allowing Reliance to
pursue the insurance proceeds without violating the automatic
bankruptcy stay does not authorize the current action. While it
allows Reliance to proceed directly against the insurers to the
extent authorized by law, it does not purport to independently
authorize an action in state court which state court does not
allow.
         I. Conclusion
         The trial court did not err in sustaining the demurrer to the
SAC and did not abuse its discretion in doing so without leave to
amend. Reliance has not made any showing, either in the trial
court or on appeal, that it could amend the second amended
complaint to state facts sufficient to constitute a cause of action.
Given our ruling, we need not address the elements of the causes
of action individually.
                          III.   DISPOSITION
         The judgment is affirmed. Costs to respondents.

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                                       NEEDHAM, J.

We concur.

SIMONS, Acting P. J.

BURNS, J.

Reliance Steel & Aluminum Co. v. IntelliLUM, Inc. / A157239

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