Case Name:    Bay Area Surgical Management, LLC, et al. v. Lloyd’s, London, et al.

Case No.:        2014-1-CV-271552

Demurrer to Cross-Complaint and Each Cause of Action Therein by Cross-Defendants Bay Area Surgical Management, LLC, Bay Area Surgical Group, Inc., Forest Ambulatory Surgical Associates, L.P., Julia Hashemieh, Javad Zolfaghari, and Bobby Sarnevesht

On February 2, 2012, Aetna Life Insurance Company (“Aetna”) filed an action (“Underlying Action”) against Bay Area Surgical Management, LLC (“BASM”), Bay Area Surgical Group, Inc. (“BASG”), Forest Ambulatory Surgical Associates, L.P. (“FASA”), Julia Hashemieh, Javad Zolfaghari, and Bobby Sarnevesht (collectively, “Cross-Defendants”), among others, alleging Cross-Defendants owned, operated, or managed ambulatory surgery centers (“ASCs”). (Cross-Complaint, ¶¶4, 23, and 24.)  Aetna alleged Cross-Defendants conspired together and implemented an improper billing scheme that resulted in Aetna’s overpayment of approximately $20 million to the Cross-Defendants. (Cross-Complaint, ¶¶25 – 27.)  The only remedy Aetna sought was restitution of the amount it overpaid Cross-Defendants. (Cross-Complaint, ¶28.)  On April 13, 2016, Aetna prevailed at trial when the jury returned a verdict of over $37 million plus interest against Cross-Defendants. (Cross-Complaint, ¶29.)  On July 7, 2016, Cross-Defendants filed notices of appeal in the Underlying Action. (Cross-Complaint, ¶30.)

Cross-complainants Allied World Assurance Company (U.S.) (“Allied World”) and Allied World Surplus Lines Insurance Company f.k.a. Darwin Select Insurance Company (“Darwin”) issued liability insurance policies (“Policies”) to FASA, BASM, and BASG. (Cross-Complaint, ¶3.)  Cross-defendants Julia Hashemieh, Javad Zolfaghari, and Bobby Sarnevesht (collectively, “Individual Cross-Defendants”) contend they are insureds under the Policies issued to cross-defendants BASM, BASG, and FASA and are entitled to a duty to defend and indemnify with respect to the Underlying Action. (Cross-Complaint, ¶15.)  Allied World has paid $1,616,451.55 and Darwin has paid $1,000,000 for costs related to the defense of the Underlying Action subject to a reservation of all rights and defenses. (Cross-Complaint, ¶6.)

Cross-Defendants tendered the Underlying Action to cross-complainants Allied World and Darwin under the Policies. (Cross-Complaint, ¶31.)  Subject to a reservation of rights, cross-complainants Allied World and Darwin agreed to provide a defense to the Cross-Defendants in the Underlying Action. (Cross-Complaint, ¶32.)

By letters dated June 17, 2016, cross-complainant Allied World notified cross-defendants BASG and FASA that Allied World never had a duty to defend or indemnify the Underlying Action because the “Managed Care Activities Exclusion” applied. (Cross-Complaint, ¶33.)  Cross-complainant Allied World also reserved its right to deny coverage under two other exclusions which apply once a final judgment or adjudication is entered in the Underlying Action. (Id.)  Cross-complainant Allied World demanded immediate reimbursement of defense costs paid but cross-defendants BASG and FASA have not reimbursed cross-complainant Allied World. (Cross-Complaint, ¶34.)

By a letter dated June 17, 2016, cross-complainant Darwin notified cross-defendants BASM that Darwin never had a duty to defend or indemnify the Underlying Action because the “Restitution Exclusion” applied and Darwin’s duty to defend had been satisfied by reason of paying the full limits of liability. (Cross-Complaint, ¶35.)  Cross-complainant Darwin also reserved its right to deny coverage under one other exclusion after a final judgment or adjudication is entered in the Underlying Action. (Id.)

On June 8, 2016, Cross-Defendants filed a complaint against cross-complainants Allied World, Darwin, and others.  On July 13, 2016, cross-complainants Allied World and Darwin filed a cross-complaint against Cross-Defendants which asserted causes of action for:

  • Reimbursement against BASG and FASA – Quasi-Contract
  • Breach of Contract against BASG
  • Breach of Contract against FASA
  • Declaratory Relief against FASA, BASG and Individual Cross-Defendants – Allied World has no duty to defend under the Managed Care Activities Exclusion
  • Declaratory Relief against FASA, BASG and Individual Cross-Defendants – Allied World has no duty to defend under Exclusions III.A and III.B
  • Declaratory Relief against FASA, BASG and Individual Cross-Defendants – Allied World has no duty to indemnify under the Managed Care Activities Exclusion
  • Declaratory Relief against FASA, BASG and Individual Cross-Defendants – Allied World has no duty to indemnify under Exclusions III.A and III.B
  • Declaratory Relief against BASM and Individual Cross-Defendants – Darwin has no further duty to defend based on the Restitution Exclusion
  • Declaratory Relief against BASM and Individual Cross-Defendants – Darwin has no further duty to defend under Exclusion [IV](A)(1)
  • Declaratory Relief against BASM and Individual Cross-Defendants – Darwin has no further duty to indemnify under the Restitution Exclusion
  • Declaratory Relief against BASM and Individual Cross-Defendants – Darwin has no further duty to indemnify under Exclusion IV.(A)(1)

On July 27, 2016, the court issued an order consolidating this action with two other actions.

On September 7, 2016, Cross-Defendants filed this demurrer to cross-complainants Allied World and Darwin’s cross-complaint.

  1. Requests for judicial notice.

In support of their demurrer, the Cross-Defendants request judicial notice of various court records from the Underlying Action, Santa Clara County Superior Court, case number 1-12-CV-217943, Aetna Life Insurance Company v. Bay Area Surgical Management, LLC, et al.  Evidence Code section 452, subdivision (d) states that the court may take judicial notice of “[r]ecords of any court of this state.”  This section of the statute has been interpreted to mean that the trial court may take judicial notice of the existence of the court’s own records. Evidence Code section 452 and 453 permit the trial court to “take judicial notice of the existence of judicial opinions and court documents, along with the truth of the results reached—in the documents such as orders, statements of decision, and judgments—but [the court] cannot take judicial notice of the truth of hearsay statements in decisions or court files, including pleadings, affidavits, testimony, or statements of fact.” (People v. Woodell (1998) 17 Cal.4th 448, 455.)

Accordingly, Cross-Defendants’ request for judicial notice in support of demurrer to cross-complaint and each cause of action therein is GRANTED.  The court takes judicial notice of the existence of the documents, not necessarily the truth of any matters asserted therein.

In opposition to the demurrer, cross-complainants Allied World and Darwin request judicial notice of court records from the Underlying Action and court records from the consolidated action.  Based on the authority above, cross-complainants Allied World and Darwin’s request for judicial notice in support of cross-complainants’ opposition to cross-defendants’ demurrer to cross-complaint and each cause of action therein is GRANTED.  The court takes judicial notice of the existence of the documents, not necessarily the truth of any matters asserted therein.

 

  1. Cross-Defendants’ demurrer to the cross-complaint is SUSTAINED, in part, and OVERRULED, in part.

 

  1. Cross-defendants BASG and FASA’s demurrer to the first cause of action is OVERRULED.

 

In the first cause of action, cross-complainant Allied World seeks reimbursement for costs to defend cross-defendants BASG and FASA in the Underlying Action.

 

“An insurer must defend any action that asserts a claim potentially seeking damages within the coverage of the policy. [Citation.] ‘[T]he insured need only show that the underlying claim may fall within policy coverage . . . .’ [Citation.] The duty to defend begins when a potential for coverage arises, and the duty continues until the insurer proves otherwise.” (Maryland Casualty Co. v. Nationwide Ins. Co. (1998) 65 Cal.App.4th 21, 32 – 33.)

 

An “insurer has a duty to defend the insured as to the claims that are at least potentially covered. With regard to defense costs for these claims, the insurer has been paid premiums by the insured. It bargained to bear these costs.” (Buss v. Superior Court (1997) 16 Cal.4th 35, 49 (Buss).)  “As to the claims that are not even potentially covered, however, the insurer may indeed seek reimbursement for defense costs.” (Buss, supra, 16 Cal.4th at p. 50.)  “[T]he insurer does not have a duty to defend the insured as to the claims that are not even potentially covered.” (Id.)

 

The duty to defend “is discharged when the action is concluded. [Citation.] It may be extinguished earlier, if it is shown that no claim can in fact be covered. [Citation.] If it is so extinguished, however, it is extinguished only prospectively and not retroactively: before, the insurer had a duty to defend; after, it does not have a duty to defend further. [Citations.]” (Id. at p. 46.)

 

In the first cause of action of the cross-complaint, cross-complainant Allied World alleges that it is entitled to reimbursement from cross-defendants BASG and FASA because Allied World never had a duty to defend because the Managed Care Activities Exclusion applied. (Cross-Complaint, ¶¶33 and 36.)  According to cross-complainant Allied World, it defended cross-defendants BASG and FASA from claims “in the Underlying Action which are not potentially covered” under the relevant policies. (Cross-Complaint, ¶37.)

 

Cross-defendants BASG and FASA demur by arguing that there are no specific factual allegations to support cross-complainant Allied World’s bare allegation that the Managed Care Activities Exclusion applied here.  As an example, cross-defendants contend Allied World fails to state what facts triggered the application of this exclusion or when those facts became known.  The only authority cross-defendants cite is Freeman v. San Diego Ass’n of Realtors (1999) 77 Cal.App.4th 171, 189 (Freeman) where the court wrote, “A general demurrer will be sustained where the complaint makes conclusory allegations of a combination and does not allege with factual particularity that separate entities maintaining separate and independent interests combined for the purpose to restrain trade.”  Cross-defendants’ reliance on Freeman is distinguishable as Freeman involved a claim for violation of the Cartwright Act (unlawful price fixing).  The citation from Freeman is derived from G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, 265–66 where the court wrote:

 

Our high court demands a “high degree of particularity in the pleading of Cartwright Act violations. (Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 326-328 [70 Cal.Rptr. 849, 444 P.2d 481].)” (Motors, Inc. v. Times Mirror Co. (1980) 102 Cal.App.3d 735, 742 [162 Cal.Rptr. 543].) Consequently, generalized allegations of civil antitrust violations are usually insufficient (Chicago Title Ins. Co. (1968) 69 Cal.2d 305, at p. 317 [70 Cal.Rptr. 849, 444 P.2d 481]) and the unlawful combination or conspiracy must be alleged with specificity. In Chicago Title Ins. Co. v. Great Western Financial Corp. (1968), supra., 69 Cal.2d 305, 316-317, the court noted that “’contracts, combinations, or conspiracies in restraint of … trade or commerce cannot be alleged generally in the words of the statute but … facts must be set forth which indicate the existence of such contracts, combinations or conspiracies.”’ Thus, general allegations of a conspiracy unaccompanied by a statement of facts constituting the conspiracy and explaining its objectives and impact in restraint of trade will not suffice.4 (Id., at pp. 317-318; Bartley v. California  Association of Realtors (1980) 115 Cal.App.3d 930, 935 [173 Cal.Rptr. 284].) Put slightly differently, the lack of factual allegations of specific conduct directed toward furtherance of the conspiracy to eliminate or reduce competition renders the complaint legally insufficient. (Jones v. H. F. Ahmanson & Co., supra., 1 Cal.3d 93, 119.)

 

As this case does not involve Cartwright Act violations, the citation from Freeman is inapplicable here.  Cross-defendants proffer no authority which requires more particularized pleading for a claim of reimbursement by an insurer.  Accordingly, cross-defendants BASG and FASA’s demurrer to the first cause of action of the cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [ Code Civ. Proc., §430.10, subd. (e)] for quasi-contractual reimbursement is OVERRULED.

 

  1. Cross-defendants BASG and FASA’ demurrer to the second and third causes of action is OVERRULED.

 

The second and third causes of action allege cross-defendants BASG and FASA breached the contractual obligation to reimburse cross-complainant Allied World.  “A complaint for the breach of contract must include the following: (1) the existence of a contract, (2) plaintiff’s performance or excuse for non-performance, (3) defendant’s breach, and (4) damages to plaintiff therefrom.” (Acoustics, Inc. v. Trepte Construction Co. (1971) 14 Cal.App.3d 887, 913.)

 

Cross-defendants BASG and FASA’s demurrer to the second and third causes of action essentially incorporates their earlier argument raised in demurring to the first cause of action, i.e., cross-complainant Allied World has not alleged any facts to show that the Managed Care Activities Exclusion applies.  For the same reasons discussed above, cross-defendants’ argument is not persuasive.

 

Accordingly, cross-defendants BASG and FASA’s demurrer to the second and third causes of action of the cross-complaint, respectively, on the ground that the pleading does not state facts sufficient to constitute a cause of action [ Code Civ. Proc., §430.10, subd. (e)] for breach of contract is OVERRULED.

 

  1. Cross-defendants BASG, FASA, and the Individual Cross-Defendants’ demurrer to the fourth and sixth causes of action is SUSTAINED.

 

Cross-defendants BASG, FASA, and the Individual Cross-Defendants demur to the fourth and sixth causes of action for declaratory relief by arguing that the claims are duplicative and declaratory relief is intended to address rights prospectively, not retrospectively.

 

“A complaint for declaratory relief should show the following: (a) A proper subject of declaratory relief within the scope of C.C.P. 1060; (b) An actual controversy involving justiciable questions relating to the rights or obligations of a party.”  (5 Witkin, California Procedure (4th ed. 1997) §809, pp. 264 – 265; emphasis omitted.)  Code of Civil Procedure section 1060 specifically provides for a declaration of rights and duties between two persons.  “Any person claiming rights under a contract (oral or written) … may bring an action for a declaration of his or her rights or duties with respect to another. [Citations.]  The action may be brought before any breach of the obligation regarding which the declaration is sought.”  (Weil & Brown, CAL. PRAC. GUIDE: CIV. PROC. BEFORE TRIAL (The Rutter Group 2016) ¶6:186, p. 6-63 citing Code Civ. Proc., §1060; Market Lofts Community Ass’n v. 9th St. Market Lofts, LLC (2014) 222 Cal.App.4th 924, 931.)

 

The court in Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1403 wrote, “declaratory relief operates prospectively, and not merely for the redress of past wrongs.  It serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs; in short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them.”  Cross-defendants point out the specific allegation by cross-complainant Allied World that it has already repudiated its obligation to defend and indemnify. (See Cross-Complaint, ¶33.)  Hence, where there is an accrued cause of action for an actual breach of contract or other wrongful act, declaratory relief may be denied.”  (5 Witkin, California Procedure (4th ed. 1997) Pleading, §823, p. 279.)  Since the cross-complaint already seeks reimbursement in the first cause of action and breach of contract in the second and third causes of action, cross-defendants contend declaratory relief is unnecessary.

 

It is statutorily recognized that declaratory relief is within the discretion of the trial court.  “The court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.”  ( Code Civ. Proc. §1061.)  “The declaratory relief statute should not be used for the purpose of anticipating and determining an issue which can be determined in the main action.  The object of the statute is to afford a new form of relief where needed and not furnish a litigant with a second cause of action for the determination of identical issues.”  (California Ins. Guarantee Assn. v. Superior Court (1991) 231 Cal.App.3d 1617.)

 

Cross-complainant Allied World argues, in opposition, that declaratory relief is nevertheless proper where there is a continuing obligation under the contract citing to Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 377 (Osseous).  However, a mere continuing contractual relationship is not enough.  Osseous suggests that there must also be allegations that the “future consequences for the conduct of the relationship that depended on the court’s interpretation of the contracts at issue.”  (Osseous, supra, 191 Cal.App.4th at p. 371.)  No such allegations are found in the cross-complaint.

 

Accordingly, cross-defendants BASG, FASA, and the Individual Cross-Defendants’ demurrer to the fourth and sixth causes of action of the cross-complaint, respectively, on the ground that the pleading does not state facts sufficient to constitute a cause of action [ Code Civ. Proc., §430.10, subd. (e)] for declaratory relief is SUSTAINED with 10 days’ leave to amend.

 

  1. Cross-defendants BASG, FASA, and the Individual Cross-Defendants’ demurrer to the fifth and seventh causes of action is SUSTAINED.

 

In the fifth and seventh causes of action of the cross-complaint, cross-complainant Allied World seeks a judicial declaration that it has no duty to defend and has not duty to indemnify under Exclusions III.A and III.B.  By their very terms, those exclusions apply only where “a final judgment or adjudication establishes” some conduct or action by the insured.  (Cross-Complaint, ¶19 and Exhs. A – B.)  “[F]inality … is not achieved until an appeal from the trial court judgment has been exhausted or the time to appeal has expired.” (Franklin & Franklin v. 7-Eleven Owners for Fair Franchising (2000) 85 Cal.App.4th 1168, 1174.)  Yet, the cross-complaint acknowledges and alleges cross-defendants filed notices of appeal in the Underlying Action on July 7, 2016. (Cross-Complaint, ¶30.)  As such, cross-defendants contend cross-complainant Allied World has not adequately alleged an “actual controversy.”

 

Whether a case is founded upon an “actual controversy” centers on whether the controversy is justiciable. “The principle that courts will not entertain an action which is not founded on an actual controversy is a tenet of common law jurisprudence, the precise content of which is difficult to define and hard to apply. The concept of justiciability involves the intertwined criteria of ripeness and standing. A controversy is ‘ripe’ when it has reached, but has not passed, the point that the facts have sufficiently congealed to permit an intelligent and useful decision to be made.”

 

(Stonehouse Homes v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 540 (Stonehouse).)

 

To determine if a controversy is ripe, we employ a two-pronged test: (1) whether the dispute is sufficiently concrete that declaratory relief is appropriate; and (2) whether withholding judicial consideration will result in the parties suffering hardship. (Pacific Legal, supra, 33 Cal.3d at pp. 171–173, 188 Cal.Rptr. 104, 655 P.2d 306; Stewart, supra, 126 Cal.App.4th at p. 59, 24 Cal.Rptr.3d 72.) “Under the first prong, the courts will decline to adjudicate a dispute if ‘the abstract posture of [the] proceeding makes it difficult to evaluate … the issues’ [citation], if the court is asked to speculate on the resolution of hypothetical situations [citation], or if the case presents a ‘contrived inquiry’ [citation]. Under the second prong, the courts will not intervene merely to settle a difference of opinion; there must be an imminent and significant hardship inherent in further delay. [Citation.]

 

(Stonehouse, supra, 167 Cal.App.4th at p. 540.)

 

In opposition, cross-complainant contends the matter is ripe under the two-prong test enunciated in Stonehouse.  Yet, Stonehouse makes clear that the complaint must include factual allegations to support both prongs. (See Stonehouse, supra, 167 Cal.App.4th at p. 542—“Under the second prong, moreover, the trial court also correctly concluded the complaint failed to allege facts showing “ ‘an imminent and significant hardship inherent in further delay.’ ”)

 

Accordingly, cross-defendants BASG, FASA, and the Individual Cross-Defendants’ demurrer to the fifth and seventh causes of action of the cross-complaint, respectively, on the ground that the pleading does not state facts sufficient to constitute a cause of action [ Code Civ. Proc., §430.10, subd. (e)] for declaratory relief is SUSTAINED with 10 days’ leave to amend.

 

  1. Cross-defendants BASM and the Individual Cross-Defendants’ demurrer to the eighth cause of action is OVERRULED.

 

In the eighth cause of action, cross-complainant Darwin seeks a judicial declaration that the Restitution Exclusion applies to the claims in the Underlying Action and that Darwin’s duty to defend has been satisfied by reason of paying the full limits of liability under the policy. (Cross-Complaint, ¶87.)

 

Initially, cross-defendants BASM and the Individual Cross-Defendants demur on the ground that this cause of action combines two separate claims and, consequently, the cause of action is uncertain.  “‘A special demurrer should not be sustained if the allegations are sufficiently clear to apprise the defendant of the issues that must be met, even if the allegations of the complaint may not be as clear and as detailed as might be desired. [Citations.]’” (Gonzales v. State of California (1977) 68 Cal.App.3d 621, 631.)  “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.”  (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)  Here, the eighth cause of action is not so uncertain that cross-defendants cannot determine what issues must be met as evidenced by moving cross-defendants’ several arguments, some addressed to the Restitution Exclusion and one addressed to the claim of exhaustion of policy limits.

 

Next, cross-defendants BASM and the Individual Cross-Defendants demur by arguing that the language of the Restitution Exclusion contains an explicit exception for defense costs.  As alleged in the cross-complaint, the Restitution Exclusion begins by stating, “Except for Defense Expenses, the Insurer shall not pay Loss for any Claim…”  Thus, the moving cross-defendants contend this exclusion cannot apply to the duty to defend because it carves out defense expenses.

 

In opposition, cross-complainant Darwin counters by arguing that moving cross-defendants misunderstand the allegations of the eighth cause of action.  Cross-complainant Darwin openly acknowledges the exception for “Defense Expenses” and explains that it seeks a judicial declaration that it does not owe any further duty to defend because the eighth cause of action specifically alleges that the policy limits for losses arising from the Underlying Action are $1,000,000 and it has paid the full limits of the policy. (Cross-Complaint, ¶¶82 – 84.)  The eighth cause of action does not rest solely on the language or application of the Restitution Exclusion.  (See also Financial Corp. of America v. Wilburn (1987) 189 Cal.App.3d 764, 778—“[A] defendant cannot demur generally to part of a cause of action;” see also PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682—“A demurrer does not lie to a portion of a cause of action;” Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 274—“ A demurrer challenges a cause of action and cannot be used to attack a portion of a cause of action.”)

 

Moving cross-defendants argue further that cross-complainant’s claim of exhaustion of policy limits does not apply because of the existence of “Other Insurance” provisions in the Policies state that insurance provided under the respective policies shall apply as excess over any other valid and collectible insurance.  However, as cross-complainant Darwin points out, the court cannot determine as a matter of law at the pleading stage whether there exists some “other valid and collectible insurance.”

 

Accordingly, cross-defendants BASM and the Individual Cross-Defendants’ demurrer to the eighth cause of action of the cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [ Code Civ. Proc., §430.10, subd. (e)] for declaratory relief is OVERRULED.

 

  1. Cross-defendants BASM and the Individual Cross-Defendants’ demurrer to the ninth cause of action is OVERRULED.

 

In the ninth cause of action, cross-complainant Darwin seeks a judicial declaration that the exclusion found at paragraph IV(A)(1) of the Darwin policy applies to the claims in the Underlying Action and that Darwin’s duty to defend has been satisfied by reason of paying the full limits of liability under the policy. (Cross-Complaint, ¶99.)

 

Cross-defendants BASM and the Individual Cross-Defendants demur on grounds similar to the ones asserted to the eighth cause of action.  For the same reasons discussed above, cross-defendants BASM and the Individual Cross-Defendants’ demurrer to the ninth cause of action of the cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [ Code Civ. Proc., §430.10, subd. (e)] for declaratory relief is OVERRULED.

 

  1. Cross-defendants BASM and the Individual Cross-Defendants’ demurrer to the tenth cause of action is OVERRULED.

 

In the tenth cause of action, cross-complainant Darwin seeks a judicial declaration that the Restitution Exclusion applies to the claims in the Underlying Action and that Darwin has no duty to indemnify. (Cross-Complaint, ¶87.)

 

The moving cross-defendants contend this claim for declaratory relief fails because the terms of the exclusion state that Darwin “shall not pay any Loss for any Claim seeking relief or redress in any form other than monetary damages, including without limitation the restitution the disgorgement of funds and the cost of complying with any injunctive, declaratory, or administrative relief.” (Cross-Complaint, ¶20.)  The moving cross-defendants then ask the court to take judicial notice of the Judgment on Jury Verdict and Directed Verdict in the Underlying Action which does not mention the term restitution.  However, the opposition provides judicial notice that the judgment in the Underlying Action has been vacated.  Consequently, the moving cross-defendants cannot rely on the document to overcome the allegation that the only remedy Aetna sought was restitution. (Cross-Complaint, ¶28.)

 

Moving cross-defendants also invite the court to sustain the demurrer to this cause of action on the basis that Darwin has already put this exclusion at issue in its answer.  Moving cross-defendants cite to Girard v. Miller (1963) 214 Cal.App.2d 266, 277 (Girard), where the court wrote, “Under section 1061 of the Code of Civil Procedure the court may refuse to exercise the power to grant declaratory relief where the same is not necessary or proper at the time under all the circumstances. The availability of another form of relief that is adequate will usually justify refusal to grant declaratory relief.”  An answer functions to deny allegations made in the complaint and set forth any affirmative defenses.  A cross-complaint’s function is to allow a defendant to assert claims for affirmative relief.  Girard does not stand for the proposition that the assertion of an exclusion in the answer is adequate relief justifying a refusal to grant declaratory relief.

 

Accordingly, cross-defendants BASM and the Individual Cross-Defendants’ demurrer to the tenth cause of action of the cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [ Code Civ. Proc., §430.10, subd. (e)] for declaratory relief is OVERRULED.

 

  1. Cross-defendants BASM and the Individual Cross-Defendants’ demurrer to the eleventh cause of action is SUSTAINED.

 

In the eleventh cause of action, cross-complainant Darwin seeks a judicial declaration that the exclusion found at paragraph IV(A)(1) of the Darwin policy applies to the claims in the Underlying Action and that Darwin has no duty to indemnify. (Cross-Complaint, ¶87.)

 

Moving cross-defendants argue that this particular exclusion applies, by its terms, only upon a final adjudication.   Moving cross-defendants reiterate their earlier argument that the cross-complaint acknowledges and alleges cross-defendants filed notices of appeal in the Underlying Action on July 7, 2016. (Cross-Complaint, ¶30.)  As such, cross-defendants contend cross-complainant Darwin has not adequately alleged an “actual controversy.”

 

For the reasons discussed above, cross-defendants BASM and the Individual Cross-Defendants’ demurrer to the eleventh cause of action of the cross-complaint on the ground that the pleading does not state facts sufficient to constitute a cause of action [ Code Civ. Proc., §430.10, subd. (e)] for declaratory relief is SUSTAINED with 10 days’ leave to amend.