Preview
J. Edward Kerley (175695) Electronically
Dylan L. Schaffer (153612)
Kerley Schaffer LLP by Superior Court of California, County of San Mateo.
1939 Harrison Street, #500 ON 6/26/2020
Oakland, California 94612
Telephone: (510) 379-5801 By /s/ Wai Shan Lee
Deputy Clerk
Facsimile: (510) 228-0350
John R. Parker, Jr. (257761)
Cutter Law P.C.
401 Watt Avenue
Sacramento, California 95864
Telephone: (916) 290-9400
Facsimile: (916) 588-9350
Attorneys for Plaintiffs
10
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12 SUPERIOR COURT FOR THE STATE OF CALIFORNIA
13 FOR THE COUNTY OF SAN MATEO
14 DONNA MARIE MESCHLI, an individual, CLASS ACTION
VINCENT MESCHLI, an individual, on
15 behalf of themselves and a class of similarly Case No. 16-CIV-02607
situated persons, and ROES 1-10. PLAINTIFFS’ OPPOSITION TO
16
DEMURRER
17 Plaintiffs,
Date: August 14, 2020
18 Vv, Time: 2:00 p.m.
Dept.: 22
19 MERCURY CASUALTY COMPANY, a
Assigned to Hon. Danny Y. Chou for all
20 corporation, CALIFORNIA purposes
AUTOMOBILE INSURANCE
21 COMPANY, a corporation, MERCURY Date Filed: November 29, 2016
INSURANCE SERVICES, LLC, a limited Trial Date T.B.D.
22 liability corporation, and DOES 3 through 10,
23 Defendants.
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1
PLAINTIFFS’ OPPOSITION TO DEMURRER
TABLE OF CONTENTS
THE LAWSUIT
I. The SAC adequately alleges that defendants are alter-egos
IL. Because the Mercury defendants are alter-egos, Plaintiffs have standing 10
A. Plaintiffs have standing to assert the UCL Claims on behalf of CAIC
policyholders 10
B. Plaintiffs have standing to assert causes of action against MIS 11
C. The Tranrule applies 12
D. Additional allegations that there will be an inequitable result if the entities
10 are not equally liable 15
11 IIL. The SAC adequately alleges class causes of action 16
12 A. The SAC adequately alleges that the claims are typical 18
13 B. The SAC adequately alleges that the class is ascertainable 19
14 C. The Court should decline to reconsider its prior ruling on the
15 commonality issue; alternatively, the Court should reject the argument on
16 the basis of arguments previously accepted by the Court 21
17 D. The SAC is otherwise sufficient to withstand demurrer 22
18 CONCLUSION 23
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2
PLAINTIFFS’ OPPOSITION TO DEMURRER
TABLE OF AUTHORITIES
CASES
Arce v. Kaiser Found. Health Plan, Inc.,
181 Cal.App.4th 471, 487 (2010) 17
Atempa v. Pedrazzani,
27 Cal.App.5th 809 (2018)
Basurco v. 21st Century Ins. Co.,
108 Cal.App.4th 110 (2003) 9,17
Best Buy Stores, L.P. v. Superior Court,
137 Cal.App.4th 772 (2006)
10 Blakemore v. Super. Ct.,
129 Cal.App.4th 36 (2005) 17
11
Brinker Rest. Corp. v. Super. Ct.,
12 53 Cal.4th 1004 (2012) 17
13
California Fair Plan Ass'n v. Garnes,
14 11 Cal.App.Sth 1276 (2017)
15 Castaneda v. Ensign Group, Inc.,
229 Cal.App.4th 1015 (2014)
16
17 Classen v. Weller,
145 Cal.App.3d 27 (1983) 18
18
Colonial Life & Accident Ins. Co. v. Superior Court,
19 31 Cal.3d 785, 791 (1982) 15
20
Constellation-F, LLC v. World Trading 23, Inc.,
21 45 Cal. App.Sth 22 (2020)
22 Evans v. Lasco Bathware, Inc.,
178 Cal.App.4th 1417 (2009) 20
23
Daar v. Yellow Cab Co.,
24
67 Cal.2d 695 (1967) 20
25 Las Palmas Associates v. Las Palmas Center Associates,
26 235 Cal.App.3d 1220 (1991) 18
27 Marler v. E.M. Johansing, LLC,
199 Cal. App. 4th 1450 (2011) 20
28
3
PLAINTIFFS’ OPPOSITION TO DEMURRER
TABLE OF AUTHORITIES, CONT’D
Medrazo v. Honda of N. Hollywood,
166 Cal.App.4th 89 (2008) 18
MGA Entertainment, Inc. v. Hartford Insurance Group,
2012 WL 12894053 (C.D. Cal., Jan. 27, 2012) 8, 11, 12
Newell v. State Farm Gen. Ins. Co.,
118 Cal.App.4th 1094 (2004) 22
Nicodemus v. Saint Francis Mem’] Hosp.,
3 Cal.App.5th 1200 (2016) 17, 18
Pioneer Electronics (USA), Inc. v. Superior Court,
40 Cal.4th 360 (2007)
10
11 Prince v. CLS Transp., Inc.,
118 Cal.App.4th 1320 (2004) 17
12
Sandoval v. Ali,
13 34 F.Supp.3d 1031 (N.D. Cal. 2014) 10
14
Sav-On Drug Stores v. Super. Ct.,
15 34 Cal.4th 319, 334 (2004) 9,17
16 Sevidal v. Target Corp.,
189 Cal.App.4th 905 (2010) 20
17
Sotelo v. MediaNews Grp., Inc.,
18
207 Cal.App.4th 639 (2012) 20
19
Tarkington v. California Unemployment Ins. Appeals Bd.,
20 172 Cal.App.4th 1494, 1511 (2009) 17
21 Thompson v. Automobile Club of Southern California,
22
217 Cal.App.4th 719 (2013) 20
23 Tran v. Farmers Group, Inc.,
104 Cal.App.4th 1202 (2002) passim
24
Troyk v. Farmers Group, Inc.,
25 171 Cal.App.4th 1305, 1341 (2009) 7,11
26 Vu v. Liberty Mutual Insurance Company,
27
2018 WL 5982867 (N.D. Cal. 2018) 11, 12
28
4
PLAINTIFFS’ OPPOSITION TO DEMURRER
TABLE OF AUTHORITIES, CONT’D
Wershba v. Apple Computer, Inc.,
91 Cal.App.4th 224 (2001) 18
STATUTES/CODES
Business & Professions Code §17200 10
Code of Civil Procedure §1008 22
Evidence Code §451 18
Evidence Code §452 16, 18, 22
10
Insurance Code §2051 6, 18, 22
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5
PLAINTIFFS’ OPPOSITION TO DEMURRER
For the second time in this litigation Mercury! asserts that Plaintiffs’ complaint fails as a
matter of law. The Court should overrule its Demurrer, just as it denied Mercury Casualty
Company’s (“MCC”) prior Motion for Judgment on the Pleadings.
THE LAWSUIT
In California, payment to insureds for contents losses in property damage claims are
strictly governed by statute: if a loss covered by a homeowners’ policy destroys Ms. Jones’s
toaster, before she buys a new one, her insurer is obligated to pay at least the actual cash value
(“ACV”) of the ruined toaster—that is, the amount it would cost Ms. Jones to replace the
toaster.” The insurer can take a depreciation deduction, but such a deduction is limited to
10 “physical depreciation based upon [the condition of the toaster] at the time of the [fire].”? The
11 statute does not permit insurers to base depreciation entirely—or in part—on the age of the
12 toaster; rather, depreciation must rely solely on the property’s actual physical condition at the
13 time of the loss.
14 Thereafter, if Ms. Jones buys a new toaster, the insurer’s liability is not limited to the
15 amount it had predicted it would cost Ms. Jones to replace the item. Rather, the insurer must
16 reimburse Ms. Jones for the amount she actually spent to buy a new toaster (i.e., the replacement
17 cost), unless it can show that amount is unreasonable.*
18 Across tens of thousands of covered insurance-claims, insuring entities within the
19 Mercury umbrella amassed millions in additional profits by violating both rules: (a) those
20 companies systematically paid less than ACV for damaged contents by employing illegal
21 depreciation methods across contents-claims, and (b) they systematically paid less than the true
22 replacement-cost, relying on illegal policy language, which drove such loss-settlement practices.
23
' Defendants are referred to collectively as “Mercury.” When appropriate defendants are
24
individually identified.
25 ? Ins. Code §2051(b); California Fair Plan Ass’n v. Garnes, 11 Cal.App.Sth 1276, 1282 (2017)
(Section 2051(b) “sets a minimum standard of coverage that requires [insurers] to indemnify
26 [insureds] for the actual cost of the repair . . . minus depreciation . . . .” (emphasis added).).
27 3 Ins. Code §2051(b).
28 4 Ins. Code §2051.5(a).
6
PLAINTIFFS’ OPPOSITION TO DEMURRER
The Second Amended Complaint (“SAC”) seeks to correct Mercury’s systematic violation of the
California Insurance Code and obtain withheld policy benefits on behalf of Mercury
policyholders.
I The SAC adequately alleges that defendants are alter-egos.
Mercury contends that because Plaintiffs’ insurance contract was issued by Mercury
Casualty Company (“MCC”), neither California Automobile Insurance Company (“CAIC”), nor
Mercury Insurance Services (“MIS”), is a proper defendant. Mercury is wrong.
The SAC alleges violations of California law by entities “acting as a single enterprise . . .
.> “The alter ego doctrine is an equitable principle that elevates substance over form in order to
10 prevent an inequitable result arising from unjustifiably observing a corporation’s separate
11 existence.” “A plaintiff seeking to invoke the alter ego doctrine must prove two conditions: (1)
12 unity of interest and ownership between the two entities and (2) an inequitable result if the two
13 entities are not equally liable. »7
14 Mercury never challenges the SAC’s assertion that there is a unity of interest among
15 MCC, CAIC, and MIS; Plaintiffs have therefore adequately alleged the first prong of the alter-
16 ego test—MCC, CAIC, and MIS are a single entity.
17 Rather, Mercury argues Plaintiffs have not adequately alleged an inequitable result if
18 CAIC and MIS are not equally liable. Specifically, Mercury says CAIC did not direct MCC’s
19 activities, or exert any control over the investigation or adjusting of Plaintiffs’ claim, and thus no
20 inequity could result.’ But as Troyk makes clear, the question of direction goes primarily to the
21 first element of the alter-ego test: where an entity is being used as a shell or front for the conduct
22 of another, the two may have a unity of interest.
23 It is true that Tran v. Farmers Group, Inc.,? and MGA Entertainment, Inc. v. Hartford
24
> Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305, 1341 (2009).
25
© Atempa v. Pedrazzani, 27 Cal.App.Sth 809, 824 (2018).
26 7 Constellation-F, LLC v. World Trading 23, Inc., 45 Cal.App.5th 22, 30 (2020).
27 8 Demurrer MPA, pp. 17:24-19:3.
28 ° 104 Cal.App.4th 1202, 1220 (2002).
7
PLAINTIFFS’ OPPOSITION TO DEMURRER
Insurance Group,’? hold that allowing policy-issuing entities (like MCC and CAIC, here) to
transfer all of their claims investigation and adjusting functions to management entities (like
MIS, here), and thereby absolve the managing entities from liability for legal violations in that
claims-handling, leads to an inequitable result. But neither case (nor any other authority) holds
that such claims-oversight is the only possible source of inequity.
“The essence of the alter ego doctrine is that justice be done.”!! The inequity here should
be plain: the SAC alleges that Mercury violates California law in the settlement of contents
losses, and profits immensely by those illegal means. If MCC and CAIC are treated separately,
Mercury’s violations of the Insurance Code accomplished through CAIC will be left
10 unaddressed; its customers who are part of the classes alleged will receive no recompense.
11 The alter-ego doctrine is applied routinely in the class context to avoid precisely the
12 inequity that would result here if Mercury is permitted to shield one of its insuring entities from
13 liability. “A very numerous and growing class of cases wherein the corporate entity is
14 disregarded is that wherein it is so organized and controlled, and its affairs are so conducted, as
15 to make it merely an instrumentality, agency, conduit, or adjunct of another corporation. 912
16 MCC and CAIC are mutual agents and adjuncts—as the SAC pleads, they are Mercury’s
17 policy-issuing shells; both entities’ claims investigation and adjusting functions (and many
18 others) are handled entirely by MIS. Each of these entities is part ofa single enterprise, an
19 allegation Mercury does not challenge. At paragraphs 23-29 of the SAC, Plaintiffs allege that
20 beginning in 2016, during the class period, Mercury transferred the large majority of its
21 California property policies from MCC—the initial defendant in this lawsuit, which was filed
22 that year—to CAIC. The SAC alleges that by making the switch, Mercury reduced MCC’s
23
24
9012 WL 12894053 (C.D. Cal., Jan. 27, 2012) at *14.
25
Td. at 1343.
26 '2 Las Palmas Associates v. Las Palmas Center Associates, 235 Cal.App.3d 1220, 1249 (1991)
(emphasis in original; citations and internal quotation marks omitted); see also Castaneda v.
27
Ensign Group, Inc., 229 Cal.App.4th 1015, 1018 (2014) (class action for wage and hour
28 appropriate against corporate owner of employer).
8
PLAINTIFFS’ OPPOSITION TO DEMURRER
annual contents-claims subject to class treatment under the original complaint by about 93%." It
would be the essence of inequity to allow Mercury to avoid liability for violating California law,
saving the company millions of dollars, by reliance on what amounts to a corporate sleight-of-
hand. The SAC adequately alleges that Mercury—a single entity that includes each of the
defendants here—issues property policies, systematically violates California law in adjusting
contents-claims under those policies, and is therefore subject to unitary-class treatment.
Finally, as California courts favor class treatment and resolution of legal issues in a single
forum, and are required to be “procedurally innovative” to allow for certification, even if the
Court were to conclude the allegations against CAIC are inadequate, it should preempt CAIC’s
10 gambit for full legal immunity as follows. First, the Court should permit pre-certification
11 discovery to allow Plaintiffs to identify Roes to substitute as claimants against CAIC; given the
12 large number of claims involved, that should be easily accomplished.'> Second, the Court should
13 grant leave to amend, to include the addition ofa defendant. In that event, Plaintiffs would add
14 Mercury General Corporation (“MGC”)—the 100% owner of both MCC and CAIC—as a
15 defendant, which would bring all of Mercury’s violations of California law during the class
16 period within the purview of this lawsuit.
17
18
19
20
21 '3 SAC, 9923, 24.
22 '4 Sav-On Drug Stores v. Super. Ct., 34 Cal.4th 319, 339-40 (2004); see also Basurco v. 21st
Century Ins. Co., 108 Cal-App.4th 110, 116-17 (2003) (“Courts long have acknowledged the
23 importance of class actions as a means to prevent a failure of justice in our judicial system[.] By
establishing a technique whereby the claims of many individuals can be resolved at the same
24 time, the class suit both eliminates the possibility of repetitious litigation and provides small
claimants with a method of obtaining redress.” (internal quotation marks omitted).)
25
'S Best Buy Stores, L.P. v. Superior Court, 137 Cal.App.4th 772, 779 (2006) (“[I]f discovery is
26 necessary in order to [afford a named plaintiff
an opportunity to add new individual plaintiffs
who adequately represent the class], it should be made available.”); Pioneer Electronics (USA),
27
Inc. v. Superior Court, 40 Cal.4th 360, 373 (2007) (“Contact information regarding the identity
28 of potential class members is generally discoverable . . . .”)
9
PLAINTIFFS’ OPPOSITION TO DEMURRER
Il. Because the Mercury defendants are alter-egos, Plaintiffs have standing.
A, Plaintiffs have standing to assert the UCL Claims on behalf of CAIC
policyholders.
Mercury argues Plaintiffs have no standing to assert claims under Business & Professions
Code §17200 et seq. (“UCL”) against CAIC.'° The argument appears to be that Plaintiffs,
holders of policies issued by one Mercury entity (MCC), have no standing to sue on behalf of
holders of policies issued by another Mercury entity (CAIC). But Plaintiffs have adequately
alleged that CAIC and MCC are alter-egos. Plaintiffs were issued a property policy by Mercury;
that is true for each member of the class—which includes insureds issued policies by either MCC
10 or CAIC.
11 Mercury relies primarily on a case that supports overruling this Demurrer. In Sandoval v.
12 Ali,'” a wage-and-hour class-action, employees sought to act as class representatives of a class of
13 employees of two related entities. The court granted that the employees could seek to do so on an
14 alter-ego theory. But it found that “Plaintiffs’ alter ego allegations are too conclusory to survive a
15 motion to dismiss.”'® Here, Mercury has conceded the allegations are sufficient to show a unity
16 of interest among the defendants. And unlike in Sandoval, where the asserted inequity was
17 potential inability to collect a judgment, here the inequity is plain: by barring suit against CAIC,
18 Mercury would be permitted to escape liability for violations of California law across many
19 thousands of property policies, amassing millions in misbegotten profits, by way of precisely the
20 sort of corporate shell-game the equitable alter-ego doctrine has evolved to preclude.
21 Finally, Mercury itself seems to acknowledge there is a ready solution to the problem it
22 raises; it informs the Court that while both MCC and CAIC are owned by Mercury General
23 Corporation, that entity was not sued. Should the Court sustain the Demurrer on the grounds
24 asserted, it should grant leave to amend, in which event Plaintiffs would add MGC as a
25 defendant.
26 '6 Mercury MPA, at 19. The argument, even if accepted, applies only to causes of action 6-8.
27 '7 34 F Supp.3d 1031, 1040 (N.D. Cal. 2014).
28 8 Thid.
10
PLAINTIFFS’ OPPOSITION TO DEMURRER
B Plaintiffs have standing to assert causes of action against MIS.
Plaintiffs sued MIS under an alter-ego theory as to all causes of action. The SAC sets
forth in great detail facts to support their alter-ego theory under Troyk,'? namely, (1) a unity of
interest and ownership between the two entities, and (2) that an inequitable result if the two
entities are not equally liable.”°
The Court will recall that as relates to CAIC, Mercury never argued the first element.
Rather, it focused on the absence of any alleged inequity. Curiously, in its attempt to relieve MIS
from liability, Mercury argues neither element. Rather, the carrier simply reminds the Court that
there was no contract between Plaintiffs and MIS. But if Plaintiffs have adequately alleged that
10 MIS and MCC are alter-egos, that circumstance permits MIS’s liability.”!
11 In California, insurance companies that shift claims investigation and adjusting to
12 management entities with a unity of interest cannot avoid liability as to the investigating and
13 adjusting entities. Tran and MGA Entertainment made clear the reason for that rule: “An
14 inequitable result exists where the parent or sister subsidiary caused the harm for which the
15 plaintiff is suing the defendant-in-privity, and thus it would be unjust to hold only the defendant-
16 in-privity liable for what are essentially the decisions by the parent or sister subsidiary. Courts
17 have found an inequitable result—and, ultimately, an alter ego relationship between an insurer
18 and its parent—because it would be unjust to permit those who control companies to treat them
19 as a single or a unitary enterprise and then assert their ... separateness in order to commit frauds
20 and other misdeeds with impunity. 9922
21 The SAC alleges that every training, guidelines, investigation, and adjusting decision that
22 bears on Plaintiffs’ claim (both as to contents and dwelling-repairs), and on the contents-claims
23 of the class (whether insured by MCC or CAIC), was made by MIS. Thus, the entity is
24
'° Troyk, 171 Cal.App.4th at 1341.
25 20 SAC, pp. 4:8-14:6.
26 2! Tran v. Farmers Group, Inc., 104 Cal.App.4th 1202, 1220 (2002); MGA Entertainment, Inc. v.
Hartford Insurance Group, 2012 WL 12894053 (C.D. Cal. 2012) at *14; Vu v. Liberty Mutual
27 Insurance Company, 2018 WL 5982867, at *3 (N.D. Cal. 2018).
28 > MGA Entertainment, 2012 WL 12894053 at *14, Tran, 104 Cal.App.4th at 1219.
11
PLAINTIFFS’ OPPOSITION TO DEMURRER
unquestionably liable for its violation of California law under the foregoing cases. Mercury does
not cite any contrary authority. Mercury does not cite or discuss Tran (and the persuasive federal
authorities), let alone explain why those cases do not apply.
Rather, Mercury argues that MIS acts as MCC’s claims agent, and thus has no contractual
relationship with Plaintiffs. The argument is confusing because Plaintiffs have never asserted a
contractual relationship with MIS, and have not grounded MIS’s asserted liability on a
contractual relationship. The circumstance here was, of course, precisely the situation in Tran,
where that plaintiff was insured by a Farmers insuring-entity, but the claim investigation and
adjusting was done by Farmers Group, with which the insureds had no contract. The court held
10 that Farmers Group was liable under an alter-ego theory.”? The rule applies equally to MIS.
11 Cc. The Tranrule applies.
12 In its opening memorandum, Mercury made no effort to distinguish Tran, which controls
13 here. But in other litigation in which these issues have arisen, Mercury has made clear it does not
14 like the Tran rule, which has been settled in this state for going on two decades. Mercury has
15 elsewhere urged courts to ignore the express holding of the opinion, by reference to the particular
16 business relationships at issue in Tran. As Mercury is likely to make its Tran argument for the
17 first time in its reply, Plaintiffs will address the case here. In fact, in its briefing elsewhere,
18 Mercury has displayed a fundamental misunderstanding of the case.
19 Policyholder Tran sued a variety of Farmers entities—Fire Insurance Exchange, Truck
20 Underwriters Association, and Farmers Group—none of which had actually issued her insurance
21 policy.” Her causes of action were for breach of a fiduciary duty, bad faith, and others.
22 The first part of the opinion deals with whether, given that insurers are not formally
23
23 104 Cal.App.4th at 1220 (Farmers Group, apparently acting through Truck Underwriters
24 Association in some instances, made the critical decisions regarding Tran’s policy for her and for
the exchanges, manipulating the exchanges as parts of a single enterprise.”); see also MGA
25
Entertainment, 2012 WL 12894053 (C.D. Cal. 2012) at *14 (parent company liable because it
26 actually denied the claim); Vu, 2018 WL 5982867, at *3 (alter-ego liability applied to non-
contracting party because “LMIC and its employees handle the day to day operations,
27 management, and claims handling for LIC policy-holders .. . .”)
28 24 104 Cal.App.4" at 1211.
12
PLAINTIFFS’ OPPOSITION TO DEMURRER
fiduciaries under California law, an attorney-in-fact for a reciprocal insurance-exchange can be
held liable for breach ofa fiduciary duty. The court overruled the lower court’s order sustaining
a demurrer against the attorneys-in-fact on the cause of action for breach of a fiduciary duty, on
the basis that those entities, “having chosen to conduct their insurance business through
interinsurance exchanges that require the appointment of attorneys-in-fact to execute contracts
on behalf of subscriber/insureds, are bound by the ordinary rule that an attorney-in-fact is an
agent owing a fiduciary duty to the principal.””> That holding has no application here.
The second part of the Tran opinion reviews the lower court’s summary adjudication
order as to the remaining causes of action—bad faith, fraud, and intentional infliction of
10 emotional distress. Tran first held that the non-bad-faith causes were plainly triable. Then it
11 turned to the bad-faith cause of action, which posed precisely the question before this Court: can
12 claims-handling entities be liable for bad faith, where they have no contract with the insured, but
13 share a unity of interest with the entity that issued the insurance policy.7°
14 The court started with the general rule, upon which Mercury has elsewhere relied:
15 “Tt is settled that this cause of action lies only against the insurer, and is based on the contractual
16 relationship between insurer and insured.””” Critically, the Tran court then went on to reject the
17 insured’s argument that an attorney-in-fact, by the nature of that business relationship, is “liable
18 for breach of the covenant of good faith and fair dealing merely because of its status as the
19 insurer's managerial agent.””* In other words, contrary to Mercury’s likely argument, the Tran
20 court did not rely in any manner on the attorney-in-fact relationship between Farmers Group and
21 the insuring reciprocal exchange for its eventual ruling that the lower court had improperly
22 summarily adjudicated the bad-faith claim against the insured.
23 Instead, the court relied on the theory supporting the suit against MIS here—that is,
24 circumstances showing an alter-ego relationship between Farmers Group and the entity that
25
5 Id. at 1213.
26 26 Td. at 1217 et seq.
27 °7 Thid.
28 8 Td. at 1218.
13
PLAINTIFFS’ OPPOSITION TO DEMURRER
issued the insurance contract. In that regard, Tran first held that although insurance exchanges
are not corporations, it could find no reason not to apply the equitable alter-ego doctrine to the
relationship between the exchanges and the claims-handling corporate entities like Farmers
Group.”? Next the court explained the familiar test for application of the doctrine. Farmers never
disputed the unity of interest element because, as here, there was no meaningful way to separate
the interests of the insurers and the claims-handling entities.*°
Tran’s focus in its closing pages is the second element: given a unity of interest, is there
an inequitable result if the insuring entity and the claims-handling entity were not equally
liable.*! As set forth previously, the court found that such a result might well occur, and that a
10 jury should decide the question: “it would be offensive to the interests of justice to allow
11 respondents to shift all contractual liability to the exchanges. Respondents were managerial
12 agents without whom the exchanges could not transact their business. Farmers Group, apparently
13 acting through Truck Underwriters Association in some instances, made the critical decisions
14 regarding Tran’s policy for her and for the exchanges, manipulating the exchanges as parts of a
15 single enterprise. When a reciprocal insurer functions as a mere instrumentality of an attorney-in-
16 fact in the conduct ofa unified insurance-business, it would be inequitable to permit the attorney-
17 in-fact to escape liability for breach of the covenant of good faith and fair dealing. 9932
18 Every one of those circumstances is alleged here: MIS managed all of the relevant
19 business of MCC and CAIC, and those entities could not conduct its business without MIS; MIS
20 made all of the critical decisions as relates to training, guidelines, claims investigation, and
21 claims adjusting—both globally, and as to Plaintiffs’ claims and the class claims. As the
22 allegations in the SAC assert, MCC and CAIC acted as mere instrumentalities of MIS, and as the
23 Tran court made clear, it would be the height of inequity to permit MIS to escape liability for its
24 torts.
25
> Thid.
26 39 Td, at 1219
27 3! Thid.
28 Td. at 1220.
14
PLAINTIFFS’ OPPOSITION TO DEMURRER
Notably, and contrary to the argument Mercury has elsewhere asserted, the Tran court
never relied on the particular nature of reciprocal insurance-exchanges, or the attorney-in-fact
relationship between the exchanges and Farmers Group, to apply the alter-ego doctrine. Those
circumstances had no bearing on the outcome, as the language of the relevant portion of Tran
makes obvious. The sole basis for the application of the alter-ego rule in Tran, as it should be
here, is this: corporations are allowed to set themselves up as they please, but insurers cannot
escape attachment of bad-faith liability to claims-handling entities by reliance on such
structuring. Simply put: with or without a contract, if there is a unity of interest, the tort-
committing entity it liable. MIS is that entity here, as relates to claims under policies issued by
10 both MCC and CAIC.
11 D. Additional allegations that there will be an inequitable result if the entities
12 are not equally liable.
13 As noted, Mercury never really takes on the second element of the Troyk test. Plaintiffs ,
14 allegations in this regard appear in the SAC at pp.7:19-14:7. But in addition to the fact that not
15 applying the alter-ego doctrine would exclude tens of thousands of eligible Mercury contents
16 claims from class treatment, consider the following examples of inequities that will arise if the
17 alter-ego doctrine is not applied here.
18 To support their individual bad-faith claim and prayer for punitive damages, Plaintiffs
19 allege™ that Mercury is engaged in a pattern of violating its policyholders’ rights to increase its
20 profits.** They are permitted to seek discovery as relates to such pattern evidence. If MCC is the
21 sole defendant, Plaintiffs’ pattern argument will be limited to MCC-insured properties. But as the
22 goal is to expose law violations by Mercury, that makes little sense: it is MIS who conducts all of
23 Mercury’s claims handling, as the SAC alleges. And CAIC policyholders are suffering as a result
24 of Mercury’s law violations, too. Thus, the pattern is not limited to MCC; it extends to all claims
25
33 SAC, p.45:25-47:16.
26
34 California Practice Guide: Insurance Litigation, section 15:751 (“Other instances of insurer
27 misconduct may support plaintiff's claim that the insurer was guilty of ‘oppression, fraud, or
malice’ in handling plaintiff's claim.”); Colonial Life & Accident Ins. Co. v. Superior Court, 31
28 Cal.3d 785, 791-92 (1982) (pattern and practice evidence bears on bad faith and malice claims).
15
PLAINTIFFS’ OPPOSITION TO DEMURRER
investigated and adjusted under Mercury property policies in California, by way of MIS
employees, supervisors, and managers. If MIS and CAIC are not defendants in this lawsuit,
among other inequities, the true extent of Mercury’s institutional malfeasance will be missed.
Here’s another inequity: in 2018 MCC had assets of nearly $2 billion, but 2018 income of
only about $54 million; CAIC had assets of $767 million, but income of only $27 million.*°
Should a jury determine punitive damages are appropriate, it could easily conclude that because
MCC makes so little money, a small exemplary award is a sufficient deterrent. But MCC and
CAIC transferred nearly $470 million to MIS in management fees,** which was likely passed up
to the Mercury holding company. Mercury should not be allowed to shield its true tortfeasor
10 entity from such scrutiny and liability.
11 lil. The SAC adequately alleges class causes of action.
12 In September 2017, Mercury filed a motion for judgment on the pleadings challenging
13 the adequacy of Plaintiffs’ class allegations.*” Mercury argued that individualized damages-
14 assessments would be necessary, and as such class treatment was inappropriate.** The Court
15 denied the Motion.*? Mercury seeks again to defeat class treatment. Its arguments, some old,
16 some new, are unavailing.
17 As relates to each of its present attacks on the sufficiency of the class allegations,
18 Mercury ignores general rules that apply:
19 e Class-action treatment is favored in this state; indeed, our Supreme Court has urged “trial
20
21
35 Exhibit E, MCC_4; Exhibit F, CAIC_2, 4. The Court is requested to take judicial notice of
22 these financial statements Evidence Code §452. Mercury can have no objection to the Court’s
consideration of the financial statements. The documents were obtained from the California
23 Department of Insurance website and are authenticated by their contents and signatures of
officers of the corporations.
24
3 Exhibit E, MCC_11; F, Exhibit CAIC_11.
25 37 The Court can and should take judicial notice of the Motion pursuant to Evidence Code §452.
For the Court’s convenience, it is attached as Exhibit A. The Court’s Order denying the Motion
26 is attached as Exhibit B.
27 38 Exhibit A, 4:9-7:19; 9:7-13.
28 ° Exhibit B.
16
PLAINTIFFS’ OPPOSITION TO DEMURRER
courts to be procedurally innovative” to allow for certification. 40
Outside mass-tort actions, “class suitability should not be determined by demurrer. 41
“Absent strong showings in the complaint that negate the possibility ofa community of
interest, determination of the propriety of a class action should be deferred until a time
when [the court] may better make the decision. 942,
So long as the plaintiff “alleges institutional practices . . . that affected all of the members
of the potential class in the same manner, and it appears from the complaint that all
liability issues can be determined on a class-wide basis, no more is required at the
pleading stage. 943
10 Courts have often held that though class members may ultimately be required to establish
11 either eligibility for class inclusion, or individual damages, they may do so “without
12 threatening the integrity of the class action. 3044.
13 This is an ideal case for class treatment. The SAC raises questions of pure law, which can
14
15
4° Sav-On Drug Stores v. Super. Ct., 34 Cal.4th 319, 339-40 (2004); see also Basurco v. 21st
16 Century Ins. Co., 108 Cal-App.4th 110, 116-17 (2003) (“Courts long have acknowledged the
importance of class actions as a means to prevent a failure of justice in our judicial system[.] By
17 establishing a technique whereby the claims of many individuals can be resolved at the same
time, the class suit both eliminates the possibility of repetitious litigation and provides small
18
claimants with a method of obtaining redress.” (internal quotation marks omitted).).
19 4! Prince v. CLS Transp., Inc., 118 Cal-App.4th 1320, 1325 (2004); accord Tarkington v.
California Unemployment Ins. Appeals Bd., 172 Cal-App.4th 1494, 1511-12 (2009).
20
* Blakemore v. Super. Ct., 129 Cal.App.4th 36, 57 (2005); see also Arce v. Kaiser Found.
21 Health Plan, Inc., 181 Cal.App.4th 471, 487-88 (2010) (explaining why court should defer
certification decision until after full discovery and evidentiary hearing on common issues).
22
*® Tarkington, 172 Cal.App.4" at 1511.
23
“ Nicodemus v. Saint Francis Mem’l Hosp., 3 Cal.App.5th 1200, 1219 (2016) (omitting internal
24 citations and quotation marks; emphasis added); see also Blakemore v. Super. Ct., 129
Cal.App.4th 36, 57 (2005) (Each class member may establish both eligibility for class inclusion,
25 as well as individual damages, independently “without threatening the integrity of the class
action.”); Sav-On, 34 Cal.4th at 334-35 (the fact that “each class member might be required
26 ultimately to justify an individual claim” or to “present individualized proof of damages” is not a
27
bar to certification); Brinker Rest. Corp. v. Super. Ct., 53 Cal.4th 1004, 1022 (2012) (“[I]if the
defendant’s liability can be determined by facts common to all members of the class, a class will
28 be certified even if the members must individually prove their damages.”).
17
PLAINTIFFS’ OPPOSITION TO DEMURRER
be answered class-wide, and which require no individualized inquiries.*> The Court can decide
these questions on a class-wide basis without any individualized factual inquiry.*° But in any
case, as the authorities suggest, the Court’s decision regarding class treatment should await
discovery and a full certification-proceeding.
Indeed, one of the claims at issue here (depreciation under §2051(b)), has already been
certified for class treatment by a sister court. Plaintiffs in that case eventually succeeded on the
merits (against State Farm) following a court trial.*” That decision, while not controlling here,
should, at a minimum, suggest that the widely disfavored pleadings-stage knockout-punch
Mercury proposes here is inappropriate. The better practice is to permit discovery and test the
10 viability of the class causes of action by way ofa fully litigated certification motion.
11 A, The SAC adequately alleges that the claims are typical.
12 The class-representative’s claims must be typical of the class, but need not be identical 1.48
13 The theory behind this requirement is that a plaintiff with typical claims will pursue her own
14 self-interest, advancing the interests of class members accordingly.”” A representative-plaintiff’s
15 claim is typical “if it arises from the same event, practice, or course of conduct that gives rise to
16 the claims of other class members, and if her claims are based on the same legal theory.”°° “Most
17 differences in situation or interest among class members should not bar class suit. 51
18
45 SAC, p.23:8-22.
19 46 As courts have held, a “theory of liability that a defendant has a uniform policy [that] . . .
allegedly violates the law is by its nature a common question eminently suited for class
20
treatment.” Nicodemus, 3 Cal.App.5th at 1218 (emphasis added; omitting internal citations and
21 quotation marks).
47 Exhibit C to this memorandum is a copy of the court’s statement of decision in Doan v. State
22
Farm, Santa Clara Super. Ct., No. 1-08-CV-129264. Plaintiffs seek the Court’s judicial notice of
23 the decision and opinion in the Doan matter pursuant to Evidence Code §§451(a), (f), and
452(a), (d), (g) and (h).
24
48 Classen v. Weller, 145 Cal.App.3d 27, 46 (1983).
25 + 2 Newberg on Class Actions, §3:13 (4th ed. 2010).
26 5° Tbid.; Medrazo v. Honda of N. Hollywood, 166 Cal.App.4th 89, 99 (2008) (Typicality exists
when a representative plaintiff has been subjected to the same wrongs as the absent class
27 members).
28 5! Wershba v. Apple Computer, Inc., 91 Cal.App.4th 224,238 (2001).
18
PLAINTIFFS’ OPPOSITION TO DEMURRER
Plaintiffs have alleged typicality and Mercury does not challenge the sufficiency of those
allegations.” Specifically, the SAC alleges Plaintiffs and all members of the proposed sub-
classes were harmed in precisely the same ways as relates to Mercury’s investigation and
adjusting of contents-claims. The allegations are more than adequate to survive demurrer.
Relying on cases decided after a full certification-proceeding,-> Mercury’s typicality
argument is a repeat of its prior arguments as relate to the insurance policy—it says Plaintiffs’
claims are not typical because they were not insured by CAIC. But because Plaintiffs and all
members of the class were insured by a Mercury entity, and because all guidelines, training, and
claims handling as to contents-claims were the responsibility of MIS, Plaintiffs’ claims are
10 typical of all class members, including those whose policies were issued by CAIC.
11 Mercury also contends Plaintiffs have never alleged that “they were injured in fact by
12 Defendants’ allegedly unlawful depreciation methodology. The SAC is devoid of any factual
13 allegations claiming the actual cash value calculation of their loss would have been greater but
14 for Defendants’ consideration as to the age. 9954,
15 The assertion ignores the contents of the SAC,* which expressly alleges Mercury
16 violated California law as to Plaintiffs and the class by applying inflated depreciation to their
17 contents-claims, and thus making inadequate ACV payments for contents. Plaintiffs went so far
18 as to provide concrete examples of such inflated depreciation in the SAC.*° Plainly, the SAC
19 adequately alleges, and Mercury has adequate notice of, the basis of the ACV allegations.
20 Plaintiffs’ allegations are typical of the class.
21 B The SAC adequately alleges that the class is ascertainable.
22 Mercury next challenges the SAC on the ground that it does not adequately allege that the
23
24 52 SAC, p.23:23-24:9.
25 *3 Demurrer MPA, p.23:5-6, citing Caro v. Procter & Gamble Co., 18 Cal.App.4th 644, 663
(1993).
26 *4 Demurrer MPA, p.23:18-23.
27 55 SAC, 4942-47, 86, 98, 125-131.
28 °° Thid.
19
PLAINTIFFS’ OPPOSITION TO DEMURRER
class is ascertainable. To avoid demurrer, Plaintiffs need only allege that the class is readily
identifiable.>’ Class members are identifiable when the class is defined by “objective
characteristics” and “common transactional facts. 9958
Mercury’s various arguments again are doomed by a misapplication of the law—its cases
all arise from certification proceedings, not attacks on the sufficiency ofa complaint.*? Also, the
carrier never really argues the class or subclasses are not identifiable. That is because in the
certification proceeding, Plaintiffs will demonstrate that members of the class and subclasses can
be readily identified by reference to Mercury’s claim files.
Rather, in its Demurrer, Mercury seeks to convince the Court, on various grounds, that
10 the class and subclass definitions are invalid. But it cites no authority to support its view that a
11 demurrer could be sustained on such grounds. If the class definition is overbroad, or the sub-
12 class definitions are overbroad or vague in some manner, the definition can be amended.“ But
13 Mercury’s invalidity arguments are unavailing.
14 Mercury first argues that the class may involve people who lost no money. That is true.
15 But the carrier cites no law which precludes a request for declaratory relief as to such persons.
16 The assertion is that as to all Mercury policyholders during the class period, a declaration of
17 rights is appropriate. Mercury never explains why the class is therefore invalid.
18 Mercury next contends that declaratory-relief causes of action by insureds may be stale.
19 Of course, no statute of limitations applies to the declaratory-relief cause of action. Relatedly,
20 Mercury appears to argue that Mercury policyholders insured during the class period who are no
21 longer customers have no rights for policies in effect during the class period. That is wrong, as
22
23 57 Evans v. Lasco Bathware, Inc., 178 Cal.App.4th 1417, 1422 (2009); Daar v. Yellow Cab Co.,
67 Cal.2d 695, 706 (1967).
24
58 Evans, 178 Cal.App.4th at 1422.
25
5° Demurrer MPA, p.24:2-7, citing Sevidal v. Target Corp., 189 Cal.App.4th 905 (2010);
26 Thompson v. Automobile Club of Southern California, 217 Cal.App.4th 719 (2013).
27
60 Marler v. E.M. Johansing, LLC, 199 Cal. App. 4th 1450, 1462 (2011) (articulating broad
discretion of trial court to amend class definition to afford class treatment); Sotelo v. MediaNews
28 Grp., Inc., 207 Cal.App.4th 639, 651 (2012) (same).
20
PLAINTIFFS’ OPPOSITION TO DEMURRER
the absence of citation to any law or policy provision should make clear. Policies in effect during
the class period still apply to their periods of coverage, whether or not those policies continue to
be reissued.
Mercury next refers to “identical subclasses 261 and argues that the definitions are
overbroad because some of the members may not have been harmed by Mercury’s illegal
processing of contents-claims. Mercury continues to misunderstand the limits of the present
proceeding. Again, Mercury’s argument is not that the subclasses cannot be identified. Rather,
the carrier’s position is that the sub-classes are “invalid.” But it cites no authority which would
sustain a demurrer on such grounds.
10 Moreover, Mercury’s a
Preview
J. Edward Kerley (175695) Electronically Dylan L. Schaffer (153612) Kerley Schaffer LLP by Superior Court of California, County of San Mateo. 1939 Harrison Street, #500 ON 6/26/2020 Oakland, California 94612 Telephone: (510) 379-5801 By /s/ Wai Shan Lee Deputy Clerk Facsimile: (510) 228-0350 John R. Parker, Jr. (257761) Cutter Law P.C. 401 Watt Avenue Sacramento, California 95864 Telephone: (916) 290-9400 Facsimile: (916) 588-9350 Attorneys for Plaintiffs 10 11 12 SUPERIOR COURT FOR THE STATE OF CALIFORNIA 13 FOR THE COUNTY OF SAN MATEO 14 DONNA MARIE MESCHLI, an individual, CLASS ACTION VINCENT MESCHLI, an individual, on 15 behalf of themselves and a class of similarly Case No. 16-CIV-02607 situated persons, and ROES 1-10. PLAINTIFFS’ OPPOSITION TO 16 DEMURRER 17 Plaintiffs, Date: August 14, 2020 18 Vv, Time: 2:00 p.m. Dept.: 22 19 MERCURY CASUALTY COMPANY, a Assigned to Hon. Danny Y. Chou for all 20 corporation, CALIFORNIA purposes AUTOMOBILE INSURANCE 21 COMPANY, a corporation, MERCURY Date Filed: November 29, 2016 INSURANCE SERVICES, LLC, a limited Trial Date T.B.D. 22 liability corporation, and DOES 3 through 10, 23 Defendants. 24 25 26 27 28 1 PLAINTIFFS’ OPPOSITION TO DEMURRER TABLE OF CONTENTS THE LAWSUIT I. The SAC adequately alleges that defendants are alter-egos IL. Because the Mercury defendants are alter-egos, Plaintiffs have standing 10 A. Plaintiffs have standing to assert the UCL Claims on behalf of CAIC policyholders 10 B. Plaintiffs have standing to assert causes of action against MIS 11 C. The Tranrule applies 12 D. Additional allegations that there will be an inequitable result if the entities 10 are not equally liable 15 11 IIL. The SAC adequately alleges class causes of action 16 12 A. The SAC adequately alleges that the claims are typical 18 13 B. The SAC adequately alleges that the class is ascertainable 19 14 C. The Court should decline to reconsider its prior ruling on the 15 commonality issue; alternatively, the Court should reject the argument on 16 the basis of arguments previously accepted by the Court 21 17 D. The SAC is otherwise sufficient to withstand demurrer 22 18 CONCLUSION 23 19 20 21 22 23 24 25 26 27 28 2 PLAINTIFFS’ OPPOSITION TO DEMURRER TABLE OF AUTHORITIES CASES Arce v. Kaiser Found. Health Plan, Inc., 181 Cal.App.4th 471, 487 (2010) 17 Atempa v. Pedrazzani, 27 Cal.App.5th 809 (2018) Basurco v. 21st Century Ins. Co., 108 Cal.App.4th 110 (2003) 9,17 Best Buy Stores, L.P. v. Superior Court, 137 Cal.App.4th 772 (2006) 10 Blakemore v. Super. Ct., 129 Cal.App.4th 36 (2005) 17 11 Brinker Rest. Corp. v. Super. Ct., 12 53 Cal.4th 1004 (2012) 17 13 California Fair Plan Ass'n v. Garnes, 14 11 Cal.App.Sth 1276 (2017) 15 Castaneda v. Ensign Group, Inc., 229 Cal.App.4th 1015 (2014) 16 17 Classen v. Weller, 145 Cal.App.3d 27 (1983) 18 18 Colonial Life & Accident Ins. Co. v. Superior Court, 19 31 Cal.3d 785, 791 (1982) 15 20 Constellation-F, LLC v. World Trading 23, Inc., 21 45 Cal. App.Sth 22 (2020) 22 Evans v. Lasco Bathware, Inc., 178 Cal.App.4th 1417 (2009) 20 23 Daar v. Yellow Cab Co., 24 67 Cal.2d 695 (1967) 20 25 Las Palmas Associates v. Las Palmas Center Associates, 26 235 Cal.App.3d 1220 (1991) 18 27 Marler v. E.M. Johansing, LLC, 199 Cal. App. 4th 1450 (2011) 20 28 3 PLAINTIFFS’ OPPOSITION TO DEMURRER TABLE OF AUTHORITIES, CONT’D Medrazo v. Honda of N. Hollywood, 166 Cal.App.4th 89 (2008) 18 MGA Entertainment, Inc. v. Hartford Insurance Group, 2012 WL 12894053 (C.D. Cal., Jan. 27, 2012) 8, 11, 12 Newell v. State Farm Gen. Ins. Co., 118 Cal.App.4th 1094 (2004) 22 Nicodemus v. Saint Francis Mem’] Hosp., 3 Cal.App.5th 1200 (2016) 17, 18 Pioneer Electronics (USA), Inc. v. Superior Court, 40 Cal.4th 360 (2007) 10 11 Prince v. CLS Transp., Inc., 118 Cal.App.4th 1320 (2004) 17 12 Sandoval v. Ali, 13 34 F.Supp.3d 1031 (N.D. Cal. 2014) 10 14 Sav-On Drug Stores v. Super. Ct., 15 34 Cal.4th 319, 334 (2004) 9,17 16 Sevidal v. Target Corp., 189 Cal.App.4th 905 (2010) 20 17 Sotelo v. MediaNews Grp., Inc., 18 207 Cal.App.4th 639 (2012) 20 19 Tarkington v. California Unemployment Ins. Appeals Bd., 20 172 Cal.App.4th 1494, 1511 (2009) 17 21 Thompson v. Automobile Club of Southern California, 22 217 Cal.App.4th 719 (2013) 20 23 Tran v. Farmers Group, Inc., 104 Cal.App.4th 1202 (2002) passim 24 Troyk v. Farmers Group, Inc., 25 171 Cal.App.4th 1305, 1341 (2009) 7,11 26 Vu v. Liberty Mutual Insurance Company, 27 2018 WL 5982867 (N.D. Cal. 2018) 11, 12 28 4 PLAINTIFFS’ OPPOSITION TO DEMURRER TABLE OF AUTHORITIES, CONT’D Wershba v. Apple Computer, Inc., 91 Cal.App.4th 224 (2001) 18 STATUTES/CODES Business & Professions Code §17200 10 Code of Civil Procedure §1008 22 Evidence Code §451 18 Evidence Code §452 16, 18, 22 10 Insurance Code §2051 6, 18, 22 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 PLAINTIFFS’ OPPOSITION TO DEMURRER For the second time in this litigation Mercury! asserts that Plaintiffs’ complaint fails as a matter of law. The Court should overrule its Demurrer, just as it denied Mercury Casualty Company’s (“MCC”) prior Motion for Judgment on the Pleadings. THE LAWSUIT In California, payment to insureds for contents losses in property damage claims are strictly governed by statute: if a loss covered by a homeowners’ policy destroys Ms. Jones’s toaster, before she buys a new one, her insurer is obligated to pay at least the actual cash value (“ACV”) of the ruined toaster—that is, the amount it would cost Ms. Jones to replace the toaster.” The insurer can take a depreciation deduction, but such a deduction is limited to 10 “physical depreciation based upon [the condition of the toaster] at the time of the [fire].”? The 11 statute does not permit insurers to base depreciation entirely—or in part—on the age of the 12 toaster; rather, depreciation must rely solely on the property’s actual physical condition at the 13 time of the loss. 14 Thereafter, if Ms. Jones buys a new toaster, the insurer’s liability is not limited to the 15 amount it had predicted it would cost Ms. Jones to replace the item. Rather, the insurer must 16 reimburse Ms. Jones for the amount she actually spent to buy a new toaster (i.e., the replacement 17 cost), unless it can show that amount is unreasonable.* 18 Across tens of thousands of covered insurance-claims, insuring entities within the 19 Mercury umbrella amassed millions in additional profits by violating both rules: (a) those 20 companies systematically paid less than ACV for damaged contents by employing illegal 21 depreciation methods across contents-claims, and (b) they systematically paid less than the true 22 replacement-cost, relying on illegal policy language, which drove such loss-settlement practices. 23 ' Defendants are referred to collectively as “Mercury.” When appropriate defendants are 24 individually identified. 25 ? Ins. Code §2051(b); California Fair Plan Ass’n v. Garnes, 11 Cal.App.Sth 1276, 1282 (2017) (Section 2051(b) “sets a minimum standard of coverage that requires [insurers] to indemnify 26 [insureds] for the actual cost of the repair . . . minus depreciation . . . .” (emphasis added).). 27 3 Ins. Code §2051(b). 28 4 Ins. Code §2051.5(a). 6 PLAINTIFFS’ OPPOSITION TO DEMURRER The Second Amended Complaint (“SAC”) seeks to correct Mercury’s systematic violation of the California Insurance Code and obtain withheld policy benefits on behalf of Mercury policyholders. I The SAC adequately alleges that defendants are alter-egos. Mercury contends that because Plaintiffs’ insurance contract was issued by Mercury Casualty Company (“MCC”), neither California Automobile Insurance Company (“CAIC”), nor Mercury Insurance Services (“MIS”), is a proper defendant. Mercury is wrong. The SAC alleges violations of California law by entities “acting as a single enterprise . . . .> “The alter ego doctrine is an equitable principle that elevates substance over form in order to 10 prevent an inequitable result arising from unjustifiably observing a corporation’s separate 11 existence.” “A plaintiff seeking to invoke the alter ego doctrine must prove two conditions: (1) 12 unity of interest and ownership between the two entities and (2) an inequitable result if the two 13 entities are not equally liable. »7 14 Mercury never challenges the SAC’s assertion that there is a unity of interest among 15 MCC, CAIC, and MIS; Plaintiffs have therefore adequately alleged the first prong of the alter- 16 ego test—MCC, CAIC, and MIS are a single entity. 17 Rather, Mercury argues Plaintiffs have not adequately alleged an inequitable result if 18 CAIC and MIS are not equally liable. Specifically, Mercury says CAIC did not direct MCC’s 19 activities, or exert any control over the investigation or adjusting of Plaintiffs’ claim, and thus no 20 inequity could result.’ But as Troyk makes clear, the question of direction goes primarily to the 21 first element of the alter-ego test: where an entity is being used as a shell or front for the conduct 22 of another, the two may have a unity of interest. 23 It is true that Tran v. Farmers Group, Inc.,? and MGA Entertainment, Inc. v. Hartford 24 > Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305, 1341 (2009). 25 © Atempa v. Pedrazzani, 27 Cal.App.Sth 809, 824 (2018). 26 7 Constellation-F, LLC v. World Trading 23, Inc., 45 Cal.App.5th 22, 30 (2020). 27 8 Demurrer MPA, pp. 17:24-19:3. 28 ° 104 Cal.App.4th 1202, 1220 (2002). 7 PLAINTIFFS’ OPPOSITION TO DEMURRER Insurance Group,’? hold that allowing policy-issuing entities (like MCC and CAIC, here) to transfer all of their claims investigation and adjusting functions to management entities (like MIS, here), and thereby absolve the managing entities from liability for legal violations in that claims-handling, leads to an inequitable result. But neither case (nor any other authority) holds that such claims-oversight is the only possible source of inequity. “The essence of the alter ego doctrine is that justice be done.”!! The inequity here should be plain: the SAC alleges that Mercury violates California law in the settlement of contents losses, and profits immensely by those illegal means. If MCC and CAIC are treated separately, Mercury’s violations of the Insurance Code accomplished through CAIC will be left 10 unaddressed; its customers who are part of the classes alleged will receive no recompense. 11 The alter-ego doctrine is applied routinely in the class context to avoid precisely the 12 inequity that would result here if Mercury is permitted to shield one of its insuring entities from 13 liability. “A very numerous and growing class of cases wherein the corporate entity is 14 disregarded is that wherein it is so organized and controlled, and its affairs are so conducted, as 15 to make it merely an instrumentality, agency, conduit, or adjunct of another corporation. 912 16 MCC and CAIC are mutual agents and adjuncts—as the SAC pleads, they are Mercury’s 17 policy-issuing shells; both entities’ claims investigation and adjusting functions (and many 18 others) are handled entirely by MIS. Each of these entities is part ofa single enterprise, an 19 allegation Mercury does not challenge. At paragraphs 23-29 of the SAC, Plaintiffs allege that 20 beginning in 2016, during the class period, Mercury transferred the large majority of its 21 California property policies from MCC—the initial defendant in this lawsuit, which was filed 22 that year—to CAIC. The SAC alleges that by making the switch, Mercury reduced MCC’s 23 24 9012 WL 12894053 (C.D. Cal., Jan. 27, 2012) at *14. 25 Td. at 1343. 26 '2 Las Palmas Associates v. Las Palmas Center Associates, 235 Cal.App.3d 1220, 1249 (1991) (emphasis in original; citations and internal quotation marks omitted); see also Castaneda v. 27 Ensign Group, Inc., 229 Cal.App.4th 1015, 1018 (2014) (class action for wage and hour 28 appropriate against corporate owner of employer). 8 PLAINTIFFS’ OPPOSITION TO DEMURRER annual contents-claims subject to class treatment under the original complaint by about 93%." It would be the essence of inequity to allow Mercury to avoid liability for violating California law, saving the company millions of dollars, by reliance on what amounts to a corporate sleight-of- hand. The SAC adequately alleges that Mercury—a single entity that includes each of the defendants here—issues property policies, systematically violates California law in adjusting contents-claims under those policies, and is therefore subject to unitary-class treatment. Finally, as California courts favor class treatment and resolution of legal issues in a single forum, and are required to be “procedurally innovative” to allow for certification, even if the Court were to conclude the allegations against CAIC are inadequate, it should preempt CAIC’s 10 gambit for full legal immunity as follows. First, the Court should permit pre-certification 11 discovery to allow Plaintiffs to identify Roes to substitute as claimants against CAIC; given the 12 large number of claims involved, that should be easily accomplished.'> Second, the Court should 13 grant leave to amend, to include the addition ofa defendant. In that event, Plaintiffs would add 14 Mercury General Corporation (“MGC”)—the 100% owner of both MCC and CAIC—as a 15 defendant, which would bring all of Mercury’s violations of California law during the class 16 period within the purview of this lawsuit. 17 18 19 20 21 '3 SAC, 9923, 24. 22 '4 Sav-On Drug Stores v. Super. Ct., 34 Cal.4th 319, 339-40 (2004); see also Basurco v. 21st Century Ins. Co., 108 Cal-App.4th 110, 116-17 (2003) (“Courts long have acknowledged the 23 importance of class actions as a means to prevent a failure of justice in our judicial system[.] By establishing a technique whereby the claims of many individuals can be resolved at the same 24 time, the class suit both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress.” (internal quotation marks omitted).) 25 'S Best Buy Stores, L.P. v. Superior Court, 137 Cal.App.4th 772, 779 (2006) (“[I]f discovery is 26 necessary in order to [afford a named plaintiff an opportunity to add new individual plaintiffs who adequately represent the class], it should be made available.”); Pioneer Electronics (USA), 27 Inc. v. Superior Court, 40 Cal.4th 360, 373 (2007) (“Contact information regarding the identity 28 of potential class members is generally discoverable . . . .”) 9 PLAINTIFFS’ OPPOSITION TO DEMURRER Il. Because the Mercury defendants are alter-egos, Plaintiffs have standing. A, Plaintiffs have standing to assert the UCL Claims on behalf of CAIC policyholders. Mercury argues Plaintiffs have no standing to assert claims under Business & Professions Code §17200 et seq. (“UCL”) against CAIC.'° The argument appears to be that Plaintiffs, holders of policies issued by one Mercury entity (MCC), have no standing to sue on behalf of holders of policies issued by another Mercury entity (CAIC). But Plaintiffs have adequately alleged that CAIC and MCC are alter-egos. Plaintiffs were issued a property policy by Mercury; that is true for each member of the class—which includes insureds issued policies by either MCC 10 or CAIC. 11 Mercury relies primarily on a case that supports overruling this Demurrer. In Sandoval v. 12 Ali,'” a wage-and-hour class-action, employees sought to act as class representatives of a class of 13 employees of two related entities. The court granted that the employees could seek to do so on an 14 alter-ego theory. But it found that “Plaintiffs’ alter ego allegations are too conclusory to survive a 15 motion to dismiss.”'® Here, Mercury has conceded the allegations are sufficient to show a unity 16 of interest among the defendants. And unlike in Sandoval, where the asserted inequity was 17 potential inability to collect a judgment, here the inequity is plain: by barring suit against CAIC, 18 Mercury would be permitted to escape liability for violations of California law across many 19 thousands of property policies, amassing millions in misbegotten profits, by way of precisely the 20 sort of corporate shell-game the equitable alter-ego doctrine has evolved to preclude. 21 Finally, Mercury itself seems to acknowledge there is a ready solution to the problem it 22 raises; it informs the Court that while both MCC and CAIC are owned by Mercury General 23 Corporation, that entity was not sued. Should the Court sustain the Demurrer on the grounds 24 asserted, it should grant leave to amend, in which event Plaintiffs would add MGC as a 25 defendant. 26 '6 Mercury MPA, at 19. The argument, even if accepted, applies only to causes of action 6-8. 27 '7 34 F Supp.3d 1031, 1040 (N.D. Cal. 2014). 28 8 Thid. 10 PLAINTIFFS’ OPPOSITION TO DEMURRER B Plaintiffs have standing to assert causes of action against MIS. Plaintiffs sued MIS under an alter-ego theory as to all causes of action. The SAC sets forth in great detail facts to support their alter-ego theory under Troyk,'? namely, (1) a unity of interest and ownership between the two entities, and (2) that an inequitable result if the two entities are not equally liable.”° The Court will recall that as relates to CAIC, Mercury never argued the first element. Rather, it focused on the absence of any alleged inequity. Curiously, in its attempt to relieve MIS from liability, Mercury argues neither element. Rather, the carrier simply reminds the Court that there was no contract between Plaintiffs and MIS. But if Plaintiffs have adequately alleged that 10 MIS and MCC are alter-egos, that circumstance permits MIS’s liability.”! 11 In California, insurance companies that shift claims investigation and adjusting to 12 management entities with a unity of interest cannot avoid liability as to the investigating and 13 adjusting entities. Tran and MGA Entertainment made clear the reason for that rule: “An 14 inequitable result exists where the parent or sister subsidiary caused the harm for which the 15 plaintiff is suing the defendant-in-privity, and thus it would be unjust to hold only the defendant- 16 in-privity liable for what are essentially the decisions by the parent or sister subsidiary. Courts 17 have found an inequitable result—and, ultimately, an alter ego relationship between an insurer 18 and its parent—because it would be unjust to permit those who control companies to treat them 19 as a single or a unitary enterprise and then assert their ... separateness in order to commit frauds 20 and other misdeeds with impunity. 9922 21 The SAC alleges that every training, guidelines, investigation, and adjusting decision that 22 bears on Plaintiffs’ claim (both as to contents and dwelling-repairs), and on the contents-claims 23 of the class (whether insured by MCC or CAIC), was made by MIS. Thus, the entity is 24 '° Troyk, 171 Cal.App.4th at 1341. 25 20 SAC, pp. 4:8-14:6. 26 2! Tran v. Farmers Group, Inc., 104 Cal.App.4th 1202, 1220 (2002); MGA Entertainment, Inc. v. Hartford Insurance Group, 2012 WL 12894053 (C.D. Cal. 2012) at *14; Vu v. Liberty Mutual 27 Insurance Company, 2018 WL 5982867, at *3 (N.D. Cal. 2018). 28 > MGA Entertainment, 2012 WL 12894053 at *14, Tran, 104 Cal.App.4th at 1219. 11 PLAINTIFFS’ OPPOSITION TO DEMURRER unquestionably liable for its violation of California law under the foregoing cases. Mercury does not cite any contrary authority. Mercury does not cite or discuss Tran (and the persuasive federal authorities), let alone explain why those cases do not apply. Rather, Mercury argues that MIS acts as MCC’s claims agent, and thus has no contractual relationship with Plaintiffs. The argument is confusing because Plaintiffs have never asserted a contractual relationship with MIS, and have not grounded MIS’s asserted liability on a contractual relationship. The circumstance here was, of course, precisely the situation in Tran, where that plaintiff was insured by a Farmers insuring-entity, but the claim investigation and adjusting was done by Farmers Group, with which the insureds had no contract. The court held 10 that Farmers Group was liable under an alter-ego theory.”? The rule applies equally to MIS. 11 Cc. The Tranrule applies. 12 In its opening memorandum, Mercury made no effort to distinguish Tran, which controls 13 here. But in other litigation in which these issues have arisen, Mercury has made clear it does not 14 like the Tran rule, which has been settled in this state for going on two decades. Mercury has 15 elsewhere urged courts to ignore the express holding of the opinion, by reference to the particular 16 business relationships at issue in Tran. As Mercury is likely to make its Tran argument for the 17 first time in its reply, Plaintiffs will address the case here. In fact, in its briefing elsewhere, 18 Mercury has displayed a fundamental misunderstanding of the case. 19 Policyholder Tran sued a variety of Farmers entities—Fire Insurance Exchange, Truck 20 Underwriters Association, and Farmers Group—none of which had actually issued her insurance 21 policy.” Her causes of action were for breach of a fiduciary duty, bad faith, and others. 22 The first part of the opinion deals with whether, given that insurers are not formally 23 23 104 Cal.App.4th at 1220 (Farmers Group, apparently acting through Truck Underwriters 24 Association in some instances, made the critical decisions regarding Tran’s policy for her and for the exchanges, manipulating the exchanges as parts of a single enterprise.”); see also MGA 25 Entertainment, 2012 WL 12894053 (C.D. Cal. 2012) at *14 (parent company liable because it 26 actually denied the claim); Vu, 2018 WL 5982867, at *3 (alter-ego liability applied to non- contracting party because “LMIC and its employees handle the day to day operations, 27 management, and claims handling for LIC policy-holders .. . .”) 28 24 104 Cal.App.4" at 1211. 12 PLAINTIFFS’ OPPOSITION TO DEMURRER fiduciaries under California law, an attorney-in-fact for a reciprocal insurance-exchange can be held liable for breach ofa fiduciary duty. The court overruled the lower court’s order sustaining a demurrer against the attorneys-in-fact on the cause of action for breach of a fiduciary duty, on the basis that those entities, “having chosen to conduct their insurance business through interinsurance exchanges that require the appointment of attorneys-in-fact to execute contracts on behalf of subscriber/insureds, are bound by the ordinary rule that an attorney-in-fact is an agent owing a fiduciary duty to the principal.””> That holding has no application here. The second part of the Tran opinion reviews the lower court’s summary adjudication order as to the remaining causes of action—bad faith, fraud, and intentional infliction of 10 emotional distress. Tran first held that the non-bad-faith causes were plainly triable. Then it 11 turned to the bad-faith cause of action, which posed precisely the question before this Court: can 12 claims-handling entities be liable for bad faith, where they have no contract with the insured, but 13 share a unity of interest with the entity that issued the insurance policy.7° 14 The court started with the general rule, upon which Mercury has elsewhere relied: 15 “Tt is settled that this cause of action lies only against the insurer, and is based on the contractual 16 relationship between insurer and insured.””” Critically, the Tran court then went on to reject the 17 insured’s argument that an attorney-in-fact, by the nature of that business relationship, is “liable 18 for breach of the covenant of good faith and fair dealing merely because of its status as the 19 insurer's managerial agent.””* In other words, contrary to Mercury’s likely argument, the Tran 20 court did not rely in any manner on the attorney-in-fact relationship between Farmers Group and 21 the insuring reciprocal exchange for its eventual ruling that the lower court had improperly 22 summarily adjudicated the bad-faith claim against the insured. 23 Instead, the court relied on the theory supporting the suit against MIS here—that is, 24 circumstances showing an alter-ego relationship between Farmers Group and the entity that 25 5 Id. at 1213. 26 26 Td. at 1217 et seq. 27 °7 Thid. 28 8 Td. at 1218. 13 PLAINTIFFS’ OPPOSITION TO DEMURRER issued the insurance contract. In that regard, Tran first held that although insurance exchanges are not corporations, it could find no reason not to apply the equitable alter-ego doctrine to the relationship between the exchanges and the claims-handling corporate entities like Farmers Group.”? Next the court explained the familiar test for application of the doctrine. Farmers never disputed the unity of interest element because, as here, there was no meaningful way to separate the interests of the insurers and the claims-handling entities.*° Tran’s focus in its closing pages is the second element: given a unity of interest, is there an inequitable result if the insuring entity and the claims-handling entity were not equally liable.*! As set forth previously, the court found that such a result might well occur, and that a 10 jury should decide the question: “it would be offensive to the interests of justice to allow 11 respondents to shift all contractual liability to the exchanges. Respondents were managerial 12 agents without whom the exchanges could not transact their business. Farmers Group, apparently 13 acting through Truck Underwriters Association in some instances, made the critical decisions 14 regarding Tran’s policy for her and for the exchanges, manipulating the exchanges as parts of a 15 single enterprise. When a reciprocal insurer functions as a mere instrumentality of an attorney-in- 16 fact in the conduct ofa unified insurance-business, it would be inequitable to permit the attorney- 17 in-fact to escape liability for breach of the covenant of good faith and fair dealing. 9932 18 Every one of those circumstances is alleged here: MIS managed all of the relevant 19 business of MCC and CAIC, and those entities could not conduct its business without MIS; MIS 20 made all of the critical decisions as relates to training, guidelines, claims investigation, and 21 claims adjusting—both globally, and as to Plaintiffs’ claims and the class claims. As the 22 allegations in the SAC assert, MCC and CAIC acted as mere instrumentalities of MIS, and as the 23 Tran court made clear, it would be the height of inequity to permit MIS to escape liability for its 24 torts. 25 > Thid. 26 39 Td, at 1219 27 3! Thid. 28 Td. at 1220. 14 PLAINTIFFS’ OPPOSITION TO DEMURRER Notably, and contrary to the argument Mercury has elsewhere asserted, the Tran court never relied on the particular nature of reciprocal insurance-exchanges, or the attorney-in-fact relationship between the exchanges and Farmers Group, to apply the alter-ego doctrine. Those circumstances had no bearing on the outcome, as the language of the relevant portion of Tran makes obvious. The sole basis for the application of the alter-ego rule in Tran, as it should be here, is this: corporations are allowed to set themselves up as they please, but insurers cannot escape attachment of bad-faith liability to claims-handling entities by reliance on such structuring. Simply put: with or without a contract, if there is a unity of interest, the tort- committing entity it liable. MIS is that entity here, as relates to claims under policies issued by 10 both MCC and CAIC. 11 D. Additional allegations that there will be an inequitable result if the entities 12 are not equally liable. 13 As noted, Mercury never really takes on the second element of the Troyk test. Plaintiffs , 14 allegations in this regard appear in the SAC at pp.7:19-14:7. But in addition to the fact that not 15 applying the alter-ego doctrine would exclude tens of thousands of eligible Mercury contents 16 claims from class treatment, consider the following examples of inequities that will arise if the 17 alter-ego doctrine is not applied here. 18 To support their individual bad-faith claim and prayer for punitive damages, Plaintiffs 19 allege™ that Mercury is engaged in a pattern of violating its policyholders’ rights to increase its 20 profits.** They are permitted to seek discovery as relates to such pattern evidence. If MCC is the 21 sole defendant, Plaintiffs’ pattern argument will be limited to MCC-insured properties. But as the 22 goal is to expose law violations by Mercury, that makes little sense: it is MIS who conducts all of 23 Mercury’s claims handling, as the SAC alleges. And CAIC policyholders are suffering as a result 24 of Mercury’s law violations, too. Thus, the pattern is not limited to MCC; it extends to all claims 25 33 SAC, p.45:25-47:16. 26 34 California Practice Guide: Insurance Litigation, section 15:751 (“Other instances of insurer 27 misconduct may support plaintiff's claim that the insurer was guilty of ‘oppression, fraud, or malice’ in handling plaintiff's claim.”); Colonial Life & Accident Ins. Co. v. Superior Court, 31 28 Cal.3d 785, 791-92 (1982) (pattern and practice evidence bears on bad faith and malice claims). 15 PLAINTIFFS’ OPPOSITION TO DEMURRER investigated and adjusted under Mercury property policies in California, by way of MIS employees, supervisors, and managers. If MIS and CAIC are not defendants in this lawsuit, among other inequities, the true extent of Mercury’s institutional malfeasance will be missed. Here’s another inequity: in 2018 MCC had assets of nearly $2 billion, but 2018 income of only about $54 million; CAIC had assets of $767 million, but income of only $27 million.*° Should a jury determine punitive damages are appropriate, it could easily conclude that because MCC makes so little money, a small exemplary award is a sufficient deterrent. But MCC and CAIC transferred nearly $470 million to MIS in management fees,** which was likely passed up to the Mercury holding company. Mercury should not be allowed to shield its true tortfeasor 10 entity from such scrutiny and liability. 11 lil. The SAC adequately alleges class causes of action. 12 In September 2017, Mercury filed a motion for judgment on the pleadings challenging 13 the adequacy of Plaintiffs’ class allegations.*” Mercury argued that individualized damages- 14 assessments would be necessary, and as such class treatment was inappropriate.** The Court 15 denied the Motion.*? Mercury seeks again to defeat class treatment. Its arguments, some old, 16 some new, are unavailing. 17 As relates to each of its present attacks on the sufficiency of the class allegations, 18 Mercury ignores general rules that apply: 19 e Class-action treatment is favored in this state; indeed, our Supreme Court has urged “trial 20 21 35 Exhibit E, MCC_4; Exhibit F, CAIC_2, 4. The Court is requested to take judicial notice of 22 these financial statements Evidence Code §452. Mercury can have no objection to the Court’s consideration of the financial statements. The documents were obtained from the California 23 Department of Insurance website and are authenticated by their contents and signatures of officers of the corporations. 24 3 Exhibit E, MCC_11; F, Exhibit CAIC_11. 25 37 The Court can and should take judicial notice of the Motion pursuant to Evidence Code §452. For the Court’s convenience, it is attached as Exhibit A. The Court’s Order denying the Motion 26 is attached as Exhibit B. 27 38 Exhibit A, 4:9-7:19; 9:7-13. 28 ° Exhibit B. 16 PLAINTIFFS’ OPPOSITION TO DEMURRER courts to be procedurally innovative” to allow for certification. 40 Outside mass-tort actions, “class suitability should not be determined by demurrer. 41 “Absent strong showings in the complaint that negate the possibility ofa community of interest, determination of the propriety of a class action should be deferred until a time when [the court] may better make the decision. 942, So long as the plaintiff “alleges institutional practices . . . that affected all of the members of the potential class in the same manner, and it appears from the complaint that all liability issues can be determined on a class-wide basis, no more is required at the pleading stage. 943 10 Courts have often held that though class members may ultimately be required to establish 11 either eligibility for class inclusion, or individual damages, they may do so “without 12 threatening the integrity of the class action. 3044. 13 This is an ideal case for class treatment. The SAC raises questions of pure law, which can 14 15 4° Sav-On Drug Stores v. Super. Ct., 34 Cal.4th 319, 339-40 (2004); see also Basurco v. 21st 16 Century Ins. Co., 108 Cal-App.4th 110, 116-17 (2003) (“Courts long have acknowledged the importance of class actions as a means to prevent a failure of justice in our judicial system[.] By 17 establishing a technique whereby the claims of many individuals can be resolved at the same time, the class suit both eliminates the possibility of repetitious litigation and provides small 18 claimants with a method of obtaining redress.” (internal quotation marks omitted).). 19 4! Prince v. CLS Transp., Inc., 118 Cal-App.4th 1320, 1325 (2004); accord Tarkington v. California Unemployment Ins. Appeals Bd., 172 Cal-App.4th 1494, 1511-12 (2009). 20 * Blakemore v. Super. Ct., 129 Cal.App.4th 36, 57 (2005); see also Arce v. Kaiser Found. 21 Health Plan, Inc., 181 Cal.App.4th 471, 487-88 (2010) (explaining why court should defer certification decision until after full discovery and evidentiary hearing on common issues). 22 *® Tarkington, 172 Cal.App.4" at 1511. 23 “ Nicodemus v. Saint Francis Mem’l Hosp., 3 Cal.App.5th 1200, 1219 (2016) (omitting internal 24 citations and quotation marks; emphasis added); see also Blakemore v. Super. Ct., 129 Cal.App.4th 36, 57 (2005) (Each class member may establish both eligibility for class inclusion, 25 as well as individual damages, independently “without threatening the integrity of the class action.”); Sav-On, 34 Cal.4th at 334-35 (the fact that “each class member might be required 26 ultimately to justify an individual claim” or to “present individualized proof of damages” is not a 27 bar to certification); Brinker Rest. Corp. v. Super. Ct., 53 Cal.4th 1004, 1022 (2012) (“[I]if the defendant’s liability can be determined by facts common to all members of the class, a class will 28 be certified even if the members must individually prove their damages.”). 17 PLAINTIFFS’ OPPOSITION TO DEMURRER be answered class-wide, and which require no individualized inquiries.*> The Court can decide these questions on a class-wide basis without any individualized factual inquiry.*° But in any case, as the authorities suggest, the Court’s decision regarding class treatment should await discovery and a full certification-proceeding. Indeed, one of the claims at issue here (depreciation under §2051(b)), has already been certified for class treatment by a sister court. Plaintiffs in that case eventually succeeded on the merits (against State Farm) following a court trial.*” That decision, while not controlling here, should, at a minimum, suggest that the widely disfavored pleadings-stage knockout-punch Mercury proposes here is inappropriate. The better practice is to permit discovery and test the 10 viability of the class causes of action by way ofa fully litigated certification motion. 11 A, The SAC adequately alleges that the claims are typical. 12 The class-representative’s claims must be typical of the class, but need not be identical 1.48 13 The theory behind this requirement is that a plaintiff with typical claims will pursue her own 14 self-interest, advancing the interests of class members accordingly.”” A representative-plaintiff’s 15 claim is typical “if it arises from the same event, practice, or course of conduct that gives rise to 16 the claims of other class members, and if her claims are based on the same legal theory.”°° “Most 17 differences in situation or interest among class members should not bar class suit. 51 18 45 SAC, p.23:8-22. 19 46 As courts have held, a “theory of liability that a defendant has a uniform policy [that] . . . allegedly violates the law is by its nature a common question eminently suited for class 20 treatment.” Nicodemus, 3 Cal.App.5th at 1218 (emphasis added; omitting internal citations and 21 quotation marks). 47 Exhibit C to this memorandum is a copy of the court’s statement of decision in Doan v. State 22 Farm, Santa Clara Super. Ct., No. 1-08-CV-129264. Plaintiffs seek the Court’s judicial notice of 23 the decision and opinion in the Doan matter pursuant to Evidence Code §§451(a), (f), and 452(a), (d), (g) and (h). 24 48 Classen v. Weller, 145 Cal.App.3d 27, 46 (1983). 25 + 2 Newberg on Class Actions, §3:13 (4th ed. 2010). 26 5° Tbid.; Medrazo v. Honda of N. Hollywood, 166 Cal.App.4th 89, 99 (2008) (Typicality exists when a representative plaintiff has been subjected to the same wrongs as the absent class 27 members). 28 5! Wershba v. Apple Computer, Inc., 91 Cal.App.4th 224,238 (2001). 18 PLAINTIFFS’ OPPOSITION TO DEMURRER Plaintiffs have alleged typicality and Mercury does not challenge the sufficiency of those allegations.” Specifically, the SAC alleges Plaintiffs and all members of the proposed sub- classes were harmed in precisely the same ways as relates to Mercury’s investigation and adjusting of contents-claims. The allegations are more than adequate to survive demurrer. Relying on cases decided after a full certification-proceeding,-> Mercury’s typicality argument is a repeat of its prior arguments as relate to the insurance policy—it says Plaintiffs’ claims are not typical because they were not insured by CAIC. But because Plaintiffs and all members of the class were insured by a Mercury entity, and because all guidelines, training, and claims handling as to contents-claims were the responsibility of MIS, Plaintiffs’ claims are 10 typical of all class members, including those whose policies were issued by CAIC. 11 Mercury also contends Plaintiffs have never alleged that “they were injured in fact by 12 Defendants’ allegedly unlawful depreciation methodology. The SAC is devoid of any factual 13 allegations claiming the actual cash value calculation of their loss would have been greater but 14 for Defendants’ consideration as to the age. 9954, 15 The assertion ignores the contents of the SAC,* which expressly alleges Mercury 16 violated California law as to Plaintiffs and the class by applying inflated depreciation to their 17 contents-claims, and thus making inadequate ACV payments for contents. Plaintiffs went so far 18 as to provide concrete examples of such inflated depreciation in the SAC.*° Plainly, the SAC 19 adequately alleges, and Mercury has adequate notice of, the basis of the ACV allegations. 20 Plaintiffs’ allegations are typical of the class. 21 B The SAC adequately alleges that the class is ascertainable. 22 Mercury next challenges the SAC on the ground that it does not adequately allege that the 23 24 52 SAC, p.23:23-24:9. 25 *3 Demurrer MPA, p.23:5-6, citing Caro v. Procter & Gamble Co., 18 Cal.App.4th 644, 663 (1993). 26 *4 Demurrer MPA, p.23:18-23. 27 55 SAC, 4942-47, 86, 98, 125-131. 28 °° Thid. 19 PLAINTIFFS’ OPPOSITION TO DEMURRER class is ascertainable. To avoid demurrer, Plaintiffs need only allege that the class is readily identifiable.>’ Class members are identifiable when the class is defined by “objective characteristics” and “common transactional facts. 9958 Mercury’s various arguments again are doomed by a misapplication of the law—its cases all arise from certification proceedings, not attacks on the sufficiency ofa complaint.*? Also, the carrier never really argues the class or subclasses are not identifiable. That is because in the certification proceeding, Plaintiffs will demonstrate that members of the class and subclasses can be readily identified by reference to Mercury’s claim files. Rather, in its Demurrer, Mercury seeks to convince the Court, on various grounds, that 10 the class and subclass definitions are invalid. But it cites no authority to support its view that a 11 demurrer could be sustained on such grounds. If the class definition is overbroad, or the sub- 12 class definitions are overbroad or vague in some manner, the definition can be amended.“ But 13 Mercury’s invalidity arguments are unavailing. 14 Mercury first argues that the class may involve people who lost no money. That is true. 15 But the carrier cites no law which precludes a request for declaratory relief as to such persons. 16 The assertion is that as to all Mercury policyholders during the class period, a declaration of 17 rights is appropriate. Mercury never explains why the class is therefore invalid. 18 Mercury next contends that declaratory-relief causes of action by insureds may be stale. 19 Of course, no statute of limitations applies to the declaratory-relief cause of action. Relatedly, 20 Mercury appears to argue that Mercury policyholders insured during the class period who are no 21 longer customers have no rights for policies in effect during the class period. That is wrong, as 22 23 57 Evans v. Lasco Bathware, Inc., 178 Cal.App.4th 1417, 1422 (2009); Daar v. Yellow Cab Co., 67 Cal.2d 695, 706 (1967). 24 58 Evans, 178 Cal.App.4th at 1422. 25 5° Demurrer MPA, p.24:2-7, citing Sevidal v. Target Corp., 189 Cal.App.4th 905 (2010); 26 Thompson v. Automobile Club of Southern California, 217 Cal.App.4th 719 (2013). 27 60 Marler v. E.M. Johansing, LLC, 199 Cal. App. 4th 1450, 1462 (2011) (articulating broad discretion of trial court to amend class definition to afford class treatment); Sotelo v. MediaNews 28 Grp., Inc., 207 Cal.App.4th 639, 651 (2012) (same). 20 PLAINTIFFS’ OPPOSITION TO DEMURRER the absence of citation to any law or policy provision should make clear. Policies in effect during the class period still apply to their periods of coverage, whether or not those policies continue to be reissued. Mercury next refers to “identical subclasses 261 and argues that the definitions are overbroad because some of the members may not have been harmed by Mercury’s illegal processing of contents-claims. Mercury continues to misunderstand the limits of the present proceeding. Again, Mercury’s argument is not that the subclasses cannot be identified. Rather, the carrier’s position is that the sub-classes are “invalid.” But it cites no authority which would sustain a demurrer on such grounds. 10 Moreover, Mercury’s a