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National Union Fire Insurance Company of Pittsburgh, PA v. Cambridge Integrated Services Group

February 11, 2009


(Alameda County Super. Ct. No. RG07315658). Trial Judge: Hon. Patrick J. Zika.

The opinion of the court was delivered by: Margulies, J.


Plaintiff National Union Fire Insurance Company of Pittsburgh, PA (National) provided excess insurance to the workers' compensation program of the Bank of America (Bank), which was administered by defendant Cambridge Integrated Services Group, Inc. (Cambridge). National filed suit against Cambridge, alleging that as a result of Cambridge's negligence in handling a workers' compensation claim, National was required to reimburse over $1.5 million in medical expenses of a former Bank employee. The complaint pleaded claims for negligence, breach of contract, negligent misrepresentation, and subrogation.

The trial court sustained a demurrer to National's complaint, reasoning that a general assignment clause in the contract between the Bank and Cambridge precluded any claims by National against Cambridge. We reverse in large part, concluding that Cambridge had a duty of care to National under the circumstances as pleaded, National was a third party beneficiary of the contract between the Bank and Cambridge, and National was subrogated to the Bank's rights against Cambridge. We affirm the trial court's dismissal of the cause of action for negligent misrepresentation.


The following account is taken from the allegations of National's complaint, filed March 14, 2007, which we accept as true for purposes of this appeal from a sustained demurrer. (See Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 543.)

National provided excess workers' compensation insurance to Bank of America (Bank). Under National's policy, it was required to reimburse the Bank for workers' compensation payments over $250,000 per injury. The Bank was self-insured for amounts below the excess insurance threshold. The policy contained a clause subrogating National to the Bank's rights with respect to covered claims.

Cambridge served as administrator of workers' compensation claims for the Bank. Cambridge's contract with the Bank (the Cambridge contract) required it to "examine, on behalf of BANK, all reports of alleged work-related injury, occupational disease or death of employees reported by the BANK to [Cambridge]." Cambridge had the authority to investigate claims and to "make determinations of liability and compensability on all workers' compensation claims reported to [Cambridge] and covered by this Agreement." Cambridge could resolve workers' compensation claims in amounts less than $25,000, without prior Bank approval, making payments from a fund maintained by the Bank. Litigated claims could be handled by Cambridge attorneys or referred to outside counsel, at the discretion of Cambridge or the direction of the Bank, and Cambridge was required to monitor outside counsel. Among other compensation, Cambridge was paid a flat fee for each new or open claim during the course of a year.

The Cambridge contract contained a general assignment clause, reading: "Neither party shall assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other party. Any prohibited assignment or delegation shall be null and void." It also contained an indemnity clause requiring Cambridge to indemnify the Bank against "all loss, claim or damage . . . caused by the fault or negligence of [Cambridge], its employees or authorized representatives, arising out of the performance or nonperformance of [Cambridge's] obligation under" the contract.

The contract required Cambridge to notify the Bank's excess insurance carrier "of any claim for which such notification is required" by the excess policy. According to the complaint, Cambridge was aware of National's coverage, had been provided a copy of its excess policy, and provided National with periodic reports on the status of claims. Cambridge continued to handle workers' compensation claims against the Bank even after they resulted in more than $250,000 in payments, thereby invoking National's excess coverage. National relied on Cambridge's expertise in handling the claims.

In 1999, a former employee of the Bank, Michael Metter, filed a workers' compensation claim against the Bank, claiming that a recent back injury was tied to earlier injuries he suffered in 1982 and 1987, while working for the Bank. Cambridge handled the claim, issuing a denial on the ground that Metter's injury was not related to the earlier injuries. Supporting Cambridge's determination was the report of a doctor it retained to examine Metter, who concluded that the injury was not covered and recommended against any surgery to treat it. For reasons that are not clear, the outside attorneys handling the Metter claim, who were being monitored by Cambridge, nonetheless agreed at a February 2000 settlement conference to pay for treatment of Metter's injury. Cambridge thereafter approved a request made by Metter's treating physician for surgery. As a result of the surgery, Metter was rendered a paraplegic. Because Cambridge had authorized payment for the surgery, the Bank and National were obligated to pay the expenses associated with its consequences. At the time of filing, those expenses exceeded $1.5 million. Cambridge continued to administer the Metter claim even after it exceeded the Bank's self-insurance limit.

In its reports to the Bank and National, beginning in February or March 2000 and continuing through March 2006, Cambridge falsely maintained that its examining doctor had approved Metter's surgery. Relying on Cambridge's reports, National did not become aware of the true facts until a new law firm took over defense of Metter's claim.

National's complaint pleaded several theories of recovery. The first cause of action alleged that Cambridge breached the Cambridge contract by mishandling the Metter claim and that National was subrogated to the Bank's right of recovery against Cambridge for that breach. The second alleged that the Bank was entitled to contractual indemnity from Cambridge as a result of its negligent handling of the Metter claim and that National was subrogated to the Bank's right of recovery under the indemnity clause. The third cause of action alleged that Cambridge had "negligently failed to inform [National] that the defense expert had opined that the Metter Claim was not related to his prior injuries" and had affirmatively reported the opposite. As a result of these misrepresentations, National alleged, it became obligated to pay on the Metter claim. The fourth cause of action alleged that National was entitled to "equitable subrogation" from Cambridge. The fifth alleged that National was entitled to recover under a direct tort duty for Cambridge's negligence.*fn1

Cambridge demurred to the complaint. The trial court sustained the demurrer as to all five causes of action alleged against Cambridge, allowing National leave to amend to allege (1) with specificity the terms of its excess policy, which had not been attached to the complaint; and (2) facts sufficient to demonstrate that the Cambridge contract's assignment clause did not preclude National's recovery by subrogation.

National's amended complaint alleged in more detail the provisions of its policy granting it rights with respect to the handling of workers' compensation claims, including clauses allowing it to (1) associate in the defense of any claim reasonably likely to involve excess insurance, (2) receive information with respect to the handling of such claims, (3) consent to legal costs incurred on its behalf, and (4) consent to any settlement above the self-insurance threshold. It further alleged that Cambridge had, in fact, reported to it with respect to all claims reasonably likely to involve the excess coverage. The amended complaint realleged, with minor changes, four of the causes of action, but it dropped the negligence cause of action. In addition, it altered the basis of the negligent misrepresentation claim, alleging misrepresentation to the Bank rather than directly to National.

Cambridge demurred again, this time with complete success. In its order sustaining the demurrer without leave to amend, the trial court ruled that National had "failed to allege facts sufficient to demonstrate the inapplicability" of the assignment clause, which the court viewed as precluding any recovery against Cambridge.


"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. [Citations.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse." (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.) " '[W]e examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory . . . .' " (Betancourt v. Storke Housing Investors (2003) 31 Cal.4th 1157, 1162--1163.)

A. Negligence

National first contends that the trial court erred in sustaining the demurrer as to its ...

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