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Balkar Singh v. Western World Insurance Co

December 1, 2010


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

Singh v. Western World Ins.



California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Balkar Singh brought an action against Western World Insurance Company ("WW Insurance") for breach of an insurance contract and tortious bad faith with regard to an insurance claim for fire-related losses to insured Khalsa, Inc. ("Khalsa") doing business as "99 Cent City." WW Insurance demurred to the second amended complaint on the ground that Singh lacked the legal capacity to sue because Khalsa, which had allegedly assigned its claims to Singh, had lost the corporate capacity to sue due to its suspended status. The superior court sustained the demurrer without leave to amend and entered a judgment in favor of WW Insurance.

On appeal, Singh asserts that the court erred in sustaining that demurrer because he has the capacity to maintain this action as an assignee and respondent WW Insurance cannot raise the defense of incapacity to sue because the corporate suspension occurred after the assignment. He further contends that respondent's delay in settling Khalsa's insurance claim caused the business to fail and "sound public policy" mandates that a defense of corporate incapacity to sue be disallowed where an insurer's bad faith conduct in failing to promptly pay an insured corporation's claim under its policy forces the company out of business.

We affirm.

A. Background

On August 2, 2007, an action was filed against WW Insurance Company and 50 Doe defendants. The named plaintiff was "Balkar Singh dba 99 Cent City." The complaint alleged that plaintiff was an insured under a policy issued by WW Insurance "to cover his business, including but not limited to personal property, commercial property and inventory of [his] business (99 Cent City) . . . ." It further alleged that, during the policy period, on or about February 22, 2005, a fire caused "substantial damages to [his] inventory and to the building in which [he] was conducting his business." According to the complaint, "[t]he fire caused such damage that Plaintiff could not continue his business without a prompt settlement of his damage claims by Insurance Company." It stated that plaintiff "promptly reported the fire and the damages to his business not later than March 3, 2005."

The complaint alleged that WW Insurance misrepresented pertinent facts and policy provisions relating to coverage, failed to act promptly, ignored the terms of the policy "in an effort to force an unfair settlement," "did not attempt [to act] in good faith to effectuate prompt, fair, and equitable settlement" of the claim, delayed investigation and payment of the claim by requiring submission of a preliminary claim report and formal proof of loss forms, and "failed to provide promptly a reasonable explanation of the basis" for its offer of a compromise settlement. The complaint further averred that, "[a]s a result of Insurance Company's and Defendants' continuous and malicious conduct, Plaintiff's claim was not paid until October, 2006."

The original complaint's first cause of action alleged that the foregoing conduct constituted a breach of the insurance contract and caused him to lose his lease, his bond securing payment of the lease, and his business and also caused him to incur attorney fees. The second cause of action alleged that the same conduct constituted a breach of the duty of good faith and fair dealing, which proximately caused the same damages.

WW Insurance brought a motion for summary judgment. It argued that the insurance contract was with 99 Cent City, the fictitious business name for Khalsa. It also contended that Singh had no standing to sue and no right to seek policy benefits for himself.

Singh then moved for leave to amend the complaint. A declaration in support of the motion, filed on October 28, 2008, offered a proposed first amended complaint. It changed the named plaintiff to "Balkar Singh." It modified the complaint to make clear that Khalsa was the insured, 99 Cent City was Khalsa's business, and Singh was Khalsa's sole shareholder. It stated that "[o]n or about August, 2005, Khalsa, for valuable consideration, assigned any and all claims it might have against Defendants and each of them to Balkar Singh."*fn1 The court granted permission to file the first amended complaint, which was then filed on December 23, 2008.

WW Insurance demurred to the first amended complaint pursuant to section 430.10, subdivision (b). It asserted that Singh lacked the capacity to prosecute the action. It argued that the first amended complaint "continue[d] Singh's attempt to knowingly circumvent California law prohibiting the prosecution of a lawsuit by a suspended California corporation (Khalsa, Inc.)."

The court granted WW Insurance's request that it take judicial notice of certain documents and facts, including a Fictitious Business Name Statement filed in Santa Clara County, Statements of Information regarding Khalsa filed in the Office of the Secretary of State, and the Certificate of Status, executed by California's Secretary of State on January 16, 2009. The Fictitious Business Name Statement indicated that the corporation Khalsa was doing business as "99 Cents City." The Statements of Information indicated that Khalsa's business was a "99 Cents Store" and Singh was the corporation's chief executive officer, secretary, chief financial officer, and director. The Certificate of Status stated that the Secretary of State suspended Khalsa's "powers, rights and privileges on December 14, 2006" pursuant to the Corporations Code, the Franchise Tax Board suspended its corporate "powers, rights and privileges on February 01, 2007" pursuant to the Revenue and Taxation Code," and those powers, rights and privileges remained suspended.

The court sustained the demurrer to the first amended complaint with leave to amend. Singh filed a second amended complaint. It added the allegation that at the time of the assignment, "Khalsa, Inc., was a valid California corporation, in good standing with the State of ...

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