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R.S. et al v. Pacificare Life and Health Insurance Company et al

April 12, 2011

R.S. ET AL., PLAINTIFFS AND APPELLANTS,
v.
PACIFICARE LIFE AND HEALTH INSURANCE COMPANY ET AL., DEFENDANTS AND RESPONDENTS.



(Los Angeles County Super. Ct. No. BC415200) APPEAL from a judgment of the Superior Court of Los Angeles County. John A. Kronstadt, Judge.

The opinion of the court was delivered by: Rubin, Acting P. J.

CERTIFIED FOR PUBLICATION

Affirmed.

This appeal involves California's application of the full faith and credit clause of the United States Constitution (U.S. Const., art. IV, § 1) to a Missouri state court judgment. Bound by that clause, we affirm the superior court's judgment dismissing the complaint of appellants R.C. and R.S. because the Missouri judgment barred their complaint.

FACTS AND PROCEEDINGS

Because this appeal is from a judgment sustaining a demurrer without leave to amend, we state the facts as alleged in appellants' complaint without passing on their veracity. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Registered domestic partners R.C. and R.S. maintained residences in California and Missouri. In 2004, they purchased health insurance policies issued by respondents PacifiCare Life and Health Insurance Company and Golden Rule Insurance Company (collectively Insurers). When applying for the policies, appellants disclosed that each of them was infected with HIV.*fn1 In September 2007, Insurers stopped paying benefits under appellants' policies. Because appellants no longer could afford to pay for their medical care, the termination of benefits damaged their health. In June 2008, Insurers filed a declaratory relief action in Missouri state court seeking rescission of the insurance policies. The Missouri action alleged multiple grounds for rescission, including appellants' purported misrepresentation of their state residency, fraudulent submission of duplicate medical claims, and misrepresentation of existence of other insurance coverage. Five months later in November 2008, appellants filed in the Missouri action a counterclaim for breach of contract based on Insurers' termination of benefits. The following month, the Missouri state court issued a preliminary injunction ordering Insurers to resume paying for appellants' medical care retroactively to Insurers' termination of benefits in September 2007. Appellants allege that despite the preliminary injunction, Insurers refused to resume paying benefits.

In June 2009 while Insurers' rescission action was pending, appellants dismissed without prejudice their breach of contract counterclaim. The next day, appellants filed in California state court their complaint against Insurers at issue in this appeal. The gist of their complaint alleged Insurers' failure to pay benefits damaged appellants' health because appellants could not afford to pay for the medication and health care they needed. Their complaint alleged causes of action for breach of contract; breach of the implied covenant of good faith and fair dealing for Insurers' unreasonable claims investigations and withholding of benefits; and unfair business practices in violation of Business and Professions Code section 17200 and Insurance Code section 790.03, subdivision (h).

Insurers moved to stay the California proceeding. They asserted the California complaint raised issues identical to those pending in their declaratory relief action in Missouri. Accordingly, they asked the California court to await the Missouri court's entry of judgment before proceeding with the California matter. The California court agreed.

In February 2010, the Missouri court entered judgment for appellants. Rejecting every one of Insurers' grounds for rescinding the insurance policies, the Missouri court found appellants had not defrauded Insurers. The Missouri court therefore ordered Insurers to pay appellants their full benefits under the policies, including benefits withheld in the past. Insurers accepted the Missouri judgment, and nothing in the record suggests they have violated the Missouri court's order.

Following entry of the Missouri judgment, the California court lifted its stay. Insurers thereafter demurred to appellants' California complaint. Insurers' demurrer argued that Missouri's compulsory counterclaim rule, which Insurers asserted California was obligated to apply under full faith and credit principles, barred appellants' lawsuit. Opposing the demurrer, appellants asserted Missouri's compulsory counterclaim rule did not apply to their California claims, and thus their withdrawal of those claims from the Missouri action did not prohibit them from pursuing the claims in California.

The trial court sustained Insurers' demurrer without leave to amend. The court concluded constitutional mandates and California law directed the court to look to Missouri law to determine the consequences under Missouri's compulsory counterclaim rule of appellants not pursuing their counterclaims in the Missouri proceeding. The court stated: "Under both California Code of Civil Procedure § 1913 [effect of sister-state judgment] and the Full Faith and Credit Clause of the United States Constitution, when determining the preclusive effect of a sister-state judgment, California courts measure that effect under the law of the state whose court rendered the judgment. Under the law of Missouri, the Missouri Judgment bars the claims advanced by [appellants] in the present action because they could have, and procedurally should have, been brought as counterclaims in the Missouri Action."*fn2 Holding that the Missouri judgment prohibited appellants from pursuing their California claims, the trial court dismissed appellants' complaint and entered judgment for Insurers. This appeal followed.

STANDARD OF REVIEW

" 'We treat [a] demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] 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; if not, there has been no ...


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