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Mark Tanner Construction, Inc. v. HUB International Insurance Services, Inc.

California Court of Appeal, Third District

March 10, 2014

MARK TANNER CONSTRUCTION, INC., et al., Plaintiffs and Appellants,
v.
HUB INTERNATIONAL INSURANCE SERVICES, INC., Defendant and Respondent.

[CERTIFIED FOR PARTIAL PUBLICATION.[*]]

APPEAL from a judgment of the Superior Court of Nevada County, Sean P. Dowling, Judge. Affirmed. (Super. Ct. No. T104233C)

Page 575

[Copyrighted Material Omitted]

Page 576

COUNSEL

Van Dyke Law Group and Glen Van Dyke, Elk Grove, for Plaintiffs and Appellants.

Lewis Brisbois Bisgaard & Smith, Jeffry A. Miller, San Diego, Bruce L. Shaffer, Sacramento, Ernest Slome, and Lann G. McIntyre, San Diego, for Defendant and Respondent.

Page 577

OPINION

DUARTE, J.

Compensation Risk Managers of California, LLC (CRM) administered a self-insured workers compensation program for contractors, Contractors Access Program of California (CAP). Diversified Risk Insurance Brokers (Diversified), later acquired by defendant HUB International Insurance Services, Inc. (HUB), marketed and sold CAP to plaintiffs Mark Tanner Construction, Inc., and Mt. Lincoln Construction, Inc.

After CAP failed, leaving plaintiffs exposed to considerable liability, plaintiffs brought suit against HUB for professional negligence and constructive fraud. While a defense motion for summary judgment was pending, plaintiffs obtained a copy of a Regional Field Consultant Agreement (Agreement) between CRM and Diversified that had not been provided to plaintiffs in discovery. Plaintiffs believed the Agreement " significantly alter[ed] the legal landscape in this action." They argued the Agreement established that rather than acting as broker for them, Diversified instead was acting as the broker for CAP. Further, Plaintiffs argued that the Agreement revealed Diversified was part of a joint venture with CRM. These relationships had not been disclosed to plaintiffs.

Plaintiffs moved for leave to file a second amended complaint to add new allegations and new causes of action arising from legal relationships revealed by the Agreement. They also moved to continue the hearing on the summary judgment motion to permit additional discovery pursuant to Code of Civil Procedure section 437c, subdivision (h).[1] The trial court denied both motions, finding the Agreement was not the " ‘ silver bullet’ " that plaintiffs claimed.[2] The trial court granted HUB's motion for summary judgment. Plaintiffs appeal from the ensuing judgment.

Plaintiffs contend the trial court abused its discretion in denying both the motion to amend the complaint and the motion to continue the summary judgment hearing. They contend the court erred in finding that an amendment to the complaint would prejudice HUB. They assert HUB's concealment of the Agreement in discovery is sufficient grounds to grant their motion to amend and they were entitled to a continuance because HUB withheld the Agreement. Finally, plaintiffs contend it was error to grant summary judgment because there are triable issues of fact as to whether Diversified was broker for plaintiffs.

Page 578

Apparently distracted by what they perceive to be an egregious discovery violation, plaintiffs fail to adequately challenge either the legal bases or the factual findings of the trial court's rulings. We find plaintiffs have failed to carry their burden to demonstrate error. Therefore, we shall affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The Parties and CAP

Plaintiffs Mark Tanner Construction, Inc. (Tanner), and Mt. Lincoln Construction, Inc. (Mt. Lincoln), are both general contractors located in Truckee. CAP is a self-insured workers compensation program for the construction industry. The Department of Industrial Relations (the Department) regulates self-insured workers compensation programs. (Lab.Code, § 3700, subd. (b); see Cal.Code Regs., tit. 8, §§ 15470 et seq.) The Department granted CAP a Certificate of Consent to Self-Insure in 2004. CRM administers CAP and contracted with Diversified to market CAP.

California contractors were able to fulfill their obligation to obtain workers compensation insurance by joining CAP. Membership in CAP required an agreement to be jointly and severally liable for the workers compensation liability of all other members for that year of membership. Approximately 250 employers became members of CAP.

Tanner became a member of CAP on January 1, 2006, and was a member from that date until December 31, 2008, and again from August through December of 2009. Diversified was the broker of record for Tanner from January 1, 2006, until about August 2007. Mt. Lincoln became a member of CAP on October 1, 2006, and was a member for approximately two years. Diversified was the broker for Mt. Lincoln. HUB purchased Diversified on November 1, 2007.

On December 31, 2009, CAP was terminated. The Director of the Department revoked CAP's certificate to self-insure and CAP was placed into conservatorship. CAP's estimated exposure for unfunded liabilities was over $20 million. In the spring of 2010, members were sent assessments for the anticipated exposure. Tanner was assessed $150,258 and Mt. Lincoln was assessed $42,784. Later that year, CAP defaulted on payment of benefits for its workers compensation liabilities.

Page 579

The Lawsuit

In August 2010, Tanner, Mt. Lincoln, and two other companies sued HUB and others for professional negligence and constructive fraud.[3] The first amended complaint (FAC) alleged that CAP was marketed through insurance brokers, including Diversified, as a less expensive and more effective means of handling workers compensation insurance claims. Diversified did not disclose to Tanner or Mt. Lincoln its exclusive broker relationship with CRM. Diversified did not inform plaintiffs of the following facts concerning the financial stability of CAP: (1) beginning in 2006, CAP incurred losses of over $28 million and then over $60 million; (2) CRM was involved in a multimillion-dollar lawsuit in New York over similar self-insured insurance programs; (3) CAP's security bond was not renewed after 2008 and plaintiffs were unprotected if claims exceeded reserves; and (4) at least five other self-insured insurance programs administered by CRM in California had failed. The FAC alleged " [t]his information provided sufficient notice that agent brokers should investigate the proverbial health" of the self-insured workers compensation programs.

The FAC further alleged that CAP failed in 2009. It was set up dependent on new members to fund existing operations, which the FAC characterized as a " Ponzi-type scheme." Due to the decrease in construction work and the failures in New York, other brokers stopped marketing CAP, but Diversified did not provide that information to plaintiffs. As a result, plaintiffs were assessed for outstanding claims and faced further liability. Plaintiffs paid premiums for reinsurance, but were then told that no reinsurance was offered.

The first cause of action of the FAC was for professional negligence. The FAC alleged Diversified had a duty to use reasonable care as a professional. This duty required Diversified " to investigate, engage in a reasonable inquiry, discover and inform Plaintiffs of all information that might effect [ sic ] their decision to enroll in the CRM administered [CAP] including, but not limited to, the failures in New York, CAP's operating deficit, the failure of other CRM administered [self-insured insurance programs] in California, and the fact that the promises made about the program, including its price compared to other insurance programs, were false," and ...


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