Cal. Desert Land Conservancy v. The Ohio Casualty Ins. Co., et al

21. Cal. Desert Land Conservancy v. The Ohio Casualty Ins. Co., et al, Case No. CIVSB2518010 Defendant Hartford’s Demurrer to the First Amended Complaint 4/3/26, 9:00 a.m., Dept. S-17

Tentative Ruling The Court would SUSTAIN Defendant Hartford’s demurrer to the third (breach) and fourth (declaratory relief) causes with thirty days leave to amend.

Case Summary

This litigation relates to the denial of insurance coverage. Generally, Plaintiff alleges that it employed a finance manager who deposited 27 checks into his own accounts. Defendant Ohio had issued a policy to Plaintiff during the relevant period that purports to cover losses resulting from the dishonest acts of employees. However, it only covered if losses were incurred during the policy versus loses only discovered during the policy. In this case, Defendant Ohio determined that only 4 of the 27 checks were posted when the policy was in effect. Thus, it offered to pay for those four transactions, plus costs and expenses. Problematically for Plaintiff, while it had a prior policy with Defendant Hartford, it only declined coverage because the loss was discovered after its policy ended.

Plaintiff alleges that Defendant S. Philips was Plaintiff’s agent/ broker. In February of 2022, Plaintiff alleges, it paid Defendant S. Philips to renew its Hartford policy. However, about a month later, Plaintiff was required to submit a new application for a new policy from Philadelphia Insurance Companies. It provided the new application. However, it alleges that it then discovered its renewal check was used to purchase the Ohio policy. Plaintiff further alleges that it was never apprised of the risks in losing continuity of coverage.

As such, Plaintiff filed suit on June 24, 2025. On November 14, 2025, it filed the operative First Amended Complaint (FAC), alleging (1) breach of contract as to Ohio; (2) declaratory relief as to Ohio; (3) breach of contract as to Hartford; (4) declaratory relief as to Hartford; and (5) professional negligence against S. Philips.

Statement of the Law

A demurrer challenges defects that appear on the face of the pleading, which includes incorporated exhibits, or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) No other extrinsic evidence can be considered. (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.) A demurrer predicated on insufficient facts to constitute a cause of action, pursuant to Code of Civil Procedure section 430.10(e), should be granted only when the facts alleged on the face of the complaint fails to state any valid claim entitled to the plaintiff. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 572.)

Analysis

Defendant Hartford generally demurrers as to the third (breach of contract) and fourth (declaratory relief) causes of action in the FAC, alleging Plaintiff fails to state sufficient facts to constitute these causes of action and that the claims against Hartford are time-barred as the Hartford Policy contractually obligates Plaintiff to file suit against Hartford within two years from the date that Plaintiff discovers the subject loss.

Time Barred – Defendant Hartford argues the subject policy has a two-year limitation period, which provides that an insured may not bring any legal action against it two years after the date that the insured discovers the loss. Defendant Hartford contends that since Plaintiff filed suit against it on November 14, 2025, and discovered the loss in June of 2023, the instant claims are time-barred. Plaintiff argues that the FAC alleges that Defendant Hartford did not deny coverage for the subject incidents until October 30, 2024, and, as such, accrual of the subject limitation was not triggered until after that date. Plaintiff contends discovery of a loss does not establish accrual where the claim turns on the insurer’s coverage position. Defendant Hartford contends the policy’s suit limitation clearly has a different trigger event than the one proposed by the Plaintiff.

Here, it is undisputed that Paragraph P of the Hartford Policy, attached as Exhibit B to the FAC, states, in pertinent part, as follows: The “Insured” may not bring any legal action against the Insurer involving loss: 1. unless the “Insured” has complied with all the terms of this Policy; and 2. until 90 days after the “Insured” has filed proof of loss with the Insurer; and 3. unless such action is brought within 2 years from the date that the “Insured” discovers such loss. (Emphasis added.)

“Discovery of the loss” has been variously defined as occurring when “facts giving rise to a later claim are discovered by the insured, when a claim is made against the insured that may result in a judgment, or when a claim or judgment is settled.” (Pacific-Southern Mortgage Trust Co. v. Insurance Co. of North America (1985) 166 Cal.App.3d 703, 709.) While the subject limitation period is shorter than that under Code of Civil Procedure section 337, which would apply in this case absent the provision, California courts have consistently upheld limitation periods in insurance policies which are shorter than the statutory period. (Ibid. Internal citations omitted.)

The Hartford Policy states, in pertinent part, as follows: Discovery of loss occurs when a member of the Risk Management Department or any officer, manager, or supervisor of the “Insured” first becomes aware of facts which would cause a reasonable person to assume that a loss covered by this Policy has been, or may be incurred even though the exact amount or the details of the loss may not then be known.

Discovery also occurs when the “Insured” receives notice of an actual or potential claim against the “Insured” alleging facts, which if true, would constitute a covered loss under this Policy. Based on the foregoing terms, it is clear the “discovery of loss” event as defined occurred when Plaintiff discovered the missing money from its bank account after an audit that occurred in June of 2023. No facts are pleaded that would suggest a later date for the “discovery of loss.” As the FAC naming Defendant Hartford in this action was not filed until November 14, 2025, I recommend the court find Plaintiff’s claims are time-barred under the terms of the parties’ agreement.

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