Procedural Posture

Appellant corporation owners sought review of a decision of the Superior Court of Los Angeles County (California) that sustained respondent insurance company’s demurrer because appellants lacked standing to assert a claim against respondent for bad faith insurance practices. Appellants had filed a cross-complaint against respondent for failing to defend actions brought against appellants.

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Overview

Following suits brought against appellant corporation owners individually, appellants filed a cross-complaint against respondent insurance company for failing to defend against the actions. Respondent’s demurrer was sustained on the ground that appellants lacked standing to assert a claim against respondent for bad faith insurance practices, and appellants sought review. In affirming the decision, the court held that appellants were not parties to the insurance contract, in fact, they were specifically excluded. Appellants’ inability to maintain individual actions against their corporation’s workers’ compensation carrier did not represent a grave injustice. Having availed themselves of the benefits of the corporate structure, appellants could not complain of their inability to take personal advantage of a right belonging to the corporation alone. Appellants had no standing to assert a claim for a failure to perform a duty owed under the policy; it was up to the corporation to bring a claim for failure to defend. Nothing in the record suggested that appellants asserted a claim against the corporation for indemnity or that the corporation tendered any such claim to respondent.

Outcome

The court affirmed the decision to sustain respondent insurance company’s demurrer, holding that, in accordance with the overwhelming weight of authority, appellants lacked individual standing as shareholders to assert a claim against respondent for bad faith insurance practices. The court ruled that if appellants asserted an indemnification claim against the insured, the corporation, then that claim could be tendered to respondent.