City Of Riverside v. RLI Insurance Company

(Additional Insured May Maintain a Cross-Complaint for Breach of Contract Against Named Insured and Insurer in Pending Personal Injury Action)

In City of Riverside v. RLI Ins. Co., 119 Cal. App.5th 405 (March 20, 2026), the California Fourth District Court of Appeal reversed the trial court’s dismissal of a cross-complaint filed by the City of Riverside (“City”) against RLI Insurance Company (“RLI”) and its named insured, Design Services, Inc. (“DSI”) in a pending wrongful death action.

The parties’ dispute arose out of an automobile accident where a pedestrian was struck by a vehicle (the “accident”). The pedestrian died from his injuries. A wrongful death action was filed against the City as well as the driver of the vehicle. In response, the City filed an answer to the complaint and cross-complained against numerous third-parties, including RLI’s named insured, DSI. The City’s cross-complaint alleged causes of action for indemnity, apportionment of fault, declaratory relief, breach of contract and bad faith (against RLI). The City contended that its contract required DSI to make it an additional insured under the RLI policies, and, in fact, RLI had supplied an endorsement listing the City as an additional insured under at least one of its policies. RLI denied coverage of the City for the accident. As a result, the City alleged causes of action in its cross-complaint for breach of contract and bad faith against RLI. 

In response to the City’s cross-complaint, RLI filed a demurrer seeking the dismissal of the cross-complaint. Relying on the California Supreme Court’s holding in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 (“Royal Globe”), RLI argued that the City could not sue DSI and RLI in the same lawsuit as the main personal injury action. RLI argued that litigation of the cross-complaint would prejudice DSI’s defense as it would inform the jury of insurance and would violate Evidence Code section 1155, barring any reference to insurance in the main personal injury action. The trial court agreed with RLI and dismissed the City’s cross-complaint against RLI with prejudice.

In reversing the trial court’s decision, the Court of Appeal held that the Royal Globe decision was distinguishable as it involved a third-party suing the insured and its insurer in the same action, as opposed to a suit brought by an insured against the insurer. The Court of Appeal relied on its decision in Royal Surplus Lines Ins. Co. v. Ranger Ins. Co. (2002) 100 Cal.App.4th 193 (“Royal Surplus”) which held that Royal Globe did not apply to an action filed by an additional insured against the named insured and its insurer.

The Court of Appeal reasoned as follows:

Here, as in Royal Surplus, the City asserts that it entered into a contract with DSI that “required DSI to obtain insurance policies to protect the City against claims arising out of DSI’s work, including their negligence.” And the City includes an endorsement indicating it is listed as an additional named insured on the policy DSI obtained from RLI. Based on those allegations, the City asserts claims that arise in contract, not tort, against RLI. The City asserts that Royal Surplus is therefore controlling in this case.

We are persuaded by the reasoning in Royal Surplus. Here, the City, as an additional insured under the RLI policy, is in the same position as the additional insured in Royal Surplus. By naming the City as an additional insured, RLI undertook an independent written contractual obligation to the City for certain insurance protections. In other words, the City is a first party additional insured with privity of contract and standing to sue RLI and, thus, the prohibition against suing an insured and insurer in the same action does not apply. (Royal Surplus, supra, 100 Cal.App.4th at p. 200; see also California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1986) 184 Cal.App.3d 1428, 1433 [229 Cal.Rptr. 409] (California State Auto) [declining to extend Royal Globe to a bad faith action by an insured against her own insurance company].)

We acknowledge that there are two minor distinctions between Royal Surplus and the present case. First, the underlying claims have not been settled in this case. Whereas the complaint in Royal Surplus was a stand-alone complaint following a settlement, here the City has filed a cross-complaint to the Harbs’s complaint for wrongful death damages, which has not yet been resolved. Second, the City has asserted both contract claims and claims for indemnification and apportionment against DSI. But neither requires a different outcome.

First, there is no significant distinction between a separate complaint and a cross-complaint, which is itself generally considered to be a separate action from that initiated by the complaint. (Westamerica Bank v. MBG Industries, Inc. (2007) 158 Cal.App.4th 109, 134 [70 Cal.Rptr.3d 125] [“cross-complaint is generally considered to be a separate action from that initiated by the complaint.”]; see also Glenwood Homeowners Assn., Inc. v. Prosher Development Ltd. (1980) 111 Cal.App.3d 1002, 1005 [169 Cal.Rptr. 48] [“‘A complaint and a cross-complaint in a single lawsuit are for most purposes treated as independent actions.’”].) Notably, RLI concedes Royal Surplus would be “more on point” if the City had sued DSI and RLI in a separate complaint instead of the Cross-Complaint.

(5) Second, to the extent there is any potential for prejudice (i.e., by alerting the jury to a potential insurance claim), the proper approach would be to sever or bifurcate the actions, as the City suggested in the trial court. As the Legislative Committee comment to Code of Civil Procedure section 428.10, subdivision (a) explains, “Any undesirable effects that might result from joinder of causes under Section 428.10 may be avoided by severance of causes or issues for trial under Section 1048 of the Code of Civil Procedure.” (See also Royal Surplus, supra, 100 Cal.App.4th at p. 205 [“It is within the discretion of the court to bifurcate issues or order separate trials of actions, such as for breach of contract and bad faith, and to determine the order in which those issues are to be decided.”]; Ahmed v. Peterson (1986) 186 Cal.App.3d 374, 377 [230 Cal.Rptr. 636] [“But this problem is easily remedied. The breach of contract cause of action against the Auto Club can be bifurcated from the cause of action against Peterson. ‘[T]he jury trying the issue of [Peterson’s] liability for damages [will be] afforded no knowledge of his insurance coverage.’”].) “The trial court is empowered to determine the order in which the issues to be determined are tried and may order the … complaint tried before the cross-complaint.” (California State Auto, supra, 184 Cal.App.3d at p. 1433.)

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