Filed 6/9/15 American Home Assurance Co. v. 99 Cents Only Stores CA2/7
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.


              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                DIVISION SEVEN


AMERICAN HOME ASSURANCE                                              B248688
COMPANY,
                                                                     (Los Angeles County
         Plaintiffs and Appellants,                                  Super. Ct. No. BC451795)

         v.

99 CENTS ONLY STORES et al.,

         Defendants and Respondents.



         APPEALS from judgments and orders of the Superior Court of Los Angeles
County, Holly E. Kendig, Judge. Reversed in part, affirmed in part and remanded.
         McCormick, Barstow, Sheppard, Wayte & Carruth, James P. Wagoner, Geni K.
Krogstad, Lejf E. Knutson and Michael Claiborne for Plaintiffs and Appellants.
         Morgan, Lewis & Bockius and Jason B. Komorsky for Defendant and Respondent
Toys ‘R’ Us—Delaware, Inc.; Patterson Law and Kathleen J. Patterson for Defendants
and Respondents Dream Team Solutions, Inc. doing business as Dream Team Staffing
and Coneybeare, Inc.; Darling & Risbrough and Robert M. Yoakum for Defendants and
Respondents Michaels Stores Distribution, Michaels Distribution Center and Artistree;
The Law Offices of Christopher L. Bauer and Christopher L. Bauer for Defendant and
Respondent Coastal Employment; Buchalter Nemer and Joshua Mizrahi for Defendant
and Respondent Soex West USA, Inc.; Nassiri & Jung and Andrew R. Kislik for
Defendant and Respondent Puretek Corporation; Law Offices of Maxwell E. Lin &
Associates and Maxwell Lin for Defendant and Respondent Acme Furniture Industry,
Inc.; Law Offices of David Beerman & David Mark Beerman for Defendants and
Respondents Ap & Co., Inc., doing business as On Call Staffing Services, Quality
Staffing Solutions, Inc., King Meat, Inc., Frontier Logistics Services, 99 Cents Only
Stores, Imperial CFS, Inc., Hufcor California Inc. and Chick Packing of California, Inc.;
and Law Offices of Tina M. Barberi and Tina M. Barberi for Defendants and
Respondents Cal Pay Services, Inc., Easy Living, Inc., Gootgeld Enterprises, Inc. doing
business as Molly Maid of San Marcos, L.D., Serna Enterprises, Inc. doing business as
Molly Maid of Del Mar-La Jolla, Leland Rebensdorf, Primo Corp., TJ’s Theater and
Ramsey One.
      Ward & Ward and Alexandra S. Ward for Defendant and Respondent IDS USA
West, Inc. formerly known as Warehouse Technology.
      Medel Law Group and Eric J. Medel for Defendant and Respondent Job Finders
Employment Service Co.
      Doll Amir & Eley, Gregory L. Doll and Ronald St. Marie for Defendants and
Respondents Busy Bee Janitorial Services, Inc. and Zampell Refractories, Inc.
      Tredway, Lumsdaine & Doyle, Matthew L. Kinley and Jennifer A. Lumsdaine for
Defendant and Respondent C.D. Container, Inc.
      Dykema Gossett and Brian H. Newman for Defendant and Respondent The Euclid
Chemical Co.
      California Department of Industrial Relations, Harold L. Jackson, Christopher G.
Jagard, Steven A. McGinty and Jessica Pirrone, for Defendants and Respondents
Christine Baker, Director of the State of California Department of Industrial Relations
and Trustee of the Uninsured Employers Benefits Trust Fund and the Uninsured
Employers Benefits Trust Fund.
                             _________________________
      American Home Assurance Company, National Union Fire Insurance Company of
Pittsburgh, PA and Illinois National Insurance Company (collectively Insurers) issued

                                            2
workers’ compensation policies to Optima Staffing, Inc. for 2008 and 2009 based in part
on Optima’s representation it was a temporary staffing agency that directly hired, trained
and supervised employees deployed as temporary workers in various industries and not a
professional employer organization, which provided administrative services and procured
workers’ compensation insurance on behalf of client employers for employees that
Optima did not directly hire, train or supervise. After defending and indemnifying
175 workers’ compensation claims, the Insurers discovered Optima was operating as a
professional employer organization for several temporary staffing agencies and their
special employer clients. The Insurers rescinded the policies and filed this action for
declaratory relief to confirm the rescission and for restitution from the temporary staffing
                                     1
agencies and the special employers. The Insurers appeal from the judgments entered
after the trial court sustained without leave to amend the demurrers of several of the
temporary staffing agencies and special employers and subsequently granted motions for
judgment on the pleadings in favor of the remaining temporary staffing agencies and
                   2
special employers. We reverse the judgments and the orders dismissing the causes of
action for declaratory relief and unjust enrichment.
                 FACTUAL AND PROCEDURAL BACKGROUND
       1. The Allegations of the Second Amended Complaint
       The operative second amended complaint alleged Optima applied for workers’
compensation insurance in November 2007, utilizing an application for temporary
staffing companies. In the application Optima represented its hiring practices included
requiring employment applications, verifying prior work history and interviewing
candidates. Optima further represented neither it nor any of its customers or clients “is,
or conducts business as or with, a ‘professional employer organization’ . . . , an
‘administrative service organization . . . , a long-term temporary staffing company or


1     The Insurers have not, and represent they will not, seek to recover from the injured
workers directly or to terminate any agreed-upon benefits to them.
2      Optima is not a party to this appeal.

                                               3
arrangement, an employee leasing company or arrangement, or a similar type of business
or arrangement whereby a company provides certain integrated business services to its
customers or clients (such as management of human resources, employee benefits,
payroll and/or workers’ compensation) for a fee . . . .’”
       The Insurers issued a proposal stating that issuance of any workers’ compensation
policy was conditioned upon Optima providing temporary staffing services only and not
performing as a professional employer organization or employee leasing business.
Optima accepted the proposal, and a binder for insurance was issued including the same
condition. Policies were subsequently issued for the policy period February 22, 2008
through February 22, 2009. (Separate policies were issued for claims under different
state laws.)
       In February 2009 Optima again applied for workers’ compensation insurance,
making similar representations about the nature of its business as it had with its initial
application. One of the previous policies was renewed and three new policies issued,
again contingent on Optima operating as a temporary staffing agency, for the policy
period February 22, 2009 to February 22, 2010. Those policies were cancelled effective
July 28, 2009 because Optima failed to provide collateral as required under a separately
executed payment agreement.
       After defending and indemnifying 175 workers’ compensation claims at a cost in
excess of $1 million, the Insurers discovered Optima, notwithstanding its representations
to the contrary, was a professional employer organization, procuring workers’
compensation insurance for employees of various temporary staffing agencies and, in
some cases, for the employees of special employers working with the temporary staffing
         3
agencies. Those employers gave Optima notice of their employees’ workers’

3      “A ‘special employment’ relationship arises when an employer lends an employee
to another employer and relinquishes to the borrowing employer all right of control over
the employee’s activities. [Citation.] The borrowed employee is ‘“held to have two
employers—his original or ‘general’ employer and a second, the ‘special’ employer.”’
[Citations.] In this dual employer situation, the employee is generally limited to a
statutory workers’ compensation remedy for injuries he receives in the course of his

                                              4
compensation claims; and Optima, in turn, tendered those claims under the insurance
policies. Because Optima had no supervision or control over the employees, the
operative complaint alleged, it greatly expanded the risk of workers’ compensation
claims.
       By late December 2010 the Insurers had notified Optima that they had rescinded
all workers’ compensation policies. On January 10, 2011 the Insurers filed a first
amended complaint against Optima, the temporary staffing agencies and the special
           4
employers. The first cause of action against all defendants sought declaratory relief
regarding rescission; the second, third and fourth causes of actions for breach of contract,
fraud and negligent misrepresentation were asserted against only Optima; and the fifth
cause of action for quantum meruit was asserted against the temporary staffing agencies
and the special employers.
       After demurrers to the fifth cause of action were sustained with leave to amend,
the Insurers filed the operative second amended complaint adding additional defendants
and allegations addressing the trial court’s rulings. The amended complaint also added a
sixth cause of action for unjust enrichment against the temporary staffing agencies and
special employer defendants, seeking to recover workers’ compensation benefits and
settlement proceeds with respect to the defense and indemnity of the 175 workers’
compensation claims.



employment with the special employer; he may not bring a separate tort action against
either employer.” (Riley v. Southwest Marine, Inc. (1988) 203 Cal.App.3d 1242, 1247-
1248.)
4       The complaint also named John C. Duncan as former Director of the State of
California, Department of Industrial Relations, and Trustee of the Uninsured Employers
Benefits Trust Fund (Christine Baker succeeded Duncan in May 2012), as well as the
Uninsured Employers Benefits Trust Fund itself. As the operative complaint alleged, the
Uninsured Employers Benefits Trust Fund, created pursuant to Labor Code section 62.5,
subdivision (b), to pay workers injured while employed by uninsured employers, may be
liable for claims tendered by injured workers whose employers erroneously believed they
had valid workers’ compensation insurance through Optima.

                                             5
       2. The Rulings Sustaining Demurrers to the Second Amended Complaint and
          Motions for Judgment on the Pleadings
       Although most of the temporary staffing agencies and special employers answered
the amended complaint, on October 14, 2011 two temporary staffing agencies demurred
on grounds including there could be no rescission of the insurance policies as to them
because they were not parties to the agreements between the Insurers and Optima and a
contract cannot be rescinded when the rights of others have intervened and rescission
would harm them. The agencies argued they had reasonably relied on the workers’
compensation policies procured by Optima and, in turn, had entered into agreements with
special employers to provide temporary workers.
       The trial court sustained the demurrers without leave to amend. With respect to
the declaratory relief claim, the court explained the Insurers were not entitled to
rescission “against one who is not a party to the agreement.” Additionally, the rights of
the 175 employees who had submitted claims had intervened, and rescission would cause
them to suffer prejudice. Regarding the sixth cause of action, the court explained unjust
enrichment is not a cause of action; but, even properly viewed as a claim for restitution, it
nevertheless failed because the amended complaint lacked any allegation the temporary
staffing agencies had engaged in wrongdoing. The court further held restitution and
quantum meruit (the fifth cause of action) are quasi-contract remedies that are not
available when there is a binding agreement defining the parties’ rights as the insurance
agreements did in the instant case.
       After notice of entry of the order sustaining the demurrers without leave to amend
was served, the other temporary staffing agencies and special employers filed motions for
judgment on the pleadings (or joinders) asserting the successful demurrer arguments.
After the first set of motions was granted, the Insurers moved for leave to file a third
amended complaint, splitting the declaratory relief cause of action into three separate
causes of action (to respond to concerns raised by the trial court during oral argument on
the demurrers) and seeking to add a seventh cause of action for equitable subrogation



                                              6
against the temporary staffing agencies and special employers. The motion was denied.
Judgments of dismissal were entered on February 28, 2013 and April 24, 2013.
                                      DISCUSSION
       1. Standard of Review
       On appeal from an order dismissing an action after the sustaining of a demurrer or
granting of a motion for judgment on the pleadings, we independently review the
pleading to determine whether the facts alleged state a cause of action under any possible
legal theory. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415; Aubry v.
Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967; see Gerawan Farming, Inc. v. Lyons
(2000) 24 Cal.4th 468, 515.) We give the complaint a reasonable interpretation,
“treat[ing] the demurrer [or motion] as admitting all material facts properly pleaded,” but
do not “assume the truth of contentions, deductions or conclusions of law.” (Aubry, at
p. 967; accord, Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126;
see Angelucci v. Century Supper Club (2007) 41 Cal.4th 160, 166 [“‘[a] motion
for judgment on the pleadings, like a general demurrer, tests the allegations of the
complaint or cross-complaint, supplemented by any matter of which the trial court takes
judicial notice, to determine whether plaintiff or cross-complainant has stated a cause of
action’”].) We liberally construe the pleading with a view to substantial justice between
the parties. (Code Civ. Proc., § 452; Schifando v. City of Los Angeles (2003) 31 Cal.4th
1074, 1081.)
       2. The Second Amended Complaint Adequately States a Claim for Rescission
               a. Law generally governing rescission
       An insurer may rescind an insurance contract when the insured has misrepresented
or concealed material information, even unintentionally, in obtaining insurance coverage.
(See Ins. Code, §§ 331 [concealment], 359 [false representation]; Philadelphia Indemnity
Ins. Co. v. Montes-Harris (2006) 40 Cal.4th 151, 157 [“injured party may rescind, even
though the misstatements ‘were the result of negligence, or, indeed, the product of




                                             7
                                                             5
innocence’”]; see generally, Civ. Code, § 1689, subd. (b).) To effect rescission, the
insurer must give notice to the insured and refund all premiums received before
                                              6
commencement of an action on the contract. (Ins. Code, § 650; Civ. Code, § 1691
[governing rescission generally]; see Allstate Ins. Co. v. McCurry (1964) 224 Cal.App.2d
271, 273-274 [“For the right of the insurer to rescind a contract of insurance to be
restricted under this section it is necessary that an action on the contract be brought by a
party to the contract. An action by a third party against an insured for injuries received in
an accident with the car of the insured is not an action upon the contract of insurance.”].)
After rescission has been effected, the insurer may bring an action for declaratory or
other relief to enforce it. (See Civ. Code, § 1692; West Coast Life Ins. Co. v. Ward
(2005) 132 Cal.App.4th 181, 183-184 [life insurer brought declaratory judgment action
against beneficiary to establish no benefits payable after rescinding policy for fraud
committed by deceased insured].) “In any such action, the trial court will determine not
only whether rescission was effected but also whether it was justified, and thereafter
grant appropriate relief.” (Little v. Pullman (2013) 219 Cal.App.4th 558, 569.)
       When an insurance policy is rescinded, “it is void ab initio, as if it never existed.”
(Little v. Pullman, supra, 219 Cal.App.4th at p. 568; see Imperial Casualty & Indemnity
Co. v. Sogomonian (1988) 198 Cal.App.3d 169, 184 [“[i]n other words, defendants, in
law, never were insureds under a policy of insurance”]; LA Sound USA, Inc. v. St. Paul
Fire & Marine Ins. Co. (2007) 156 Cal.App.4th 1259, 1267 [“‘rescission effectively
renders the policy totally unenforceable from the outset so that there was never any


5      The fact an insurer has required answers to specific questions in an insurance
application is usually sufficient to establish materiality as a matter of law. (Thompson v.
Occidental Life Ins. Co. (1973) 9 Cal.3d 904, 916; accord, West Cost Life Ins. Co. v.
Ward (2005) 132 Cal.App.4th 181, 187.)
6      Although rescission requires the rescinding party to restore to the other party
everything of value received under the contract, the operative complaint alleged the
Insurers were in the process of determining the extent to which the premiums paid by
Optima offset the costs incurred in defending and indemnifying the claims (more than
$1 million).

                                              8
coverage and no benefits are payable’”]; see generally Civ. Code, § 1688 [“contract is
                                  7
extinguished by its rescission”].) Consequently, in addition to the refund of premiums
by the insurer, the insured must return any advance payments that have been received.
(Imperial Casualty & Indemnity Co., at p. 184.) In contrast, the cancellation of a policy
terminates coverage only prospectively. (Id. at p. 182.)
       Rescission applies to all insureds under the contract, including additional insureds,
unless the contract provides otherwise. (Ins. Code, § 650.) When an insurer rescinds a
policy “in conformity with all of the requirements imposed by law [citation], the insurer
generally may avoid liability on the policy . . . to any third party injured by the insured.”
(Philadelphia Indemnity Ins. Co. v. Montes-Harris, supra, 40 Cal.4th at p. 157.)
              b. The Insurers are not required to seek reimbursement from the injured
                 workers who received benefits to state a claim for rescission
       Defendants contend the Insurers’ rescission claim fails because, by declaring they
do not intend to seek reimbursement from the injured workers or to terminate previously
agreed-upon benefits, the Insurers are not truly seeking rescission. Defendants’ argument
that rescission is an all or nothing proposition—either the Insurers must seek to recover
from the injured workers what they paid to them or the policies remain available for all
third party claimants—is without merit. “Rescission is an equitable remedy” (Gill v. Rich
(2005) 128 Cal.App.4th 1254, 1264), and “[e]quitable relief is by its nature flexible.”
(Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 390.) It would be a
perversion of equitable principles to prevent an aggrieved party from seeking relief
because it did not want to pursue damages or seek restitution from individuals who are
least likely to have the resources to mount a defense.
       Indeed, Civil Code section 1692 itself recognizes a contract may be “rescinded in
whole or in part.” Upon such rescission, “any party to the contract may seek relief based
upon such rescission by (a) bringing an action to recover any money or thing owing to
him by any other party to the contract as a consequence of such rescission or for any

7      In the case of a material misrepresentation, “the injured party is entitled to rescind
the contract from the time the representation becomes false.” (Ins. Code, § 359.)

                                              9
other relief to which he may be entitled under the circumstances . . . . [¶] . . . [¶] If in an
action or proceeding a party seeks relief based upon rescission, the court may require the
party to whom such relief is granted to make any compensation to the other which justice
may require and may otherwise in its judgment adjust the equities between the parties.”
(Civ. Code, § 1692; see Snelson v. Ondulando Highlands Corp. (1970) 5 Cal.App.3d 234,
258 [“In an action predicated on fraud, the fact that the parties cannot be restored to the
exact status quo ante will not prevent a court of equity from granting rescission,
especially in the light of section 1692 of the Civil Code. Exercising its equitable powers,
the court can adjust the equities of the parties and grant such relief as will achieve
substantial justice under the circumstances of the case presented to it.”]; cf. People v.
Superior Court (1973) 9 Cal.3d 283, 286 [in absence of statutory restrictions, “a court of
equity may exercise the full range of its inherent powers in order to accomplish complete
justice between the parties, restoring if necessary the status quo ante as nearly as may be
achieved”].) Moreover, to the extent defendants viewed the injured workers as
indispensable parties, they were required to object by demurrer or assert nonjoinder of a
party as an affirmative defense and move to dismiss or to compel joinder. (See Code Civ.
Proc., §§ 389 [joinder as a party], 430.10, subd. (d) [demurrer].)
       c. Whether the rights of third parties should limit rescission cannot be determined
          at the pleading stage
       Defendants also contend the Insurers may not rescind the workers’ compensation
policies because injured employees have already accepted benefits under the policies.
This argument is predicated on alternative theories: one requires a finding the injured
workers were intended third party beneficiaries and the other requires a finding that, even
if not third party beneficiaries, the injured workers’ rights have intervened and they will
be prejudiced if rescission is permitted.




                                              10
                 i. The injured workers were not intended third party beneficiaries of the
                     workers’ compensation policies
          Civil Code section 1599 permits a third party to enforce a contract before the
parties to the contract rescind it if the contract is “made expressly for the benefit” of that
third party. (See Spinks v. Equity Residential Briarwood Apartments (2009)
171 Cal.App.4th 1004, 1021 [“‘California law permits third party beneficiaries to enforce
the terms of a contract made for their benefit’”].) “Moreover, the contracting parties may
not rescind or revoke the contract where the ‘beneficiary has accepted the benefit or has
detrimentally acted in reliance thereon,’ or where the ‘promisor continues to retain the
consideration from the original promisee. . . .’” (Id. at p. 1025.)
          “‘The test for determining whether a contract was made for the benefit of a third
person is whether an intent to benefit a third person appears from the terms of the
contract. [Citation.] If the terms of the contract necessarily require the promisor to
confer a benefit on a third person, then the contract, and hence the parties thereto,
contemplate a benefit to the third person.’” (Spinks v. Equity Residential Briarwood
Apartments, supra, 171 Cal.App.4th at p. 1022.) The third person need not be expressly
identified in the contract. He or she must simply demonstrate membership in the class of
persons for whose benefit the contract was made. (Id. at p. 1023.) There is no
requirement that both contracting parties intend to benefit the third party. “‘[I]t is
sufficient that the promisor must have understood that the promise had such intent.’”
(Ibid.)
          As defendants argue, workers’ compensation policies are quintessential third party
beneficiary contracts. (See Ins. Code, § 11651 [workers’ compensation policies “shall
contain a clause to the effect that the insurer will be directly and primarily liable to any
proper claimant for payment of any compensation for which the employer is liable,
subject to the provisions, conditions and limitations of the policy”].) But the issue is not
whether workers’ compensation policies in the abstract, or at some general level,
expressly benefit third parties. The question is whether specific policies were intended to
benefit specific classes of employees. Here, the intended beneficiaries of the workers’


                                               11
compensations policies were the direct employees of Optima. Based on Optima’s
representations, the Insurers clearly did not understand Optima intended that employees
                                                                                        8
of the temporary staffing agencies and special employers would be the beneficiaries.
Moreover, Civil Code section 1599 permits third party beneficiaries to enforce the terms
of a contract on their own behalf. In the instant case the injured workers are not seeking
to enforce the workers’ compensation policies or thwart rescission. They have already
been paid. To the extent there are injured employees who have not yet submitted claims,
they will ultimately be compensated either by their actual employers’ policies, if any, or
by the Uninsured Employers Benefits Trust Fund. (See DuBois v. Workers’ Comp.
Appeals Bd. (1993) 5 Cal.4th 382, 388-389 [“[i]n 1971, the California Legislature created
the [Uninsured Employers Benefits Trust Fund] in order to provide a source of funds for
injured workers whose employers have failed or refused either to obtain workers’
compensation insurance coverage or to qualify as self-insurers for the employers’
liability”].)
                  ii. Whether defendants may be able to prevent rescission because their
                      third party rights have been prejudiced is not grounds for sustaining
                      the demurrer or granting judgment on the pleadings
        Generally, even if not intended beneficiaries, third parties may nevertheless
prevent the rescission of a contract—leaving the complaining party to other available
remedies—if the third parties’ rights “‘have intervened and circumstances have so far
changed that rescission may not be decreed without injury to those parties and their
rights.’” (Gill v. Rich, supra, 128 Cal.App.4th at p. 1265, quoting Beckwith v. Sheldon
(1913) 165 Cal. 319, 324; see Angle v. United States Fid. & Guar. Co. (1962)


8      Paragraph 34 of the operative complaint alleged, “Optima operated principally as
a PEO and/or provided employee leasing services by agreeing with the Temporary
Staffing Defendants and, in some cases, the Special Employer Defendants to provide
certain personnel services including, inter alia, workers compensation insurance for the
employees of the Temporary Staffing Defendants and Special Employer Defendants,
without also obtaining the right to assign or supervise work performed by the employees.
Optima therefore had no supervision or control over the employees, thereby greatly
expanding the risks inherent in Optima’s operations.”

                                             12
201 Cal.App.2d 758, 763; see generally Croskey et al., Cal. Practice Guide: Insurance
Litigation (The Rutter Group 2014) ¶¶ 5:159.1 to 5:159.2, p. 5-46.) Defendants contend
they purchased workers’ compensation insurance for their employees through Optima
without any constructive notice of Optima’s fraud (that is, that Optima had represented it
was not a professional employer organization) and their intervening rights will be harmed
if rescission is permitted because the employees they thought were covered by workers’
compensation policies may now be able to pursue tort claims against them. (See Lab.
Code, § 3602, subd. (d) [employer who “secure[s] the payment of compensation on
employees provided to it by agreement by another employer by entering into a valid and
enforceable agreement with that other employer under which the other employer agrees
to obtain, and has, in fact, obtained workers’ compensation coverage for those
employees” “shall not be subject to civil, criminal, or other penalties for failure to
provide workers’ compensation coverage or tort liability in the event of employee injury,
but may, in the absence of compliance, be subject to all three”]; InfiNet Marketing
Services v. American Motorist Ins. Co. (2007) 150 Cal.App.4th 168, 178 [“[s]ection
3602, subdivision (d), was enacted ‘to allow general and special employers to come to an
agreement to ensure that the workers are fully covered by workers’ compensation
insurance but not to burden both employers with redundant premium payments’”].)
       The Insurers, on the other hand, argue, although prejudice to third parties may be
an inevitable consequence of rescission, the law clearly provides rescission is binding on
innocent additional insureds, third party beneficiaries and injured third parties. (See Ins.
Code, § 650; Philadelphia Indemnity Ins. Co. v. Montes-Harris, supra, 40 Cal.4th at
p. 157; West Coast Life Ins. Co. v. Ward, supra, 132 Cal.App.4th 181 [in action by
beneficiary of life insurance policy after insurer rescinded it based on concealment, court
found no waiver of rescission].) The Insurers insist it would be incongruous for wholly
unrelated third parties to have greater protection than additional insureds, particularly
because the special employers had an ongoing obligation to ensure they satisfied their
duty to secure workers’ compensation coverage. (See Lab. Code, §§ 3711 [“[t]he
director, an investigator for the Department of Insurance Fraud Bureau or its successor,

                                             13
or a district attorney investigator assigned to investigate workers’ compensation fraud
may, at any time, require an employer to furnish a written statement showing the name of
his or her insurer or the manner in which the employer has complied with Section 3700”];
3550, subd. (a) [“[e]very employer subject to the compensation provisions of this division
shall post and keep posted in a conspicuous location frequented by employees, and where
the notice may be easily read by employees during the hours of the workday, a notice that
states the name of the current compensation insurance carrier of the employer, or when
such is the fact, that the employer is self-insured, and who is responsible for claims
adjustment”].) The Insurers further argue the cases holding third parties may prevent
rescission if their rights are sufficiently injured are distinguishable because, in all of
them, the third parties had obtained their rights legitimately whereas any rights
defendants had, or thought they had, were predicated on fraud and thus illusory.
       We recognize the tension between the principles animating the Insurers’ and
defendants’ positions. But, as we explained, rescission is an equitable remedy and thus
flexible. Consequently, we cannot categorically say, as the Insurers suggest, an innocent
third party may never prevent rescission when that parties’ rights, albeit illusory because
predicated on fraud, have been prejudiced. Indeed, the Supreme Court in Beckwith v.
Sheldon, supra, 165 Cal. at page 324, characterizing as “fundamental” the principle
injured third parties may prevent rescission, made no such distinction between
legitimately and illegitimately derived rights; and we decline to engraft such a limitation
onto a fundamental equitable principle. It cannot, however, be determined at the pleading
stage whether the rights of the defendants have been sufficiently prejudiced such that
they should be able to prevent rescission. This is quintessentially a question of fact. The
                                                                       9
Insurers have thus properly stated a cause of action for rescission.

9      Counsel for more than 20 defendants filed a joint respondents’ brief, which the
remaining defendants joined. One defendant, IDS USA West, Inc., filed a separate brief
in addition to participating in the joint brief. The only point we need address in IDS USA
West’s separate brief is its argument, echoing one of the trial court’s findings, that
rescission cannot be had against non-parties to a contract. (See Super 7 Motel Associates
v. Wang (1993) 16 Cal.App.4th 541, 549 [“contractual aspects of a complaint seeking

                                              14
              d. Whether the Insurers have waived their right to rescind by failing to
                 promptly investigate Optima’s insurability cannot be determined at the
                 pleading stage
       Relying in large part on Barrera v. State Farm Mutual Auto. Ins. Co. (1969)
71 Cal.2d 659 (Barrera), defendants contend the Insurers have waived their right to
rescind the workers’ compensation policies because they unreasonably delayed
investigating Optima’s insurability, waiting more than two and a half years after the first
policies were issued and until they had paid more than $1 million in workers’
compensation claims. Defendants argue the Insurers had information in their possession,
submitted as part of at least one workers’ compensation claim, that constituted
constructive notice of Optima’s fraud.
       In Barrera the Court held “an automobile liability insurer must undertake a
reasonable investigation of the insured’s insurability within a reasonable period of time
from the acceptance of the application and the issuance of a policy.” (Barrera, supra,
71 Cal.2d at p. 663.) If an injured party who has obtained an unsatisfied judgment
against the insured proceeds against the insurer, the insurer cannot raise as a defense the
insured’s concealment or misrepresentation of material information that could have been
uncovered in a timely investigation of insurability. (See id. at pp. 663, 667 [“evidence
suggests that State Farm, in failing to investigate Alves’s insurability and to obtain a


rescission of the contract and restitution presuppose that plaintiff and defendant occupy
the relationship of vendor and vendee”]; Leavens v. Sharp (1944) 66 Cal.App.2d 425,
430 [“appellant was not entitled to a judgment for rescission against one who was not a
party to the agreement”].) Although technically correct, it is irrelevant. The Insurers are
seeking a declaration that their contracts with Optima have been properly rescinded with
the consequence to defendants that employees they thought were covered by workers’
compensation insurance pursuant to their separate contracts with Optima were not
properly insured. Indeed, the very fact that third parties in some instances may be able to
prevent rescission demonstrates that rescission can occur even if it affects nonparties—it
is not “had” with respect to them, but merely has effects on them, including the
possibility they may be required to pay restitution for unjust enrichment. (Cf. Super 7
Motel Associates, at p. 549 [“a broker is a proper party defendant to a fraud claim seeking
rescission, and . . . can be held jointly and severally liable for the consequential damage
award in that action”].)

                                             15
DMV report, pursued a policy of saving minor costs on its part at the expense and
sacrifice of the interests of its insured and those of the general public who were the
potential victims of the insured’s negligence”].) “Barrera’s recognition of this duty on
the part of automobile liability insurers rested on a combination of three public policy
considerations: the quasi-public nature of the insurance business generally; the public
policy underlying the financial responsibility law [citation]; and the fact that such a duty
is consistent with the extracontractual duty of all insurers to act promptly to accept or
reject applications for insurance.” (Philadelphia Indemnity Ins. Co. v. Montes-Harris,
supra, 40 Cal.4th at p. 158.)
       Parallels can certainly be drawn between automobile liability insurance and
workers’ compensation insurance: “[O]rdinary indemnity insurance . . . primarily
protects the insured” (Barrera, supra, 71 Cal.2d at p. 672), while automobile liability
insurance and workers’ compensation insurance protect injured third parties. However,
significant distinctions exist as well. Workers’ compensation is governed by an extensive
regulatory scheme that places certain burdens and duties on employers, who have the
primary responsibility for ensuring that injured workers are compensated; and the
Uninsured Employers Benefits Trust Fund provides a safety net in the event an employer
has failed to obtain insurance. In the automobile liability context there is no employer or
business subject to regulation that is liable in the first instance for injury to third parties.
If an automobile insurance policy is rescinded, an injured third party likely has no
recourse. Thus, “‘the entire automobile financial responsibility law must be liberally
construed to foster its main objective of giving “monetary protection to that ever
changing and tragically large group of persons who while lawfully using the highways
themselves suffer grave injury through the negligent use of those highways by others.”’”
(Id. at pp. 670-671.) Because of these special concerns, unique to situations involving
automobile liability insurance, a number of courts have limited the Barrera holding and
analysis to that specific context. (See Fireman’s Fund Ins. Co. v. Superior Court (1977)
75 Cal.App.3d 627, 633 [“a careful reading of Barrera and later kindred decisions
compels the conclusion that the duty defined in Barrera must in any event be limited to

                                               16
automobile liability insurers who deny coverage for reasons arising out of their own
negligence”]; see also Nieto v. Blue Shield of California Life & Health Ins. Co. (2010)
181 Cal.App.4th 60, 85, fn. 6 [observing in case involving misrepresentations in
application for health insurance, “overriding public policy of protecting injured third
parties, which guided the court in [Barrera], is not present here”].)
       We need not decide whether the duty of prompt and reasonable investigation
articulated in Barrera—or some variation that is less demanding than Barrera but stricter
than ordinary forfeiture/waiver principles—is applicable to workers’ compensation
carriers because, whatever the standard, waiver is an affirmative defense that ordinarily
cannot be resolved at the pleading stage. (See Waller v. Truck Ins. Exchange, Inc. (1995)
11 Cal.4th 1, 33-34 [“‘[w]aiver is an affirmative defense, for which the insured bears the
burden of proof,’ and ‘California courts will find waiver when a party intentionally
relinquishes a right or when that party’s acts are so inconsistent with an intent to enforce
the right as to induce a reasonable belief that such right has been relinquished’”]; see also
Barrera, supra, 71 Cal.2d at p. 681 “[w]hether or not the automobile liability insurer has
breached its duty to the public to make a reasonable investigation within a reasonable
time after the issuance of the policy ordinarily constitutes a question for the trier of
fact”]; DuBeck v. California Physicians’ Service (2015) 234 Cal.App.4th 1254, 1265
[although “[w]aiver is ordinarily a question for the trier of fact,” it may be determined as
a matter of law if there are not disputed facts and only one reasonable inference can be
drawn].) Nothing in the Insurers’ operative pleading established waiver as a matter of
law. Resolution of the issue remains for a finder of fact.
       3. The Insurers Adequately Pleaded a Claim for Unjust Enrichment but Not
          Quantum Meruit
       Defendants contend there are several reasons the causes of action for unjust
enrichment and quantum meruit collectively fail, but do not address the elements of each
claim separately. None of their arguments has merit. However, in independently
examining the issues, we conclude the cause of action for quantum meruit cannot be
maintained.


                                              17
              a. Unjust enrichment
                  i. Governing law
       “The elements for a claim of unjust enrichment are ‘receipt of a benefit and unjust
retention of the benefit at the expense of another.’ [Citation.] ‘The theory of unjust
enrichment requires one who acquires a benefit which may not justly be retained, to
return either the thing or its equivalent to the aggrieved party so as not to be unjustly
enriched.’ [Citation.] It is not, strictly speaking, a theory of recovery, ‘“but an effect:
the result of a failure to make restitution under circumstances where it is equitable to do
so.” [Citation.] . . . It is synonymous with restitution.’ [Citation.] Ordinarily, restitution
is required only if ‘“the benefits were conferred by mistake, fraud, coercion, or
request.”’” (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105,
1132; see Dinosaur Development, Inc. v. White (1989) 216 Cal.App.3d 1310, 1316 [if
benefits are not conferred by mistake, fraud, coercion or request, “‘though there is
enrichment, it is not unjust’”].)
                  ii. There is no valid contract precluding recovery under a quasi-
                      contract theory
       Contending California Medical Assn. v. Aetna U.S. Healthcare of California
(2001) 94 Cal.App.4th 151, 174 (California Medical Assn.) is directly on point,
defendants argue the Insurers are not entitled to recover workers’ benefits paid to injured
workers or expenses incurred in connection with the defense and indemnity of their
claims because these costs were incurred pursuant to express contracts between Optima
and the Insurers. (Id. at p. 172 [“quasi-contract action for unjust enrichment does not lie
where, as here, express binding agreements exist and define the parties’ rights”].)
California Medical Association (CMA), the assignee of claims owned by physicians and
medical groups (collectively physicians), filed a complaint asserting claims for breach of
express and implied contract and breach of third-party-beneficiary contract against
several health care insurers to recover payments allegedly owed to the physicians for
services provided to enrollees in health care service plans operated by the defendants.
There were no direct contracts between the physicians and the defendants. Rather, the


                                              18
physicians had entered into contracts to provide services to certain intermediaries. After
the intermediaries became insolvent and failed to pay the physicians, CMA attempted to
recover the amounts due on the theory the health insurers had indirectly received a
benefit from these payments. The trial court sustained a demurrer to the first amended
complaint but granted “leave to amend to attempt to allege a claim for quasi-contract.”
(Id. at p. 157.)
       The trial court subsequently sustained the health insurers’ demurrer to the second
amended complaint, asserting claims including unjust enrichment, without leave to
amend. In affirming the trial court’s ruling, the court of appeal explained, “‘When parties
have an actual contract covering a subject, a court cannot—not even under the guise of
equity jurisprudence—substitute the court’s own concepts of fairness regarding that
subject in place of the parties’ own contract.’ [Citation.] Thus, CMA may not proceed
on its quasi-contract claim because the subject matter of such claim, to wit, whether
Physicians were entitled to compensation from defendants, was governed by express
contracts including the Defendant-Intermediary Agreements and Defendant-Enrollee
Agreements (as specifically alleged in CMA’s second amended complaint) as well as the
Intermediary-Physician Agreements (as argued in CMA’s opening brief). [Citations.] [¶]
Further, the record indicates that CMA is improperly seeking to proceed on a quasi-
contract claim only after trying unsuccessfully by its first amended complaint to enforce
various express contracts against defendants directly.” (California Medical Assn., supra,
94 Cal.App.4th at pp. 172-173.) The court also held, “because of the circumstances
alleged here, any benefit conferred upon defendants by Physicians was simply an incident
to Physicians’ performance of their own obligations to Intermediaries under the
Intermediary-Physician Agreements.” (Id. at p. 174.)
       Unlike the case at bar, there was no allegation in California Medical Assn. that the
contracts governing the subject matter of the claim—whether direct or indirect—were
void. Here, the very essence of the Insurers’ action is that there are no valid and
enforceable agreements. Thus, the principle that a plaintiff may not “pursue or recover
on a quasi-contract claim if the parties have an enforceable agreement regarding a

                                             19
particular subject matter” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342,
1388, italics added) is simply not applicable. (See McBride v. Boughton (2004)
123 Cal.App.4th 379, 388 [“restitution may be awarded in lieu of breach of contract
damages when the parties had an express contract, but it was procured by fraud or is
unenforceable or ineffective for some reason”]; Lance Camper Manufacturing Corp. v.
Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 203 [“Here, the Insured has alleged
the existence and validity of an enforceable written contract between the parties in its first
two causes of action. The Insured then realleges the existence of the written contract in
its claim of a quasi-contract. This is internally inconsistent. The Insured must allege that
the express contract is void or was rescinded in order to proceed with its quasi-contract
claim.”].)
       Similarly misplaced is the argument any benefit conferred on defendants was an
incident to the Insurers’ performance of their own obligations to Optima as required
under the workers’ compensation policies. Even if not void, these policies only provided
coverage for direct employees of Optima. Defendants were not incidental beneficiaries.
                  iii. The operative complaint adequately alleged it would be unjust for
                       defendants to retain the money expended in connection with their
                       employees’ workers’ compensation claims
       Defendants contend the Insurers failed to plead facts demonstrating it would be
unjust for them to retain the benefits they received. They argue they paid for any
benefits—the operative complaint alleged that special employers paid premiums to one or
more temporary staffing agencies, which, in turn, paid Optima for a portion of the
premiums on the policies—and it was not alleged defendants knew of Optima’s fraud.
       Like many of defendants’ arguments, whether it would be unjust for them to retain
the benefits they received—payments made to injured workers on their behalf (see
Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 51 [“benefit is conferred not only when one
adds to the property of another, but also when one saves the other from expense or
loss”])—cannot be resolved at the pleading stage. Although the operative complaint does




                                             20
                                                                         10
not allege defendants colluded with Optima or were aware of its fraud, participation in
the fraudulent scheme is not required for a claim for unjust enrichment. Restitution may
be warranted in cases in which the parties are innocent of wrongdoing, for example, in
the case of a mistake of fact. (See Supervalu, Inc. v. Wexford Underwriting Managers,
Inc. (2009) 175 Cal.App.4th 64, 78 [“‘[a]s a general rule, equitable concepts of unjust
enrichment dictate that when a payment is made based upon a mistake of fact, the payor
is entitled to restitution unless the payee has, in reliance on the payment, materially
changed its position’”].) Indeed, restitution may even be appropriate when the party
seeking to recover was negligent in making a payment (National Bank of California v.
Miner (1914) 167 Cal. 532, 537 [“‘[i]t is now settled . . . that money paid under a mistake
of fact may be recovered back, however negligent the party paying may have been in
making the mistake, unless the payment has caused such a change in the position of the
other party that it would be unjust to require him to refund’”]; accord, American Oil
Service, Inc. v. Hope Oil Co. (1965) 233 Cal.App.2d 822, 830), and without regard to
whether the mistake was mutual or known by the party receiving the payment (Aebli v.
Board of Education (1944) 62 Cal.App.2d 706, 724.) This case has the added complexity
that defendants may be innocent third parties, but the Insurers are also innocent third
parties. How equity is best served under these circumstances is a question that can only
be resolved after a full development of all the facts. In sum, the operative complaint
adequately states a claim for unjust enrichment.
                  iv. Whether the insurance policies demonstrate the Insurers did not
                      suffer injury or waived their right to assert claims against
                      defendants cannot be determined at the pleading stage
       Defendants contend the insurance policies attached as exhibits to the Insurers’
proposed third amended complaint demonstrate the Insurers suffered no injury—having
received more in premiums than they paid in claims—and that the policies include a
waiver precluding the Insurers from asserting claims against the temporary staffing


10    The proposed third amended complaint included allegations that some of the
defendants were aware of Optima’s fraud.

                                             21
agencies and special employers. The Insurers respond that defendants misconstrue the
policies, as well as the allegations of the proposed third amended complaint.
       As a threshold matter, because the second amended complaint sufficiently states
causes of action for rescission and unjust enrichment, the proposed third amended
                                                                   11
complaint and documents attached to it are not properly before us.
       Even if considered, the insurance policies do not demonstrate the Insurers have not
suffered injury as a matter of law. The operative complaint and the proposed third
amended complaint allege the Insurers have paid “in excess” of $1 million in claims and
may be required to pay additional sums in connection with the 175 workers’
compensation claims. One million dollars is the floor, not the ceiling. Moreover, the
premiums reflected in the policies (more than $1,850,000) were “deposit premium[s].”
As the policies explained, those premiums were estimates: “The final premium will be
determined after this policy ends by using the actual, not the estimated, premium basis
and the proper classifications and rates that lawfully apply to the business and work
covered by this policy.” The final premium calculation would also be affected by any
cancellation—as happened in the instant case about five months into the second policy
year because of Optima’s failure to provide collateral. Thus, it cannot be determined
from the operative pleading and the policies whether the Insurers paid more in claims
than they collected in premiums.
       Similarly unamenable to resolution at the pleading stage is defendants’ contention
the “Blanket Waiver of Our Right To Recover from Others Endorsement” precludes a
cause of action for restitution. The endorsement states, “We have a right to recover our
payments from anyone liable for injury covered by this policy. We will not enforce our
right against any person or organization with whom you have a written contract that
requires you to obtain this agreement from us, as regards any work you perform for such

11     In light of our conclusion the Insurers have properly pleaded a cause of action for
unjust enrichment, whether the Insurers should be permitted to file a third amended
complaint to also assert a cause of action for equitable subrogation is properly
reconsidered in the first instance by the trial court.

                                            22
person or organization.” As previously discussed, the gravamen of the Insurers’ action is
that the policies were rescinded and consequently void ab initio. If they prevail on that
theory, then the blanket waiver is inapplicable. Moreover, there are no allegations in the
operative complaint that defendants had a written contract with Optima requiring them to
obtain the waiver of subrogation, a condition precedent for the waiver to be activated.
              b. Quantum meruit
       “Quantum meruit refers to the well-established principle that ‘the law implies a
promise to pay for services performed under circumstances disclosing that they were not
gratuitously rendered.’ [Citation.] To recover in quantum meruit, a party need not prove
the existence of a contract [citations], but it must show the circumstances were such that
“the services were rendered under some understanding or expectation of both parties that
compensation therefor was to be made.’” (Huskinson & Brown v. Wolf (2004)
32 Cal.4th 453, 458.) ‘“The measure of recovery in quantum meruit is the reasonable
value of the services rendered, provided they were of direct benefit to the defendant.”’
[Citation.] ‘[A] plaintiff must establish both that he or she was acting pursuant to either
an express or implied request for such services from the defendant and that the services
rendered were intended to and did benefit the defendant.’” (Advanced Choices, Inc. v.
State Dept. of Health Services (2010) 182 Cal.App.4th 1661, 1673; see Chodos v.
Borman (2014) 227 Cal.App.4th 76, 96-97.) “[W]hen the services are rendered by the
plaintiff to a third person, the courts have required that there be a specific request therefor
from the defendant: ‘[C]ompensation for a party’s performance should be paid by the
person whose request induced the performance.’” (Day v. Alta Bates Medical Center
(2002) 98 Cal.App.4th 243, 249, quoting Earhart v. William Low Co. (1979) 25 Cal.3d
503, 515.)
       The Insurers have failed to allege—and cannot allege—they defended and
indemnified the injured workers pursuant to either an express or implied request for such
services from the temporary staffing agencies or special employers and that the services
rendered were intended to benefit them. Indeed, the “‘theory of quasi-contractual
recovery is that one party has accepted and retained a benefit with full appreciation of the

                                              23
facts, under circumstances making it inequitable for him to retain the benefit without
payment of its reasonable value.’” (Day v. Alta Bates Medical Center, supra,
98 Cal.App.4th at p. 248.) The temporary staffing agencies and special employers did
not accept the benefits with a full appreciation of the facts, that is, that Optima was not
authorized to purchase workers’ compensation insurance on behalf of employees who did
not work directly for the company. The Insurers cannot state a claim for quantum meruit.
                                      DISPOSITION
       The judgments are reversed as well as the orders dismissing the causes of action
for declaratory relief and unjust enrichment. The orders sustaining the demurrer and
granting judgment on the pleadings to the causes of action for quantum meruit are
affirmed. The cause is remanded for further proceedings not inconsistent with this
opinion. The Insurers are to recover their costs on appeal.


                                                  PERLUSS, P. J.


       We concur:


                     ZELON, J.




                     STROBEL, J.*




*       Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

                                             24
