Full Opinion

IN THE SUPREME COURT OF CALIFORNIA FOX PAINE & COMPANY, LLC, et al., Plaintiffs and Appellants, v. TWIN CITY FIRE INSURANCE COMPANY et al., Defendants and Respondents. S287404 First Appellate District, Division Two A168803 San Francisco City and County Superior Court CGC17557275 July 27, 2026 Chief Justice Guerrero authored the opinion of the Court, in which Justices Liu, Kruger, Groban, Evans, DeSantos,* and Feinberg** concurred. * Associate Justice of the Court of Appeal, Fifth Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. ** Associate Justice of the Court of Appeal, Third Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY S287404 Opinion of the Court by Guerrero, C. J. Insurance is sometimes procured in a series of layers, with an insured acquiring a primary insurance policy that provides an initial layer of coverage for loss or liability and an excess insurance policy or policies that provide additional coverage in the event the underlying coverage is exhausted. (See Montrose Chemical Corp. of California v. Superior Court (2020) 9 Cal.5th 215, 222–223.) Excess insurance policies vary in how they define exhaustion. Some excess policies provide that underlying insurance policies are exhausted and coverage under the excess policy attaches only when the coverage limits on the underlying policies have been fully paid out. In this case, we consider whether claims for declaratory relief and breach of the implied covenant of good faith and fair dealing brought by alleged insureds (hereinafter referred to as insureds) against excess insurers are susceptible to demurrer on the ground that the insureds could not allege prior exhaustion of all of the insurance coverage underlying the excess insurers’ policies. We conclude that the absence of exhaustion is not fatal to these claims. The issue arises here after a dispute between former colleagues at an investment firm led to lengthy — and expensive — litigation. Plaintiffs, representing one faction within this feud, later brought this lawsuit asserting several 1 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. causes of action against three insurers that had issued excess insurance policies to the firm. The operative complaint alleges that the excess insurers breached the policies by not indemnifying plaintiffs for expenses they incurred in the earlier litigation. Plaintiffs also assert that the failure to pay them policy benefits and other conduct by the excess insurers that allegedly favored the other faction over theirs violated the covenant of good faith and fair dealing that is implicit within the excess policies. In addition to seeking damages, plaintiffs request a series of judicial declarations, including declarations that their insurance claims are covered by the excess policies and must be paid by the excess insurers. When the excess insurers demurred to the complaint, the trial court determined that plaintiffs had alleged exhaustion of the primary insurance policy through compensation that the primary insurer had provided to the other faction, but that none of the excess insurance policies had been exhausted. On this basis, plaintiffs’ claims relating to the first layer of excess insurance were allowed to proceed, but the trial court sustained the demurrers filed by two other excess insurers who supplied higher layers of excess coverage. The Court of Appeal affirmed the resulting judgment of dismissal. Plaintiffs now challenge the rejection of their claims against the two excess insurers for declaratory relief and breach of the implied covenant of good faith and fair dealing. They argue that the lower courts placed too much emphasis on the lack of actual exhaustion. We conclude that an insured may state a viable cause of action for declaratory relief regarding coverage and liability under an excess insurance policy even if all of the underlying 2 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. insurance coverage has not yet been exhausted. While insureds in this position must adequately plead their covered losses, the relevant principles governing the availability of declaratory relief do not support a strict rule that would withhold this relief whenever exhaustion has not also been alleged. We also hold that an insured suing an excess insurer for tortious breach of the implied covenant of good faith and fair dealing does not have to allege the prior exhaustion of all underlying insurance. It is sufficient to allege facts that, taken as true, show that coverage under an excess policy will attach, and that the insurer’s misconduct has impaired the insured’s recovery of benefits owed to it under the policy. In light of these holdings, we reverse the judgment of the Court of Appeal and remand the cause to that court for further proceedings consistent with this opinion. I. FACTUAL AND PROCEDURAL BACKGROUND The background facts provided below are drawn from the allegations in the third amended complaint filed by plaintiffs Saul Fox (Fox), Fox Paine & Company, LLC (FPC), and related entities.1 We treat the factual allegations in the complaint as true for present purposes. To summarize what follows, plaintiffs allege that three excess insurers improperly allowed plaintiffs’ former colleagues at an investment firm, who later became their rivals in lengthy litigation proceedings, to usurp an insurance claim seeking recovery for expenses incurred in that litigation. Plaintiffs 1 In addition to Fox and FPC, the plaintiffs in this case are Fox Paine Capital Fund II International, L.P.; FP International LPH, L.P.; and Fox Paine International GP, Ltd. 3 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. contend that the claim should have been understood as having been submitted on their behalf and resulted in substantial insurance payouts to them, but that as yet, they have received nothing under any of the excess policies. This lawsuit derives from earlier litigation between Fox and Dexter Paine (Paine), the cofounders of FPC, an investment firm. Fox and Paine managed two investment funds together. In 2006, Paine wanted to establish a third fund, while Fox preferred not to. Paine proceeded to launch the fund on his own as a new company, Fox Paine Management III, LLC (FPM III). Fox did not participate in the management of the fund but had a small investment stake in it. An agreement was reached whereby “[a]ny material commitment, action, or undertaking by FPC” would require approvals from both Fox and Paine, and FPC employees could provide services to FPM III while remaining employees of FPC. The relationship between Fox and Paine deteriorated soon thereafter. In August 2007, FPC, Fox, and related parties (the Fox Parties)2 sued Paine, FPM III, FPC,3 and Paine’s family trust (the Paine Parties) in Delaware after Paine and others poached employees from FPC to go work for FPM III, arranged lucrative compensation packages for defecting employees, and fraudulently represented that Fox had authorized various actions when he had not done so. The Paine Parties soon filed counterclaims (which the complaint refers to as the Paine 2 The complaint describes these related parties as “two Fox- owned entities.” 3 The complaint alleges that FPC was sued only “nominally.” 4 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. Counterclaims) against the Fox Parties. The Delaware litigation, including the Paine Counterclaims, was quickly resolved through settlement, only to be followed by new litigation. This follow-on litigation, which the complaint refers to as the “Continuing Paine Claims,” continued for several years. The extensive litigation between the Fox Parties and the Paine Parties led to the presentation of claims under insurance policies that provided coverage to FPC, related entities, and affiliated individuals. The policies consist of a primary insurance policy issued by Houston Casualty Company (HCC) and four excess policies issued by three other insurers. The complaint identifies specific provisions in the primary policy that, according to plaintiffs, provide coverage for investigation and defense costs incurred in litigation such as the Delaware litigation and the Continuing Paine Claims. Each excess policy is a “follow form” policy that adopts the substantive coverage terms appearing within the HCC policy. All told, $10 million in primary coverage was provided by HCC; defendant Twin City Fire Insurance Company (Twin City) provided a first excess layer of $10 million in coverage; defendant St. Paul Mercury Insurance Company (St. Paul) provided a second excess layer of $10 million in coverage; Twin City provided a third excess layer of $10 million in coverage; and defendant Liberty Mutual Insurance Company (Liberty Mutual) provided a fourth excess layer of $10 million in coverage. Combined, these policies created a $50 million coverage tower with HCC’s primary policy at the base and Liberty Mutual’s excess policy at the top. Each excess insurance policy conditions the issuing insurer’s liability on exhaustion of all underlying 5 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. insurance, whether through full payment of all underlying insurance up to the policy limits (as provided in the Twin City and St. Paul policies) or through such payment or all underlying insurers “being held liable to pay in legal currency the full amount of the Underlying Limit of Liability as loss” (as specified in the policy issued by Liberty Mutual). 4 According to the complaint, in November 2007 FPC’s insurance broker, acting on behalf of FPC and all other insureds under the policies, sent the excess insurers notice of the Delaware litigation. The complaint alleges that although this notice did not mention the Paine Counterclaims, the excess insurers had actual knowledge of, or through the exercise of reasonable diligence should have become aware of, these counterclaims. The complaint further alleges that the excess 4 The exhaustion provision in Twin City’s policies provides that “[i]t is expressly agreed that liability for any loss shall attach to the Underwriters only after the Primary and Underlying Excess Insurers shall have paid the full amount of their respective liability . . . or the Insured(s) shall have paid the full amount of such liability due to the financial insolvency of an insurer of the Underlying Insurance. The Underwriters shall then be liable to pay only such additional amounts up to the Limit of Liability set forth in [the policy].” St. Paul’s policy specifies that “[t]he Insurer shall only be liable to make payment under this policy after the total amount of all Underlying Limits of Liability has been paid in legal currency by the issuers of all Underlying Insurance as covered loss thereunder.” Liberty Mutual’s policy contains language providing, “Except as provided in paragraph 4.1 [addressing the insolvency of an insurer], this Policy only provides coverage when the Underlying Limit of Liability is exhausted by reason of the insurers of the Underlying Policies paying or being held liable to pay in legal currency the full amount of the Underlying Limit of Liability as loss.” 6 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. insurers failed to provide the Fox Parties, including FPC, with a coverage analysis relating to those claims, that they did not properly communicate with the Fox Parties about these claims, and that they closed their files once the Delaware litigation concluded. Later, after the initiation of the Continuing Paine Claims, an FPM III partner wrote to HCC inquiring about the status of the 2007 notice. He represented that the notice had been submitted on behalf of the Paine Parties and that only the Paine Parties were pursuing a claim under the HCC policy. The excess insurers knew about this correspondence but did not inform plaintiffs about it. Without notifying plaintiffs, HCC paid the Paine Parties the entire $10 million available under its policy. The Paine Parties also presented claims for coverage to Twin City and St. Paul. These insurers denied the claims in 2012. At a meeting with all three excess insurers in September 2012, the Paine Parties continued to demand coverage. The next year, Twin City and St. Paul filed declaratory relief actions against the Paine Parties, FPC, FPC’s executives, and others, seeking declarations that there was no coverage under the policies. Liberty Mutual knew about these lawsuits before they were filed but did not inform plaintiffs about them. Although both Twin City’s and St. Paul’s complaints named FPC as a defendant, neither insurer served its complaint on FPC. Instead, FPC only learned about the actions through a third- party docket alert. This was the first time that plaintiffs learned about HCC’s earlier payment to the Paine Parties, and that Twin City and St. Paul had been communicating with the Paine Parties pursuant to the earlier notice. 7 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. Twin City and St. Paul soon settled with the Paine Parties for a total of $9 million. Approximately $6 million of this amount was allocated to the first-excess-layer Twin City policy and approximately $3 million was assigned to the St. Paul policy, with both insurers claiming that the settlement proceeds were indemnity payments under the excess policies. Plaintiffs had requested information from Twin City and St. Paul about the Paine Parties’ insurance claims. After the settlement, Twin City and St. Paul each wrote back to plaintiffs, refusing to provide information about the claims and falsely maintaining that they had not paid any proceeds to the Paine Parties. Liberty Mutual also knew about the settlement but did not tell plaintiffs about it. Plaintiffs allege that they “have submitted to the . . . Excess Insurers virtually all of their invoices — seeking approval and reimbursement thereof — detailing the Loss arising out of the Delaware Litigation and the Continuing Paine Claims.” Yet “the . . . Excess Insurers have failed to communicate with Plaintiffs concerning their receipt of those invoices, have failed to conduct a good-faith, reasonable and timely investigation of Plaintiffs’ coverage claims, and have failed to reimburse Plaintiffs[] for their Losses.” Plaintiffs assert that “[i]n defending themselves from and against the Delaware Litigation and Continuing Paine Claims,” they “have incurred covered ‘Loss’ and recoverable interest exceeding $43,000,000, not subject to offset, according to proof at the time of trial.” The operative third amended complaint alleges four causes of action, for breach of contract, declaratory relief, breach of the implied covenant of good faith and fair dealing (also 8 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. known as a “bad faith” claim), and aiding and abetting breaches of fiduciary duties. Concerning declaratory relief, plaintiffs allege that “[a]n actual justiciable controversy exists” regarding “the proper interpretation of the FPC [E]xcess Policies and Defendants’ obligations thereunder to insure and reimburse Plaintiffs for ‘Loss’ incurred in connection with the Delaware Litigation and the Continuing Paine Litigation” and as to whether “the HCC Policy is exhausted by payment of ‘Loss’ thereunder.” With each excess insurer, plaintiffs allege that there are actual controversies regarding whether: (1) the insurer’s policy is “triggered by the exhaustion of” all underlying insurance; (2) “Plaintiffs’ losses constitute covered ‘Loss’ under the policy”; and (3) the insurer “should be held liable to pay, and must actually pay” policy benefits to plaintiffs. Regarding breach of the implied covenant of good faith and fair dealing, plaintiffs allege that all of the excess insurers “were or should have been aware” that “[p]laintiffs had the only valid and legitimate claim to insurance under the” excess policies and that “Twin City[’s] and St. Paul’s [2013] disbursement of proceeds to the Paine Parties, who were not legitimate insureds [because they were suing FPC and being sued for actions adverse to FPC], could not and did not reduce the limits available to Plaintiffs under the” excess policies. Plaintiffs also allege that the excess insurers failed “to provide reasonably prompt notice to any legitimate representative of FPC” regarding the November 2007 notice, subsequent coverage determinations, plaintiffs’ rights and benefits under the excess insurance policies, coverage decisions regarding the Paine Parties, and the declaratory judgment actions. According to 9 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. plaintiffs, due to the excess insurers’ failure to properly communicate with them they did not learn about Twin City’s and St. Paul’s settlement with the Paine Parties until September 2016, more than three years after the agreement was reached. Plaintiffs allege that the excess insurers’ alleged misconduct “prevented Plaintiffs from receiving the proceeds and benefits of” the excess insurance policies. Twin City, St. Paul, and Liberty Mutual all demurred to the third amended complaint. 5 The three excess insurers argued in their demurrers that plaintiffs’ claims concerning the higher-layer excess policies (i.e., the policies above Twin City’s first-excess-layer policy) failed due to a lack of exhaustion of all underlying insurance. The trial court concluded that plaintiffs had sufficiently alleged exhaustion of the primary HCC policy and on that basis it allowed plaintiffs’ claims against Twin City to proceed to the extent they involved Twin City’s first-excess- layer policy. But the trial court also reasoned that “[a]s Twin City only paid $6 million out of its first excess policy, which has a limit of $10 million, . . . exhaustion has not yet occurred for St. Paul, Twin City (as to the third coverage policy), and Liberty to be held liable.” The trial court sustained the demurrers filed by St. Paul and Liberty Mutual, and Twin City’s demurrer as to 5 The trial court had previously sustained St. Paul’s and Liberty Mutual’s demurrers to plaintiffs’ second amended complaint, but it had granted plaintiffs leave to amend. Twin City’s demurrer to the second amended complaint had been sustained in part and overruled in part. 10 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. claims involving the third excess policy, without granting further leave to amend.6 Plaintiffs appealed the subsequent dismissal of their claims against St. Paul and Liberty Mutual. The Court of Appeal affirmed. (Fox Paine & Co., LLC v. Liberty Mutual Ins. Co. (2024) 104 Cal.App.5th 1034 (Fox Paine).) Regarding plaintiffs’ claims for breach of contract, the Court of Appeal concluded that much of the misconduct asserted by plaintiffs “cannot be breaches of contract, as the alleged wrongs are not within the coverage of the policies.” (Id. at p. 1046.) As for the failure to pay plaintiffs policy benefits, which plaintiffs also alleged was a breach of the policies, the Court of Appeal found no breach because the relevant policies had not yet “ ‘attached’ ” upon exhaustion of all underlying insurance. (Id. at p. 1047; see also id. at pp. 1047–1048.) The Court of Appeal also upheld the trial court’s ruling rejecting plaintiffs’ claims for declaratory relief against St. Paul 6 Plaintiffs’ claims against Twin City, as they concerned its first-excess-layer policy, proceeded to trial. Upon St. Paul’s request, we have taken judicial notice of the jury verdict form and the trial court’s statement of decision following that trial. The verdict form indicates the jury found that “Fox Paine & Company, LLC and Saul Fox [did] suffer a loss all or part of which was covered under the insurance policy with Twin City,” but that “Fox Paine & Company, LLC and Saul Fox [did not] give timely notice to Twin City in writing of a Claim as required under the Twin City policy.” The statement of decision denied plaintiffs’ claim for declaratory relief against Twin City pursuant to the jury’s finding that they had not filed a timely claim. Plaintiffs’ appeal of the resulting judgment entered in Twin City’s favor is currently pending before the Court of Appeal. 11 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. and Liberty Mutual. (Fox Paine, supra, 104 Cal.App.5th at pp. 1049–1052.) First, the appellate court determined that plaintiffs had not adequately alleged an actual controversy between the parties. On this point, the Court of Appeal regarded plaintiffs’ allegation that they had “incurred covered ‘Loss’ and recoverable interest exceeding $43,000,000, not subject to offset” as a conclusion of law that it would not assume to be true. (Id. at p. 1050.) The court also noted that the $43 million total included both covered loss and interest, and it stated that Liberty Mutual did not owe interest because its obligation to pay benefits had not yet come due. (Ibid.) In perceiving there to be no actual controversy regarding coverage, the court regarded the situation here as “exactly the same as that in” Qualcomm, Inc. v. Certain Underwriters at Lloyd’s, London (2008) 161 Cal.App.4th 184 (Qualcomm). (Fox Paine, supra, 104 Cal.App.5th at p. 1050.) That earlier case also involved a claim for declaratory relief concerning coverage under an excess insurance policy. In Qualcomm, the Court of Appeal affirmed a judgment of dismissal upon concluding that the exhaustion required for the excess policy to attach could not occur due to the insured’s settlement with the primary insurer for less than the primary policy’s coverage limit. (Qualcomm, at p. 189; see also id. at pp. 188, 193–203.) Meanwhile, the Court of Appeal rejected plaintiffs’ reliance on Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592 (Ludgate) in support of their argument that they did not have to allege the actual exhaustion of all underlying insurance in order to pursue their claims for declaratory relief against St. Paul and Liberty Mutual. Ludgate stated that an insured did not have “to show a reasonable 12 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. probability of exhaustion of the primary coverage before it could state a cause of action for declaratory relief against [the insurer] on its excess coverage.” (Id. at p. 606.) The Ludgate court further explained, “Exhaustion of underlying limits, while necessary to entitle the insured to recover on the excess policy, is not necessary to create actual controversy. Exhaustion is merely an issue of proof and entitlement to recovery, not of pleading.” (Ibid.) The Court of Appeal below described the latter statement as “pure dictum” (Fox Paine, supra, 104 Cal.App.5th at p. 1051) in light of the circumstances that were before the Ludgate court, which included the insured’s allegation of liabilities in excess of the primary policies’ coverage limits and the excess insurer’s admissions that an actual controversy existed. (Ludgate, at pp. 604–607.) The Court of Appeal also concluded that St. Paul’s and Liberty Mutual’s demurrers to the cause of action for declaratory relief had been properly sustained because, had it exercised its discretion, the trial court could have found that such relief was not necessary or proper as to these insurers. (Fox Paine, supra, 104 Cal.App.5th at p. 1052.)7 The Court of Appeal perceived this cause of action, as alleged against St. Paul, as partly derivative of plaintiffs’ breach of contract claim against 7 The Court of Appeal acknowledged that the trial court had not exercised its discretion in sustaining the demurrers as to this cause of action, but it relied on the principle that a Court of Appeal “ ‘ “will affirm if there is any ground on which the demurrer can properly be sustained, whether or not the trial court relied on proper grounds or the defendant asserted a proper ground in the trial court proceedings.” ’ ” (Fox Paine, supra, 104 Cal.App.5th at p. 1045, citing George v. eBay, Inc. (2021) 71 Cal.App.5th 620, 628.) 13 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. that insurer. (Ibid.) The Court of Appeal also stressed that “the outcome of the litigation currently proceeding against Twin City is unknown,” and that if one of Twin City’s defenses were to prevail, it would not have to pay its full policy limits and exhaustion would never occur as to any of the higher-layer policies. (Id. at p. 1053.) A declaration issued under these circumstances, the Court of Appeal reasoned, might constitute “a ‘purely advisory opinion based on hypothetical facts or speculative future events,’ ” and any proceedings associated with the declaration might ultimately prove to be a waste of time and resources. (Ibid.) Finally, the court believed that “burdening the excess insurers with prematurely litigating coverage issues before exhaustion upsets insurers’ settled expectations” regarding their responsibilities as excess, rather than primary, insurers. (Ibid.) Plaintiffs also failed to persuade the Court of Appeal to revive their claims against St. Paul and Liberty Mutual for tortious breach of the implied covenant of good faith and fair dealing. The Court of Appeal reasoned that plaintiffs’ inability to allege exhaustion of the underlying insurance coverage was “fatal” to these claims (Fox Paine, supra, 104 Cal.App.5th at p. 1056) because it meant that plaintiffs could not show coverage under the St. Paul and Liberty Mutual policies, as required to support a claim for bad faith (id. at p. 1057, citing Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 (Waller)).8 8 The Court of Appeal also found no error in the trial court’s dismissal of the aiding and abetting claim against St. Paul and Liberty Mutual. (Fox Paine, supra, 104 Cal.App.5th at pp. 1058–1060.) 14 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. Plaintiffs sought review. We granted their petition to clarify whether an insured can pursue declaratory relief and claims for bad faith involving excess insurance policies in circumstances where the underlying insurance coverage has not yet been exhausted. II. DISCUSSION After describing the standard of review, we address plaintiffs’ claims for declaratory relief and then consider their claims for tortious breach of the implied covenant of good faith and fair dealing. A. Standard of Review “ ‘This case comes to us on appeal from the trial court’s sustaining of a demurrer. For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice.’ ” (Capito v. San Jose Healthcare System, LP (2024) 17 Cal.5th 273, 280.) Furthermore, “On appeal from a judgment of dismissal after the sustaining of a demurrer, a court must ‘treat as true not only the complaint’s material factual allegations, but also facts that may be implied or inferred from those expressly alleged.’ ” (Sarale v. Pacific Gas & Electric Co. (2010) 189 Cal.App.4th 225, 244–245; see also Miklosy v. Regents of University of California (2008) 44 Cal.4th 876, 883.) In this posture, “ ‘ “we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action.” ’ ” (Centinela Freeman Emergency 15 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010.) B. Declaratory Relief 1. Legal principles “Any person interested . . . under a contract” as to which there is an “actual controversy relating to the legal rights and duties of the respective parties” may bring an action seeking “a declaration of rights or duties, either alone or with other relief,” and a court may then “make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time.” (Code Civ. Proc., § 1060.) Such a declaration “may be either affirmative or negative in form and effect, and . . . shall have the force of a final judgment. The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought.” (Ibid.) Declaratory relief under Code of Civil Procedure section 1060 is cumulative to other remedies that may be available. (Id., § 1062.) “ ‘ “The purpose of a declaratory judgment is to ‘serve some practical end in quieting or stabilizing an uncertain or disputed jural relation.’ ” [Citation.] “Another purpose is to liquidate doubts with respect to uncertainties or controversies which might otherwise result in subsequent litigation.” ’ ” (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 647 (Meyer).) “Code of Civil Procedure section 1060 does not require a breach of contract in order to obtain declaratory relief, only an ‘actual controversy.’ Declaratory relief pursuant to this section has frequently been used as a means of settling controversies between parties to a contract regarding the nature of their contractual rights and obligations.” (Meyer, supra, 45 Cal.4th 16 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. at p. 647; see also Slobojan v. Western Travelers Life Ins. Co. (1969) 70 Cal.2d 432, 435; Aitchison v. Founders Ins. Co. (1958) 166 Cal.App.2d 432, 440 (Aitchison).) “The ‘actual controversy’ referred to in this statute is one which admits of definitive and conclusive relief by judgment within the field of judicial administration, as distinguished from an advisory opinion upon a particular or hypothetical state of facts. The judgment must decree, not suggest, what the parties may or may not do.” (Selby Realty Co. v. City of San Buenaventura (1973) 10 Cal.3d 110, 117.) A party seeking declaratory relief “must allege facts from which the court may determine that an actual controversy relating to legal rights and duties of the respective parties exists.” (Lord v. Garland (1946) 27 Cal.2d 840, 851 (Lord).) “Whether a case is founded upon an ‘actual controversy’ centers on whether the controversy is justiciable. ‘The principle that courts will not entertain an action which is not founded on an actual controversy is a tenet of common law jurisprudence, the precise content of which is difficult to define and hard to apply.’ ” (Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 540 (Stonehouse Homes).) Justiciability incorporates a ripeness component. (Vandermost v. Bowen (2012) 53 Cal.4th 421, 453.) “ ‘A controversy is “ripe” when it has reached, but has not passed, the point that the facts have sufficiently congealed to permit an intelligent and useful decision to be made.’ ” (Stonehouse Homes, at p. 540; see also Pacific Legal Foundation v. California Coastal Com. (1982) 33 Cal.3d 158, 171 (Pacific Legal Foundation).) In determining whether a dispute is ripe enough to involve an actual controversy permitting declaratory relief, courts have applied a two-part test drawn from our decision in Pacific Legal 17 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. Foundation, supra, 33 Cal.3d at page 171. This test considers “(1) whether the dispute is sufficiently concrete that declaratory relief is appropriate; and (2) whether withholding judicial consideration will result in the parties suffering hardship.” (Stonehouse Homes, supra, 167 Cal.App.4th at p. 540.) “ ‘Under the first prong, the courts will decline to adjudicate a dispute if “the abstract posture of [the] proceeding makes it difficult to evaluate . . . the issues” [citation], if the court is asked to speculate on the resolution of hypothetical situations [citation], or if the case presents a “contrived inquiry” [citation]. Under the second prong, the courts will not intervene merely to settle a difference of opinion; there must be an imminent and significant hardship inherent in further delay.’ ” (Ibid.; see also Otay Land Co. v. Royal Indemnity Co. (2008) 169 Cal.App.4th 556, 562 [“ ‘Before a controversy is ripe for adjudication it “ ‘must be definite and concrete, touching the legal relations of parties having adverse legal interests’ ” ’ ” and “ ‘ “ ‘admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts’ ” ’ ”].) Even if an “actual controversy” has been shown (Code Civ. Proc., § 1060), a trial court has some latitude not to entertain a claim for declaratory relief. A court may decline to do so “in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.” (Id., § 1061.) The trial court’s discretion to weed out cases in which a declaration is not necessary or proper extends to the pleading stage of proceedings. (See Meyer, supra, 45 Cal.4th at p. 648; Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 372.) As part of the 18 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. “necessary or proper” inquiry (Code Civ. Proc., § 1061), a court may assess whether “resolution of the controversy . . . would have little practical effect in terms of altering parties’ behavior,” among other relevant considerations. (Meyer, at p. 648.) A trial court’s discretion not to entertain a claim seeking declaratory relief “is not boundless,” however. (Meyer, supra, 45 Cal.4th at p. 647.) We have said that when “a case is properly before the trial court, under a complaint which is legally sufficient and sets forth facts and circumstances showing that a declaratory adjudication is entirely appropriate, the trial court may not properly refuse to assume jurisdiction; and if it does enter a dismissal, it will be directed by an appellate tribunal to entertain the action. Declaratory relief must be granted when the facts justifying that course are sufficiently alleged.” (Columbia Pictures Corp. v. DeToth (1945) 26 Cal.2d 753, 762.) Ultimately, a determination of whether “a declaration of rights and obligations would be unnecessary or improper at the time under all the circumstances . . . rests on the facts in each case” (Kessloff v. Pearson (1951) 37 Cal.2d 609, 613), and “doubts regarding the propriety of an action for declaratory relief pursuant to Code of Civil Procedure section 1060 generally are resolved in favor of granting relief” (Filarsky v. Superior Court (2002) 28 Cal.4th 419, 433 (Filarsky)). “ ‘Whether a claim presents an “actual controversy” within the meaning of Code of Civil Procedure section 1060 is a question of law that we review de novo.’ ” (Leonard Carder, LLP v. Patten, Faith & Sandford (2010) 189 Cal.App.4th 92, 97.) When an actual controversy exists, and a trial court has exercised its discretion to grant or deny declaratory relief, “ ‘a 19 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY Opinion of the Court by Guerrero, C. J. reviewing court will not disturb that exercise of discretion absent abuse.’ ” (Ibid.) 2. Actual controversy The insurers advance multiple arguments why this case does not involve an actual controversy. St. Paul asserts that “[t]he non-exhaustion of the underlying policies means this case does not implicate any ‘present’ controversy” over indemnification under its policy. Liberty Mutual, meanwhile, argues that plaintiffs have not alleged an actual controversy as to coverage under its policy because their allegations fail to show a covered loss in an amount that will reach its policy. Both insurers also stress that plaintiffs’ legal battle with the Paine Parties concluded several years ago. They take the position that declaratory relief is no longer necessary, if it ever was, to guide plaintiffs’ conduct in connection with that litigation. We address these arguments in turn. As we explain below, actual controversies regarding coverage and liability under the St. Paul and Liberty Mutual policies may exist here even though the coverage beneath these policies has not been fully exhausted. Plaintiffs bear the burden, however, of adequately pleading a covered loss sufficient to create an actual controversy regarding each excess policy in light of its attachment point. We explain what this burden entails, and remand this case to the Court of Appeal to determine whether plaintiffs have satisfied it. Finally, we conclude that an actual controversy may exist here notwithstanding the cessation of the earlier litigation. 20 FOX PAINE & COMPANY, LLC v. TWIN CITY FIRE INSURANCE COMPANY