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Shafer v. Berger3/18/2003
CERTIFIED FOR PUBLICATION
This appeal presents the question of whether an attorney, who is retained by an insurance company to provide coverage advice in a lawsuit against its insured, may be held liable to the plaintiff in that lawsuit for making a fraudulent statement about coverage. We answer that question in the affirmative because deceit undermines the administration of justice.
I. BACKGROUND
For purposes of our review, we must accept as true the following allegations of the complaint. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) With that in mind, we rarely use "alleged" in discussing the factual assertions in the complaint.
John and June Shafer are homeowners in Los Angeles County. In the early 1990's, they contracted with Tri-County Builders, a general contractor, to remodel their home and build an addition to it. Tri-County Builders, a partnership, was run by Jay DeMay and Perry Hanstad. The construction contract apparently required that any disputes between the parties be resolved by binding arbitration before the American Arbitration Association (AAA).
As a result of numerous problems with the construction, in December 1991, the Shafers filed a demand for arbitration against Tri-County Builders, DeMay, and Hanstad. The demand set forth claims for breach of contract, negligence, fraud, and intentional infliction of emotional distress, among others, and sought an award of damages, including punitive damages. DeMay tendered the defense of the action to Truck Insurance Exchange, which had issued a comprehensive general liability policy to him doing business as Tri-County Builders.
By letter dated May 18, 1992, Truck agreed to defend Tri-County Builders, DeMay, and Hanstad, subject to a reservation of rights. The letter consisted of four single-spaced pages that quoted and discussed several provisions in the insurance policy. It pointed out that coverage was dependent upon an "occurrence," which, according to the letter, was defined in the policy as "an event, or a series of events . . . which results during the policy period, in bodily injury or property damage, neither expected nor intended from the standpoint of the insured."
The letter continued: " our policy does not afford coverage for exemplary or punitive damages . . . . Additionally, intentional acts are not covered under any policy of insurance as provided under Insurance Code Section 533, as this is against public policy for insurers to provide coverage for such causes of action.[ ] A definition of `occurrence,' as well as Section 533 of the California Insurance Code and Section 1668 of the California Civil Code, may exclude coverage for damages resulting from such intentional and/or willful acts."
In response to Truck's letter, DeMay requested that Truck pay for counsel of his own choosing. Because the Shafers' arbitration demand asserted claims of negligent and willful wrongdoing, DeMay was concerned that an attorney selected by Truck would have a conflict of interest because a finding of liability based on willful acts would negate Truck's obligation to pay indemnity while a finding of negligence would entitle DeMay to indemnification. (See Civ. Code, ยง 2860; San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 (Cumis).)
For advice on coverage issues, Truck retained Lance LaBelle, Esq., of Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone. On June 9, 1992, LaBelle discussed coverage with Chris Lundblad, an employee of Truck. On June 11, 1992, LaBelle sent Lundblad a confirming letter, stating:
"This will confirm our telephone conference of June 9, 1992, wherein a
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