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Prichard v. Liberty Mutual Insurance Co.11/8/2000
As modified December 6, 2000. There is no change in judgment. Petition for rehearing by Liberty Mutual Insurance Company is denied.
CHARLES E. PRICHARD ET AL.,
PLAINTIFFS AND RESPONDENTS,
V.
LIBERTY MUTUAL INSURANCE COMPANY,
DEFENDANT AND APPELLANT.
(Super. Ct. No. 745598)
Kern and Wooley, Ronald J. Skocypec, Lisa M. Kralik and Melodee A. Yee for Defendant and Appellant. The Ford Law Firm, William H. Ford, III, and Paul C. Cook for Plaintiffs and Respondents.
The opinion of the court was delivered by: Sills, P. J.
CERTIFIED FOR PUBLICATION
OPINION
Appeal from a judgment and an order of the Superior Court of Orange County, William F. McDonald, Judge.
Both judgment and order affirmed in part, and reversed and remanded with directions in part.
I. SUMMARY
Procedurally, this liability insurance bad faith action comes to us contorted as a sheepshank knot. Some unraveling is necessary.
The trial court filed a judgment ruling:
-- The insurer had a duty to defend the underlying "mixed action" to the end;
-- The insurer breached its duty to defend by trying to reserve its rights to obtain reimbursement of attorneys' fees expended in an appeal of the underlying action even though the insurer, in conjunction with another insurer, had paid for the defense of the underlying action;
-- The insurer was estopped to assert its rights to contest coverage of the one cause of action (defamation) that was potentially covered in the underlying action because it breached its duty to defend. (Ironically, the trial court also held, in ruling on an in limine motion regarding costs, that there was no coverage because the defamations occurred outside the policy period.) As a result, the policyholder was awarded about $218,000 for the indemnification of the defamation claim;
-- However, the insurer had not acted in bad faith;
-- And, the insurer did not owe the costs awarded against the insureds in the underlying action.
Then the trial court filed an order granting a partial new trial, so the insured could seek recovery of damages for bad faith and for the costs in the underlying action. The insurer appealed from both the judgment and the new trial order.
At the time, the trial court did not have the benefit of Buss v. Superior Court (1997) 16 Cal.4th 35, which was decided about a month after the new trial order. As we explain below, Buss greatly clarified the law concerning an insurer's right to seek reimbursement of defense fees in a "mixed action" (one where at least one cause of action is potentially covered, but the others are not), but in so doing rejected the theory used by the trial court to conclude that the insurer here had breached its duty to defend. In fact, Buss plainly rejected the idea on which the policyholders have predicated much of their case: that new consideration, in addition to that provided in the insurance contract, is necessary for the insurer to have a right of reimbursement. As Buss makes clear, an insurer does nothing wrong in unilaterally reserving its reimbursement rights in a mixed action.
Now, in the light of Buss, it is apparent that the trial court's decision about the breach and estoppel cannot stand. The insurer cannot be estopped to assert a defense because of a breach it did not commit. In the wake of that determination, it is clear that the $218,000 indemnification award, based on the underlying defamation judgment
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