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Butcher v. Truck Insurance Exchange2/3/2000
CERTIFIED FOR PUBLICATION
APPEAL from a judgment of the Superior Court of Los Angeles County, Irving Feffer, Judge. Reversed and remanded.
Insureds, facing suit for malicious prosecution, turned to their insurer for a defense, having years before instructed the insurer's agent to duplicate the coverage of a policy containing that protection. When the defense was denied, because the coverage was not in the policy that was issued and later renewed, the insureds sued. Insureds produced evidence that the insurer's agent misled them into believing he had delivered a policy duplicating the coverages (including coverage for malicious prosecution) of an insurer whose policy was not being renewed. The trial court granted summary judgment in favor of the insurance company and its agent, on the basis that a prior judgment in an action in federal court between insureds and the insurer issuing the prior policy precluded insureds' claim. This appeal presents three basic issues.
1. What is the preclusive effect in this action of a prior federal court judgment in a coverage action between the insurer whose policy was not being renewed and these insureds? In the prior action a federal district court based its judgment on two grounds: first, the policy's malicious prosecution provision did not cover the malicious prosecution claim against insureds, and second, the offense occurred outside the insureds' policy period; the court of appeals affirmed the judgment, upholding the second ground and declining to address the first. The specific issue presented is whether the federal judgment is conclusive on insureds as to the first ground.
2. Will an action lie for failure to deliver agreed-upon coverage, where an agent misleads the insureds into believing they received the policy requested, and the insureds do not read the policy? Related to this issue is whether the form of the prior policy, providing malicious prosecution coverage, obligates the insurer to defend and indemnify a loss caused by the wilful act of the insured.
3. Where an agent negligently omits to obtain the agreed-upon coverage and delivers a policy in 1986, and insureds do not bring suit until 1993, which is just after they are sued and the insurer refuses to defend, have statutes of limitations run on insureds' claim for reformation and their claims based on negligence?
We discuss these issues in the order set out above and conclude as follows: where a court of first instance makes its judgment on alternative grounds and the reviewing court affirms on only one of those grounds, declining to consider the other, the second ground is not conclusively established; there is a triable issue of material fact whether the agent misled the insureds, which precludes summary judgment, and, if the trier of fact finds the insureds were misled by the agent, the form of the prior policy provides coverage for the malicious prosecution claim and would entitle insureds to a defense, but not to indemnity; and the statute of limitation for the negligence claims does not begin to run until the insurer refuses to defend and, for the reformation claim, until insureds discover the facts constituting the mistake. Accordingly, we reverse.
I.
FACTUAL AND PROCEDURAL BACKGROUND
In 1985 respondent Don Meyer, an agent of respondent Truck Insurance Exchange (Truck) contacted appellant Dan Butcher (Butcher) to solicit his insurance business. Butcher gave Meyer a copy of his current policies that were not being renewed and instructed Meyer to secure the same coverage but at higher limits.
A policy that Butcher provided to Meyer, issued by West American Insurance Compan
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