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Jordache Enterprises Inc. v. Brobeck7/30/1998
S056954
Ct. App. 2/5 B093126
Los Angeles County Super. Ct. No.
In this case, we again address the meaning of "actual injury" under the legal malpractice statute of limitations, Code of Civil Procedure section 340.6. That statute commences the limitations period with the attorney's wrongful act or omission, or with the plaintiff's actual or constructive discovery of the attorney's error. However, several specified circumstances toll the prescriptive period, including that "The plaintiff has not sustained actual injury . . . ." (ยง 340.6, subd. (a)(1).)
This court most recently considered the actual injury provision in Adams v. Paul (1995) 11 Cal.4th 583 (Adams). Adams reconfirmed the following: (1) determining actual injury is predominantly a factual inquiry; (2) actual injury may occur without any prior adjudication, judgment, or settlement; (3) nominal damages, speculative harm, and the mere threat of future harm are not actual injury; and (4) the relevant consideration is the fact of damage, not the amount. (Id. at pp. 585-586, 589, 591-592 (lead opn. of Arabian, J.); id. at pp. 595-596, (conc. opn. of Kennard, J.).) These propositions follow from Budd v. Nixen (1971) 6 Cal.3d 195 (Budd), which the Legislature intended to codify in section 340.6. (Laird v. Blacker (1992) 2 Cal.4th 606, 611 (Laird).)
Ordinarily, the client already has suffered damage when it discovers the attorney's error. (Budd, supra, 6 Cal.3d at p. 201.) In this case, the client alleged its attorneys failed to advise it about, or to assert a timely claim to, liability insurance benefits covering a third party's suit against the client. The client acknowledged it discovered its attorneys' alleged malpractice more than one year before it commenced this action. However, the client also contends it did not sustain actual injury until it later settled its action against its insurer for less than the full benefits it claimed.
We conclude that actual injury occurred before the client's settlement with the insurer. In reaching this Conclusion, we reaffirm the basic principles established in Budd and reiterated in Adams. Actual injury occurs when the client suffers any loss or injury legally cognizable as damages in a legal malpractice action based on the asserted errors or omissions. (See Adams, supra, 11 Cal.4th at pp. 588-589 (lead opn. of Arabian, J.); Budd, supra, 6 Cal.3d at pp. 200-202.) Under the Legislature's codification of Budd, section 340.6, subdivision (a)(1), will not toll the limitations period once the client can plead damages that could establish a cause of action for legal malpractice.
Here, the attorneys' alleged neglect allowed the insurers to raise an objectively viable defense to coverage under the policies. The insurers' assertion of this defense necessarily increased the client's costs to litigate its coverage claims and reduced those claims' settlement value. (Cf. Laird, supra, 2 Cal.4th at p. 615.) Moreover, because of the attorneys' alleged neglect, the client provided its own defense in the third party action for several years. Consequently, the client not only lost a primary benefit of liability insurance (see Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295-296), it also lost profitable alternative uses for the substantial sums it paid in defense costs. These detrimental effects of the attorneys' alleged neglect were not contingent on the outcome of the coverage action. Further, that action could not establish either a breach of a duty to provide timely insurance advice or a causal relationship between the alleged neglect and the claimed damages. Instead, the coverage action settlement simply reflected the client
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