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California Dredging Co. v. Insurance Co.8/31/1993
PETERSON, P.J.:
This is a dispute over attorney fees. Appellants California Dredging Company (CDC) and Reliance Insurance Company (Reliance) claim that respondent Insurance Company of North America (INA) must pay the attorney fees they spent litigating a prior federal court action, because INA allegedly misrepresented the amount of insurance available to settle that prior suit. The trial court ruled INA's alleged misrepresentations were privileged within the meaning of Civil Code section 47, subdivision (b) (section 47(b)) and sustained INA's demurrer without leave to amend. CDC and Reliance appeal. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
Since this is an appeal from a judgment entered after the trial court sustained a demurrer, we set forth the facts as pleaded in appellants' complaint.
In 1984, CDC, a dredging contractor, filed a complaint in federal court against Pipe Systems, Incorporated (PSI), the distributor of allegedly defective plastic pipe. CDC claimed it had been damaged when it used PSI's pipe on a dredging project in the Petaluma River channel. In 1985, CDC added several additional defendants to its complaint including Portco, the entity which had manufactured the pipe. Portco was insured by INA, and INA retained counsel to defend Portco in the federal suit. In August 1985, all the defendants in the federal action, including Portco, filed for bankruptcy ; however, in December 1985, the bankruptcy court lifted the stay when CDC agreed to limit its recovery "to proceeds of applicable insurance policies, if any . . . ."
CDC then initiated discovery against Portco; and in formal and informal responses, Portco said it had only a single $100,000 primary policy, issued by INA, available to settle CDC's claim. Portco made similar representations to the various parties in settlement Discussions conducted with the court. In fact, Portco had renewed its INA policy twice and another carrier had issued Portco a $5 million excess policy. INA concealed the existence of these additional policies from the attorneys it had hired to defend Portco so it could avoid liability on the renewal policies, and so it would not be liable for a gap in coverage which existed between the primary and excess policies. Those attorneys then relayed the misrepresentations to the various parties to the litigation. Unaware of the additional policies, CDC agreed to settle its claim against Portco for $100,000 in February 1987.
Shortly thereafter, CDC learned of the renewal and excess policies, and it promptly rescinded the settlement agreement with Portco. A new round of negotiations began, and the dispute was again settled for a sum which included the $300,000 cumulative limits of the three INA policies, plus an additional sum from the excess carrier.
Several months later, CDC, together with Reliance, its surety on the dredging project, filed the present complaint against INA in the San Francisco Superior Court. Although containing several causes of action, the complaint alleged, in essence, that INA had fraudulently concealed the existence of the renewal and excess policies in the underlying federal action. Accordingly, CDC and Reliance sought as damages the excess attorney fees they spent litigating the federal action. In response, INA filed a cross-complaint against Portco and Reliance seeking, among other things, a declaration of its rights and obligations under the policies it had allegedly concealed.
After several years of discovery, INA filed a motion for judgment on the pleadings, claiming it was entitled to prevail because all of appellants' claims were based on statements m
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