Chatton v. National Union Fire Ins. Co.

• Decision Date: 28 October 1992
• Docket Number: No. A049438,A049438
• Citation: 10 Cal.App.4th 846,13 Cal.Rptr.2d 318
• Parties: Milton CHATTON, et al., Plaintiffs and Respondents, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

Page 318

13 Cal.Rptr.2d 318

10 Cal.App.4th 846

Milton CHATTON, et al., Plaintiffs and Respondents, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Defendant and Appellant.

No. A049438.

Court of Appeal, First District, Division 4, California.

Oct. 28, 1992.

Rehearing Denied Nov. 25, 1992.

Pettit & Martin, D. Wayne Jeffries, Saul D. Bercovitch, San Francisco, Stroock, Stroock & Lavan, Michael F. Perlis, Los Angeles, Robinson & Wood, Inc., Archie S. Robinson, Thomas R. Fellows, San Jose, and Horvitz & Levy, Ellis J. Horvitz and Peter Abrahams, Encino, for defendant and appellant.

Cotchett, Illston & Pitre, Joseph W. Cotchett, Marie Seth Weiner, Burlingame, Remcho, Johansen & Purcell, Joseph Remcho, Robin B. Johansen, San Francisco, Morgan, Ruby, Schofield Franich & Fredkin, Allen J. Ruby, Lexie D. Schroeder, San Jose, and Thomas Anderson & Associates, Thomas T. Anderson, Indio, for plaintiffs and respondents.

ANDERSON, Presiding Justice.

This is an appeal from a judgment declaring the rights and obligations of the parties under Comprehensive General Liability (CGL) and Commercial Liability Umbrella (Umbrella) policies.

I. FACTS

A. Background of Technical Equities Litigation

The present lawsuit is a part of the Technical Equities Litigation, a coordination proceeding (hereafter Technical Equities) (Super.Ct. Santa Clara County, No. 600306; Coordination Master File No. 1991). Plaintiffs Milton and Mildred Chatton (hereafter Chattons or respondents) were investors in Technical Equities, now a defunct corporation. From its inception in 1969, Technical Equities was a diversified investment services company offering its clients both an array of investment options (promissory notes, stocks, limited partnerships and debentures) and a variety of financial services (taxplanning, accounting preparation and business management). After its collapse on February 7, 1986, the victims brought hundreds of individual actions against the Technical Equities directors and officers, among others, for fraud, negligent misrepresentation, breach of fiduciary duty and negligence. In March of 1986, the individual suits were coordinated in order to try issues of fact and law common to over 1,000 plaintiffs and scores of defendants. In early 1988 summary judgment was granted in favor of four directors and officers and denied as to others. Thereafter, the coordination judge set seven investor suits as a test case for trial.

Six of the defendants in the test case were Technical Equities directors and officers (including Herbert Barovsky and Harry Stern) while the seventh defendant was Stern Management Associates, a general partnership. Following a three-and-one-half-month trial, all seven defendants were found liable for negligent wrongdoing. In addition, defendants Harry Stern, Herbert Barovsky and Stern Management Associates were held liable to the test case plaintiffs for fraud. Plaintiffs were awarded the full amount of their investment losses and recovered damages for infliction of emotional distress as well. Punitive damages in the sum of $147 million were assessed for fraud against Stern, Barovsky, and Stern Management Associates. On September 12, 1988, the trial court entered judgments against the Technical Equities directors and officers in favor of all plaintiffs, including the Chattons.

Defendant National Union Fire Insurance Company of Pittsburgh, Pa. (hereafter National Union or appellant) was the primary insurance carrier for Technical Equities, having issued to the company and its officers and directors the CGL, Umbrella and directors and officers liability (D & O) policies. From the inception of the investors' litigation, National Union took the position that coverage under the D & O policy was available only for one year and the policy was self-consuming (i.e., the defense costs would be deducted from the available limits). This interpretation of the D & O policy was challenged by plaintiffs, who filed a test case for declaratory relief in November 1986 seeking an adjudication of coverage under the D & O policy. (Helfand v. National Union Fire Ins. Co., Santa Clara Super.Ct. Nos. 615589, 654728 [See 10 Cal.App.4th 869, 13 Cal.Rptr.2d 295, opinion on appeal.] ) Following trial, the court held that the D & O policy was not self-consuming and that coverage was available to plaintiffs for three policy years for the total of $30 million.

B. Facts of the Present Case

The case herein was the second declaratory relief action and sought an adjudication of coverage under the CGL and Umbrella policies. This declaratory relief complaint was filed by respondents on August 15, 1989, and contained the following allegations: National Union issued a CGL policy to Technical Equities and its subsidiaries providing coverage of $1 million per occurrence for the policy period of October 1, 1985 to October 1, 1986; National Union also issued to the insured an Umbrella policy providing excess liability coverage of $1 million per occurrence for the same policy period; on July 10, 1987, respondents filed a lawsuit against Technical Equities for, inter alia, negligent misrepresentation and breach of fiduciary duty; their action was coordinated with the numerous actions filed by other investors; that although the CGL and Umbrella policies issued to Technical Equities provided coverage for personal injury, bodily injury and advertising injury liability, National Union refused to pay judgments or settlements under either of the policies. In their prayer, respondents sought (1) a judicial declaration that both the CGL and Umbrella policies provided coverage for personal injury, bodily injury and advertising injury liability; (2) a judicial declaration that the wrongful acts committed by the insureds were "occurrences" within the meaning of said policies; (3) a determination as to the total amount of coverage available under both the CGL and Umbrella policies; and (4) an award of attorney fees.

Following trial the court held (1) that there is coverage under the bodily injury clause of the CGL policy inasmuch as emotional distress is included in the definition of bodily injury and (2) that respondent Mildred Chatton suffered severe emotional distress as a result of the activities of the Technical Equities officers and directors. The court determined that the limit recoverable under the CGL is $1 million per occurrence with no limit on the aggregate number of occurrences. The court further declared that advertising injury stemming from unfair competition as defined in the Unfair Business Practices Act (BUS. & PROF. CODE, § 17200¹ et seq.) is also covered by the CGL policy; that the aggregate policy limit for advertising injury is $1 million; and that Ms. Chatton suffered no advertising injury during the policy period at issue. Implicitly, the trial court also found that the wrongful activities of Technical Equities (security manipulations, note fraud, etc.) were "occurrences" within the meaning of the CGL policy.

The Umbrella policy, according to the court, covers personal injury and advertising injury. Personal injury is defined as meaning mental anguish and mental injury. Advertising liability means liability for damages because of unfair competition. The policy limit is $1 million for each occurrence of personal injury or advertising injury. However, the coverage under the Umbrella policy applies only to claims that are in excess of the amounts recovered under other insurance policies, including the CGL. The court found that respondents did not incur damages in excess of coverage provided by other insurance policies. Upon a separate motion to tax costs the court awarded respondents attorney fees in the amount of $12,500.

The declaratory judgments rendered in Helfand and the present case have far-reaching implications. They served as foundations for two bad faith actions against National Union by over 500 Technical Equities investors, the victims of its fraud and misdealing. In the first bad faith suit, McLaughlin et al. v. National Union (Super.Ct. Santa Clara, 1991, No. 666839), judgment was entered against National Union for $48,943,165.45 of which $43 million represented punitive damages. In the second bad faith action, Abelson v. National Union et al. (Super.Ct.Santa Clara, 1991, No. 666840), the judgment rendered against National Union was in the amount of $120,500,181. The combined judgments against National Union thus amounted to $169,443,346.45.

II. DISCUSSION

National Union's primary contention on appeal is that the trial court erred in finding that respondents' claim was covered by: (A) the bodily injury clause and/or (B) the advertising injury liability provisions of the CGL policy. In addition, National Union argues (C) that the award of attorney fees for respondents was improper because the trial court's finding of unfair dealing, a tort, was based on erroneously admitted evidence. Appellant's contentions are discussed seriatim.

A. Coverage Under the Bodily Injury Clause of the CGL Policy

In the definition of the CGL policy, "bodily injury" means: "bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom; ...." "Occurrence" is defined as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured; ...." Property damage under the policy means "(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period; ...."

The trial court held that respondents who had suffered severe investment losses due to the insureds' stock manipulation...