Marie Y. v. General Star Indem. Co.

• Decision Date: 22 July 2003
• Docket Number: No. C038907.,C038907.
• Citation: 110 Cal.App.4th 928,2 Cal.Rptr.3d 135
• Court: California Court of Appeals Court of Appeals
• Parties: MARIE Y. et al., Plaintiffs and Appellants, v. GENERAL STAR INDEMNITY COMPANY, Defendant and Appellant.

2 Cal.Rptr.3d 135

110 Cal.App.4th 928

MARIE Y. et al., Plaintiffs and Appellants, v. GENERAL STAR INDEMNITY COMPANY, Defendant and Appellant.

No. C038907.

Court of Appeal, Third District.

July 22, 2003.

Rehearing Denied August 14, 2003.

Review Denied October 15, 2003.

Farmer, Murphy, Smith, & Alliston, George E. Murphy and Alan W. Foutz, Sacramento, for Plaintiffs and Appellants.

Barbanel & Treuer, Alan H. Barbanel and Stephen D. Treuer, Los Angeles, for Defendant and Appellant.

SIMS, Acting P.J.

The appeal and cross-appeal in this case arise out of a judgment in the amount of $1,415,639.54 (plus costs) in favor of Marie Y.¹ against General Star Indemnity Company (General Star) for breach of an insurance contract (but not bad faith). The insurance policy at issue is a "Dentist's Professional Liability" policy issued to David R. Phipps, D.D.S. Liability of General Star is predicated on the company's refusal to defend or indemnify Phipps in an action for damages brought by Marie Y. against Phipps for the sexual misconduct of Phipps, and related claims. Phipps assigned his rights against General Star to Marie Y., who then brought the instant action, which resulted in the million-dollar judgment from which General Star appeals.

We shall conclude that General Star breached its duty to defend Phipps but that General Star never had a duty to indemnify Phipps, and, indeed indemnification is barred by Insurance Code section 533 (section 533).² Consequently, we shall reverse the judgment and remand to the trial court to award Marie Y. damages only for the amount of reasonable attorneys' fees and costs incurred by Phipps in defending Marie Y.'s action.

Marie Y. has cross-appealed from the trial court's order taxing costs. Since our reversal of the judgment includes reversal of the trial court's cost award, Marie Y.'s cross-appeal is moot; the question of costs must be determined anew on remand.

FACTUAL AND PROCEDURAL BACKGROUND³

The underlying action

Background

On April 5, 1994, David Phipps was practicing in a partnership called Family Dentists of Roseville with fellow dentists Mark Phipps (David's brother) and Robert Shorey. (References to "Phipps" hereafter are to David Phipps.) Kimberly Altenburg Fisch and Robin Stevens worked for the partnership as chairside dental assistants.

In the 1980's, Phipps incurred criminal and professional penalties for molesting female patients during dental procedures. By April 1994, however, he was no longer under any restrictions in his practice.

A criminal complaint was filed against Phipps in 1987, alleging acts of sexual battery against six patients during the period 1984-1985 (Pen.Code, § 243.4, subds.(a), (b)).⁴ He eventually entered a plea of nolo contendere to two counts of misdemeanor sexual battery involving patients V.P. and L.N. (Pen.Code, § 243.4, former subd. (d)(1), now subd. (e)(1).)⁵

Also in 1987, the Dental Board of California (Dental Board) undertook disciplinary proceedings against Phipps. After he stipulated to negligence as to V.P. and L.N., the Dental Board suspended his license for seven months and put him on five years' probation; during the first year of his probation he could not treat female patients, and during the last four years could do so only with a chairside assistant present.

Phipps's insurance policy

General Star issued Phipps a Dentists' Professional Liability Policy for the period July 1, 1993, to July 1, 1994, carrying a coverage limit of $200,000 for each "dental incident." The policy's insuring agreement provides in part: "We will pay all sums which the insured shall become legally obligated to pay as damages because of any claim that is first made against the insured arising out of a dental incident taking place on or after the retroactive date ... and before the expiration of the policy period in the practice of the profession of dentistry by the insured or by any person for whose acts or omissions the insured is legally responsible." (Bolding omitted.)

The policy defines "dental incident" in part as "any act, error, omission, or mistake in the rendering of or failure to render services in the profession of dentistry by an insured or any person for whose acts or omissions an insured is legally responsible." The policy defines the "Profession of Dentistry" in part as "services performed in the practice of the profession of dentistry as defined in the business and the professional codes of the state where you practice." (Bolding omitted.)

General Star's policy defines the insurer's duty to defend Phipps at two points.

First, the policy specifies a general duty to defend as follows: "If a claim is made or suit is brought against any insured for damages because of a dental incident, to which this policy applies, even if allegations in such claim or suit are groundless, false or fraudulent, we will:

"(1) provide a defense at our expense by counsel of our choice."

Second, the policy speaks to the duty to defend in the following exclusion (exclusion (h)):

"This insurance does not apply: [¶] ... [¶]

"h. to liability for any damages arising out of a dental incident which is also a willful violation of a statu[t]e, ordinance or regulation imposing criminal penalties; however[,]

"(1) we will defend any civil suit against the insured seeking amounts which would be covered if this exclusion did not apply and

"(2) in such case we will pay only fees, costs, and expenses of such defense; any payment made under this provision will reduce the limits of insurance by the amount of such payment." (Capitalization and bolding omitted.)

The events of April 5, 1994

Marie Y. testified under oath in the underlying action, and in related criminal and disciplinary proceedings against Phipps, as follows:

She went to Phipps's office for dental treatment on April 5, 1994. He administered nitrous oxide to her. It made her extremely relaxed, with her muscles and eyelids heavy; during the two-hour session, her eyes were closed and she did not speak.

During the procedure, Marie Y. felt Phipps's hand go underneath the dental bib to give her breast a sudden squeeze or caress, putting his hand completely over it; he squeezed her right breast three times and her left breast once. She did not consent to these touchings and considered them inappropriate. Phipps then put his hand under Marie Y.'s shorts and slid it four inches up her right thigh to the panty line. He also put his hand on top of hers as it rested above her pubic area.

According to the testimony of Kimberly Altenburg Fisch, Phipps's chairside assistant, in deposition in the underlying action and in the disciplinary proceeding against Phipps, he asked her to leave the room and bring a tray of instruments to the sterilization room. She turned and saw him with his hand under Marie Y.'s dental bib, making circular motions. When Fisch walked back into the room, he jerked his hand away.

Later in the procedure, Phipps asked Fisch to take Marie Y.'s chart to the reception area. As Fisch went that way, she asked Robin Stevens, another chairside assistant, to keep an eye on Phipps. According to Stevens's testimony in deposition and in the disciplinary proceeding, she saw Phipps slip his hand under Marie Y.'s dental bib, then move his hand in a circle for about 15 seconds; she did not intervene.

The original complaint

On August 30, 1994, Marie Y. filed a complaint for damages against Phipps, Mark Phipps, and Robert Shorey "as individuals and dba Family Dentists of Roseville, a partnership," and 30 Doe defendants.⁶ The complaint stated counts (labeled "cause[s] of action") of negligence, battery, intentional infliction of emotional distress, and negligent infliction of emotional distress.

Marie Y. alleged Phipps's conduct in touching Marie Y.'s breasts and pubic area was "improper, unprofessional and totally void of a legitimate diagnostic motive"; as to the battery count, Phipps "acted with the intent to cause a harmful and offensive contact with plaintiffs breasts and pubic area in that he put his hands on her breasts several times and rubbed her pubic area with his hand, and sexually offensive contacts with plaintiff directly resulted." Marie Y. alleged defendants Mark Phipps and Robert Shorey, who knew of Phipps's past misconduct with female patients, were negligent in evaluating, supervising, and controlling Phipps. In addition, Marie Y. alleged Does 11 through 20 were "dental assistants, nurses, and/or technicians" employed by the named defendants, but did not state any factual basis for their liability.

General Star's initial response

Phipps's counsel at the time, Robert Zaro, tendered the complaint to General Star, requesting a defense and indemnity. In November 1994, General Star replied that it would not indemnify Phipps, but would defend him under a reservation of rights, specifically including "the right to withdraw coverage in its entirety pending the results of discovery and the pending criminal proceeding." Its letter states in part: "Our investigation indicates that the claim of Marie [Y.] involves improper and unacceptable, non-consentual [sic ] physical contact of a sexual nature by Mr. Phipps during a dental exam conducted in his office. We have also determined that your client admitted to the Board of Dental Examiners that this did, in fact, occur."⁷

On April 4, 1995, Marie Y. made a settlement offer to General Star under Code of Civil Procedure section 998 (section 998) for an amount within the policy limits. General Star declined the offer.

The criminal proceedings

In December 1994 a criminal complaint was filed against Phipps in Placer County Superior Court alleging attempted sexual battery by restraint, a felony Penal Code, §§ 664/243.4, subd. (a), and misdemeanor sexual battery (§ 243.4, subd. (d); see fn. 5, p. 934, ante) as to Marie Y. The complaint also alleged misdemeanor sexual battery as to patient B.C.

The case went to trial in 1995. Marie Y. testified...