Bogard v. Employers Casualty Co.
| Decision Date | 08 February 1985 |
| Citation | 164 Cal.App.3d 602,210 Cal.Rptr. 578 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Dennis BOGARD and Pearl Bogard, Plaintiffs and Appellants, v. EMPLOYERS CASUALTY COMPANY, Defendant and Respondent. Civ. B003867. |
Murchison & Cumming and Dallas Sacher, Los Angeles, for defendant and respondent.
Appellants Dennis and Pearl Bogard (appellants) appeal from a judgment of dismissal entered following the sustaining of a demurrer to their second amended complaint without leave to amend against Employers Casualty Company (Employers). In their second amended complaint, the Bogards alleged three causes of action: breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and negligent infliction of emotional distress. For the reasons stated below, we reverse the order of dismissal and direct the trial court to grant appellants a reasonable time within which to amend their pleadings in a third amended and final complaint.
On May 5, 1976, Courtney Matejka, a 3-year old girl, was bitten and severely injured by a dog owned by appellants at appellants' home. At that time, appellants were insured under a homeowner's liability insurance policy issued by Employers. The policy's coverage extended to bodily injury and personal liability, and it contained a liability limit of $100,000 per occurrence.
Following this incident, the Matejkas brought suit against appellants and Lawrence Sando (the underlying action) 1 for the injuries sustained by Courtney. Appellants tendered the defense of that action to Employers who retained counsel to conduct the defense. On June 8, 1982, the underlying action was settled for $80,000.
On February 9, 1983, appellants filed the first complaint against Employers in the present action alleging bad faith, intentional infliction of emotional distress, negligent infliction of emotional distress, and unfair practices. Employers successfully demurred to the complaint, and on May 6, 1983, appellants filed their first amended complaint. The trial court sustained Employers' demurrer to that complaint with leave to amend. On July 1, 1983, appellants filed their second amended complaint 2 to which Employers again demurred. On September 6, 1983, the trial In ruling on Employers' demurrer to the second amended complaint, the trial court took judicial notice of the order approving the settlement of the Matejka claim. The trial court then sustained the demurrers to the three counts and dismissed the action finding:
court sustained the demurrer to all three counts without leave to amend and dismissed the action against Employers.
Appellants' contentions may be summarized as follows:
1. The first count in the complaint sets forth facts sufficient to state a cause of action for breach of the implied covenant of good faith and fair dealing and breach of the duty to defend. The trial court thus improperly sustained Employers' demurrer to the first count without leave to amend.
2. The second count pleads facts sufficient to state a cause of action for intentional infliction of emotional distress, and the trial court improperly sustained the demurrer to that cause of action without leave to amend.
3. The third count sets forth facts sufficient to state a cause of action for negligent 4. Since the trial court improperly sustained demurrers to all three counts in the complaint without leave to amend, the action should not have been dismissed.
infliction of emotional distress, and the trial court improperly sustained the demurrer to that count of the complaint without leave to amend.
Appellants contend that the trial court erred in sustaining Employers' demurrer to the first count of their second amended complaint without leave to amend. Specifically, they argue that the allegations in the first count of the pleadings that the attorney retained by Employers advised appellants to retain independent counsel and that Employers' counsel did not represent appellants' interests in the settlement negotiations, as well as Employers' entire handling of the case for two and one-half years, state causes of action for breach of the implied covenant of good faith and fair dealing and breach of the duty to defend. Regarding those allegations in the complaint as true, 3 we find appellants have pleaded facts which could state a cause of action for breach of the duty to defend if properly pleaded but have not stated a cause of action for breach of the covenant of good faith and fair dealing. 4
A. When a Conflict of Interest Between the Insurer and Insured Has Arisen, the Insured is Entitled to Independent Counsel, and the Insurance Company's Duty to Defend Extends to Paying the Reasonable Value of Legal Services and Costs Performed by that Independent Counsel Selected by the Insured
Appellants contend that they are entitled to reimbursement from Employers for the attorney's fees they incurred as a result of retaining independent counsel to represent their interests in the settlement of the underlying action. We agree. Employers contends that if the insurer duly notifies the insured, the insurer has no obligation to represent the insured through the settlement phase of the action. We find this contention to be without merit.
The attorney hired by the insurance company to defend in an action against the insured owes fiduciary duties to two clients: the insurer and the insured. (Lysick v. Walcom (1968) 258 Cal.App.2d 136, 146, 65 Cal.Rptr. 406; Purdy v. Pacific Automobile Ins. Co. (1984) 157 Cal.App.3d 59, 76, 203 Cal.Rptr. 524.) It is a well accepted and oft repeated principle that the attorney retained by the insurance company for the purpose of defending the insured under the insurance policy owes the same duties to the insured as if the insured had hired the attorney him or herself. It must be recognized, however, that "in reality, the insurer's attorneys may have closer ties with the insurer and a more compelling interest in protecting the insurer's position, whether or not it coincides with what is best for the insured." (Purdy v. Pacific Automobile Ins. Co., supra, 157 Cal.App.3d at p. 76, 203 Cal.Rptr. 524.) This reality frequently gives rise to conflicts of interest between the insurer and its insured.
"Conflict of interest between jointly represented clients occurs whenever their common lawyer's representation of the one is rendered less effective by reason of his representation of the other." (Spindle v. Chubb/Pacific Indemnity Group (1979) 89 Cal.App.3d 706, 713, 152 Cal.Rptr. 776.) Such a conflict is likely to arise in the insurance context in two situations: where coverage under the policy is disputed (San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 364, 208 Cal.Rptr. 494 (Cumis ); Tomerlin v. Canadian Indemnity Co. (1964) 61 Cal.2d 638, 39 Cal.Rptr. 731, 394 P.2d 571) and where the claim against the insured is likely to result in a recovery in excess of the policy limits unless the insurer accepts a settlement offer within the policy limits. (Purdy v. Pacific Automobile Ins. Co., supra, 157 Cal.App.3d at p. 77, 203 Cal.Rptr. 524; Tomerlin v. Canadian Indemnity Co., supra, 61 Cal.2d at p. 647, 39 Cal.Rptr. 731, 394 P.2d 571.)
In the case at bar, Employers contends that a conflict of interest arose between itself and appellants during the settlement negotiations sometime after plaintiffs in the underlying action made a settlement offer at policy limits for $100,000. We find, however, that in a situation such as this, where there is no coverage dispute, and the demand against the policy and the settlement offer is within policy limits, no conflict of interest between the insured and insurer exists.
In this case, the record before us does not reveal whether there was any likelihood, should the underlying action have gone to trial, of a recovery in excess of the policy limits. 5 Thus, even though appellants may have been pressuring Employers to settle the case as soon as plaintiffs made a settlement offer within policy limits, there is nothing in the record to indicate that Employers' and appellants' interests had diverged at that point. Moreover, at oral argument, Employers failed to articulate any theory to convince us that there was any conflict of interest between the insured and insurer here. It alleged neither a failure to cooperate on appellants' part, nor an actual demand against the policy in excess of $100,000.
Thus, while Employers took the risk that its rejection of the $100,000 settlement offer could result in the case going to trial and Employers being held liable for an excess recovery as well as the amount due under the policy (Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 15-16, 123 Cal.Rptr. 288, 538 P.2d 744 []; Samson v. Transamerica Ins. Co. (1981) 30 Cal.3d 220, 243, 178 Cal.Rptr. 343, 636 P.2d 32), it was free to accept or reject any settlement offer within policy limits during the course of the settlement negotiations. Since the insureds' only concern...
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