American Casualty Co. v. O'Flaherty, B106208

• Decision Date: 19 September 1997
• Docket Number: No. B106208,B106208
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 7530, 97 Daily Journal D.A.R. 12,104 AMERICAN CASUALTY COMPANY OF READING, PA., Cross-complainant and Appellant, v. Michael O'FLAHERTY et al., Cross-Defendants and Respondents.

Page 539

67 Cal.Rptr.2d 539

57 Cal.App.4th 1070, 97 Cal. Daily Op. Serv. 7530,

97 Daily Journal D.A.R. 12,104

AMERICAN CASUALTY COMPANY OF READING, PA., Cross-complainant and Appellant, v. Michael O'FLAHERTY et al., Cross-Defendants and Respondents.

No. B106208.

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

Sept. 19, 1997.

Radcliff, Frandsen & Dongell, Richard A. Dongell, Eric H. Saiki, Los Angeles, and Daniel E. Park, Irvine, for Cross-Complainant and Appellant.

O'Flaherty & Belgum, John J. Weber, Robert M. Dato, and Brian P. Barrow, Long Beach, for Cross-defendants and Respondents.

EPSTEIN, Acting Presiding Justice.

A hospital and a number of its professional staff, including a nurse, were sued by the heirs of a patient for wrongful death. The insurance carrier for the hospital undertook the defense of that institution and its staff, and hired defense counsel for that purpose. The nurse had her own liability policy. Her insurance carrier refused to contribute toward a possible settlement. The verdict exceeded the limits of the hospital's primary policy, and the underlying case settled for the amount of the verdict before judgment was entered. The insurers are in litigation with respect to reimbursement from the nurse's insurer. The latter sued defense counsel for legal malpractice. Counsel obtained summary judgment against the nurse's insurer. That insurer has appealed from the judgment. We find no error and affirm.

FACTUAL AND PROCEDURAL SUMMARY

In December 1993, Laura Wood filed a wrongful death action ("the Wood action") against Henry Mayo Newhall Memorial Hospital ACIC retained the law firm of O'Flaherty & Belgum ("O'Flaherty") to represent the hospital and Ms. Gorman in the Wood action. After substantial discovery and two mandatory settlement conferences, Ms. Gorman told the attorney from O'Flaherty that she had a professional liability insurance policy with American Casualty at the time of the Wood incident. ¹ O'Flaherty alerted ACIC that Ms. Gorman had her own insurance.

("the Hospital") and several physicians, alleging that her husband was given an overdose of morphine following routine surgery, which resulted in his death. Later, Michelle Gorman, a nurse at the hospital, was named as a defendant. American Continental Insurance Company ("ACIC") issued two liability policies for the hospital; a primary policy with a limit of $1 million per claim, and an umbrella policy with a $10 million limit. As an employee of the hospital, Ms. Gorman was covered under both policies.

ACIC contacted American Casualty, outlined the current status of the case, and forwarded copies of deposition summaries and summaries of reviews conducted by expert witnesses for ACIC. ACIC took the position that damages in the Wood case were likely to exceed the $1 million limit of its primary policy with the Hospital. In that event, ACIC said: "It is our position that coverage for Nurse Gorman under ACIC's umbrella policy # 92L333 will not be triggered until Nurse Gorman's $1,000,000 policy limit under policy # N4638848 with [American Casualty] has been exhausted." ACIC asked American Casualty to contribute the full $1 million limit of Ms. Gorman's policy for purposes of settlement discussions.

ACIC offered $1 million to settle the Wood case, but counsel for plaintiffs demanded $1.5 million. In a letter dated March 21, 1995, ACIC asked American Casualty to immediately contribute $500,000 to settle the case. In its opening brief, American Casualty asserts that it responded to this request by asking ACIC to settle the matter because it was in the best position to determine whether a particular settlement figure was reasonable. In its brief, American Casualty says: "Any contribution issues between the insurers, American Casualty explained, could be resolved at a later date. O'Flaherty was fully aware of American Casualty's position in this regard and also knew that American Casualty insured Gorman only, not the Hospital." This assertion is not supported by reference to the record on appeal. ACIC takes the position that American Casualty failed to respond to the March 21 request for contribution.

ACIC again requested a contribution from American Casualty on April 5, 1995. An attorney for American Casualty attended the status conference, but the case did not settle.

On May 9, 1995, the day jury selection was to begin in the Wood action, counsel for plaintiffs offered to dismiss Ms. Gorman from the action, contingent upon a stipulation that she waive costs and any claim of malicious prosecution by the plaintiffs, and that it be stipulated her actions were as an agent of the Hospital. The offer was to expire in minutes, when the jury panel was brought into the courtroom. In a declaration in support of O'Flaherty's motion for summary judgment in this case, Michael O'Flaherty declared that he discussed the settlement offer with Ms. Gorman: "We mutually agreed to reject the offer. Our sole motivation in rejecting the offer was to obtain a defense jury verdict for Ms. Gorman and, by virtue of agency, for her employer, the hospital. This was a tactical decision which I believed to be in the best interests of my clients."

Ms. Gorman testified, in deposition, that she had agreed with Mr. O'Flaherty's recommendation that she refuse the offer, basing the decision on Mr. O'Flaherty's advice, her distrust of the attorney for plaintiffs, her belief that it would be more difficult for the jury to render a verdict for plaintiffs if she was a defendant at the counsel table, and her desire to clear her name.

The Wood jury returned a verdict of $1,686,000 against the Hospital and Ms. Gorman. The case was settled for the amount of the verdict before judgment was entered.

ACIC paid all fees and costs incurred in defense of the action, and the entire settlement. American Casualty did not contribute to the settlement.

After the Wood settlement, ACIC brought an action against American Casualty, seeking a declaration that American Casualty must contribute the amount of settlement in excess of the $1 million provided under ACIC's primary policy. In its answer, American Casualty alleged as an affirmative defense that the ACIC complaint was barred because that firm--its agents, or retained counsel--"unreasonably refused to accept, or caused to be declined, the underlying plaintiffs' offer to dismiss the mutual insured, Michelle Gorman."

ACIC and American Casualty brought cross-motions for summary judgment or summary adjudication. American Casualty claimed it was entitled to summary judgment as a matter of law because "ACIC should be barred from this contribution action as a result of its conduct in refusing to dismiss American Casualty's insured from the underlying lawsuit; because ACIC's insured has a statutory duty to indemnify American Casualty's insured; and because American Casualty's insurance policy is excess to the ACIC's excess umbrella policy." ACIC sought summary adjudication on several of American Casualty's affirmative defenses. The trial court denied American Casualty's motion and granted ACIC's motion in its entirety. We are informed that the action between ACIC and American Casualty is still pending in the trial court.

Shortly after ACIC filed its motion, American Casualty brought a cross-complaint for legal malpractice, indemnification, and declaratory relief against the O'Flaherty firm and Michael O'Flaherty. (We now refer to them jointly as "O'Flaherty.") The gravamen of the cross-complaint was that O'Flaherty committed malpractice by refusing the offer to dismiss Ms. Gorman from the underlying complaint and by failing to adequately advise Ms. Gorman concerning the settlement and of her right to independent counsel.

O'Flaherty moved for summary judgment. In essence, O'Flaherty argued that it owed no duty to American Casualty because it had no attorney-client relationship with that company. American Casualty opposed the motion, characterizing itself as an excess insurer, a point disputed by O'Flaherty. American Casualty argued that an excess insurer which is harmed by the negligence of defense counsel hired by the primary insurer may maintain an action for legal malpractice against the defense counsel.

The trial court granted O'Flaherty's motion. It explained: "Michael O'Flaherty and O'Flaherty & Belgum did not owe a duty to American Casualty Company of Reading, Pa., relative to any aspect of [the Wood case]. American Casualty Company of Reading, Pa., was not a client of Michael O'Flaherty and O'Flaherty & Belgum...." The trial court also held that American Casualty was not entitled to indemnity on the cross-complaint because a claim for indemnity cannot be based on legal malpractice.

American Casualty filed a timely notice of appeal from the judgment.

DISCUSSION

" 'Any party may move for summary judgment in any action or proceeding if it is contended that the action has no merit or that there is no defense to the action or proceeding ....' (§ 437c, subd. (a).) 'The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the...