American Motorists Ins. Co. v. Superior Court

• Decision Date: 18 December 1998
• Docket Number: No. B124087,B124087
• Citation: 80 Cal.Rptr.2d 621,68 Cal.App.4th 864
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 9224, 98 Daily Journal D.A.R. 12,864 AMERICAN MOTORISTS INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; Montrose Chemical Corporation of California, Real Party in Interest.

Page 621

80 Cal.Rptr.2d 621

68 Cal.App.4th 864, 98 Cal. Daily Op. Serv. 9224,

98 Daily Journal D.A.R. 12,864

AMERICAN MOTORISTS INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent Montrose Chemical Corporation of California, Real Party in Interest.

No. B124087.

Court of Appeal, Second District, Division 1, California.

Dec. 18, 1998.

Review Denied March 24, 1999.

Hewitt & Prout, Stephen L. Hewitt, Erica Arouesty, North Hollywood, Henry Truszkowski, Glendale, Drinker Biddle & Reath, John Chesney and Paul H. Saint-Antoine, Philadelphia, PA, for Petitioner.

Latham & Watkins, David L. Mulliken, Dorn G. Bishop and Julia E. Parry, San Diego, for Real Party in Interest.

No appearance for Respondent.

MIRIAM A. VOGEL, J.

An insured sued its insurer for declaratory relief, damages and other remedies, contending the carrier had a duty to defend and indemnify the insured in three third-party actions. In 1993, we affirmed orders adjudicating the duty-to-defend issue in the insured's favor and directing the carrier to pay for the insured's defense in the underlying actions. The carrier now claims the insured's defense costs were "unreasonable" and that it is entitled to have a jury determine the amount that ought to be reimbursed by the insured. The trial court denied the carrier's request for a jury trial, and at the same time ruled that it would be the carrier's burden to prove the fees and costs were un reasonable (as opposed to the insured's burden to prove they were reasonable and necessarily incurred). We agree with the trial court.

BACKGROUND

From 1948 to 1982, Montrose Chemical Corporation of California manufactured DDT. During the early 1980's, Montrose was named as a defendant in several private and governmental environmental contamination actions (referred to by the parties and by us as Newman, Stringfellow and Parr-Richmond ). ¹ Montrose tendered the defense of all three contamination actions to seven of its insurance carriers. Although some refused to defend, others agreed to provide a defense subject to a reservation of rights and subject to separate "interim defense agreements" entered for each of the underlying actions to allocate Montrose's attorneys' fees and other costs among the participating carriers. American Motorists Insurance Company (AMICO), one of the participating carriers, signed two interim defense agreements (Newman and Stringfellow ) and thereafter "sporadically" paid a fractional share of Montrose's defense costs in those actions. AMICO refused to participate in the defense of the Parr-Richmond action, and refused to sign the Parr-Richmond interim defense agreement.

In 1986, Montrose sued AMICO for declaratory relief, breach of the implied covenant of good faith and fair dealing, and breach of various statutory duties. In separate causes of action, Montrose asked for declarations that AMICO was obligated to defend and indemnify Montrose in the contamination actions, for specific performance of AMICO's duty to defend, and for damages for AMICO's failure to provide benefits under the insurance policies. In early 1989, AMICO cross-complained against Montrose for declaratory relief, asking for a declaration that it was not obligated to defend or indemnify Montrose and for reimbursement (equitable recoupment) of any and all amounts paid by AMICO for Montrose's defense in the three contamination actions.

In the summer of 1989, Montrose filed a motion for summary adjudication of issues in which it asked the trial court to decide the duty to defend issues. In August of that year, the trial court granted Montrose's motion, finding that, under the terms of the policies and the nature of the underlying actions, AMICO was obligated to defend Montrose in all three contamination actions. AMICO shrugged (we presume) but did nothing.

In 1991, Montrose asked the trial court to order AMICO to start paying its share of the defense costs. In opposition, AMICO insisted the summary adjudication order was interlocutory and, as such, immediately enforceable only if Montrose satisfied the pleading, proof, and bond requirements for a mandatory preliminary injunction or some other form of statutory provisional remedy. Montrose disagreed, contending it was not asking for a preliminary injunction or any provisional remedy, only for an order enforcing the trial court's prior order pursuant to the court's inherent equitable powers. In March, the trial court issued an "enforcement order" directing AMICO to make an immediate payment to Montrose of specified AMICO appealed. We affirmed the summary adjudication and enforcement orders, rejecting AMICO's contention that it could not be ordered to pay defense costs unless the trial court issued a preliminary injunction (or some similar pendente lite order) after considering the likelihood of Montrose's success on the merits, the adequacy of its legal remedies, and the threat of irreparable harm, and after requiring Montrose to post a bond. (Montrose Chemical Corp. v. American Motorists Ins. Co. (Jan. 25, 1993) B058060.) ² To reach the merits of AMICO's appeal, we construed the trial court's 1989 order summarily adjudicating AMICO's duty to defend to include an implied order "sever[ing] the duty to defend from the remaining issues and enter[ing] a final judgment (order) on that collateral issue." (Id., typed opn., p. 37.) We then affirmed the trial court's order imposing a duty to defend, and approved its decision to defer consideration of AMICO's coverage defenses until after the underlying contamination actions were resolved. (Id. at pp. 25-32.) We concluded that, "[w]hether the enforcement order [was] viewed as a permanent injunction or specific performance, ... the evidence support[ed] the order" and conformed to " 'the settled rule that when a court of equity has obtained jurisdiction of the parties and of the subject-matter it will seek to administer complete relief, particularly with respect to finding the means of enforcing its decrees against a delinquent defendant.' " (Id. at pp. 39-41.)

attorneys' fees and costs, and to thereafter remain current in paying its share of "the full cost of defending" the contamination actions. No bond was required.

AMICO still did not comply with the order to pay Montrose's costs and it was not until December 4, 1994--after Montrose filed a separate bad faith action against AMICO--that AMICO finally reimbursed Montrose for past-due defense costs and began paying its share of current costs on an on-going basis. In the bad faith action (which has yet to be tried), AMICO then stated its intent to assess and attack the reasonableness of Montrose's defense costs, notwithstanding that it had never questioned the itemized statements furnished by Montrose and its lawyers throughout the history of this action. ³

Meanwhile, in June 1991, AMICO had filed a demand for a trial by jury "of all issues and matters properly triable by a jury in these consolidated actions." In the fall of 1997, AMICO advised Montrose and the trial court that it wanted a full-blown "trial" on the reasonableness of the defense costs incurred by Montrose since the commencement of the underlying contamination actions. ⁴ In early 1998, by which time Montrose had incurred about $35 million in defense costs, AMICO asked the trial court to decide whether it was entitled to a jury trial to determine the reasonableness of Montrose's fees and costs, and also to decide which party had the burden of proof. ⁵ In AMICO's view, the issue of reasonableness AMICO then filed a petition for a writ of mandate challenging both rulings. We issued an order to show cause and set the matter for oral argument.

presents a question of fact for the jury, with the burden of proof on Montrose, as plaintiff, to prove that its fees and costs were reasonable. In Montrose's view, this action has been reduced to a claim for recoupment of allegedly unreasonable defense costs, a proceeding akin to an equitable accounting, with the burden on AMICO to prove that the fees and costs incurred by Montrose were un reasonable. The trial court ruled against AMICO on both issues, denying its motion for a jury trial and imposing the burden of proof on it, finding that this action is, fundamentally, "a declaratory relief action and equity action" presenting issues for decision by the court, not by a jury.

DISCUSSION

I.

The issue is whether AMICO is entitled to a jury trial to determine whether Montrose's defense costs were reasonably incurred. To tether its jury demand to the constitution, AMICO insists the present dispute must be viewed as a claim by Montrose for contract damages, no more and no less. Although AMICO may still see a forest of damages, we find only one remaining tree--and that is AMICO's equitable claim for reimbursement. For this reason, we agree with the trial court that AMICO is not entitled to a jury trial. ⁶

A.

In California, our constitution guarantees the right to a jury trial in actions at law, not those in equity. (Abbott v. City of Los Angeles (1958) 50 Cal.2d 438, 462, 326 P.2d 484; Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 670-672, 111 Cal.Rptr. 693, 517 P.2d 1157.) If the action deals with ordinary common-law rights cognizable in courts of law, it is to that extent an action at law. (C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 9, 151 Cal.Rptr. 323, 587 P.2d 1136.) To determine whether the action was one triable by a jury at common law, the court is not bound by the form of the action but rather by its nature, and a jury trial must be granted only "where the gist of the action is legal." (Ibid.) If the action is essentially one in equity and the relief sought depends upon the application of equitable doctrines, the parties are not entitled to a jury trial. Although the legal or equitable nature of a cause of action ordinarily is determined by the relief sought, the prayer for relief in a...