Arant v. Signal Ins. Co.

• Decision Date: 25 February 1977
• Citation: 136 Cal.Rptr. 689,67 Cal.App.3d 514
• Parties: Gene W. ARANT, Plaintiff and Appellant, v. SIGNAL INSURANCE COMPANY, a corporation, Defendant and Respondent. Civ. 49137.
• Court: California Court of Appeals Court of Appeals

Page 689

136 Cal.Rptr. 689

67 Cal.App.3d 514

Gene W. ARANT, Plaintiff and Appellant, v. SIGNAL INSURANCE COMPANY, a corporation, Defendant and Respondent.

Civ. 49137.

Court of Appeal, Second District, Division 2, California.

Feb. 25, 1977.

Rehearing Denied March 22, 1977.

Hearing Denied April 28, 1977.

Hiestand & Bower, Los Angeles, for plaintiff and appellant.

Overton, Lyman & Prince by Roy M. Brisbois, Los Angeles, for defendant and respondent.

ROTH, Presiding Justice.

Attorney Gene W. Arant appeals from a judgment in favor of Signal Insurance Company (Signal) the effect of which is that Signal was not required by the terms of a legal malpractice insurance policy it had issued to Arant to defend and indemnify him in an action brought against him by Sidney P. Held ('Held action').

Signal, on September 8, 1971, issued the first of three consecutive annual policies insuring Arant ¹ against liability arising from acts of legal malpractice, and the last of the three lapsed on September 8, 1974. The issue is whether the acts of alleged professional malpractice upon which the Held action is predicated are within the policy periods (1971--74).

The lawyer-client relationship between Held and Arant commenced in 1955. The allegedly erroneous advice upon which the Held action is predicated was first tendered in September 1962 and reiterated on several occasions until 1967. Because of the complexity of Held's legal situation during those years it is necessary to set forth the entire background with respect to which Arant's advice was tendered. For this purpose we set forth in the Appendix hereto a summary of the allegations of the complaint in the Held action as recited in Arant's brief since Signal's decision not to assume the defense was necessarily predicated on the facts alleged therein.

As that summary discloses, the advice which was the Fountain of Held's misfortunes in the Nova-Tech litigation was that Held was entitled to royalties by virtue of the provisions of Held's employment contract with Nova-Tech which had been drafted by Arant. The adverse impact of this advice was not experienced until it was, in effect, retracted in September 1972 during Arant's deposition in the Nova-Tech-Held action.

It is settled that the time of the Occurrence of an accident within the meaning of an indemnity policy is the time that the damages insured against actually accrue. (Tijsseling v. General Acc. & Life Assur. Corp. (1976) 55 Cal.App.3d 623, 626, 127 Cal.Rptr. 681.) In Tijsseling, a comprehensive, general liability policy was held not to apply to damages arising from an encroachment when the encroachment was discovered by the policy holder in the policy period but when it had actually come about prior to the policy's commencement date. (Accord, Remmer v. Glens Falls Indem. Co. (1956) 140 Cal.App.2d 84, 88, 295 P.2d 19.) Signal maintains that Tijsseling applies because, although Held did not discover the allegedly erroneous nature of Arant's advice until 1972, the advice itself, i.e., the Occurrence causing damage, had been rendered in 1962--67 prior to the commencement of the policy in 1971. This construction, Signal argues, is in complete accord with the terms of the policy which expressly excludes from coverage 'acts committed prior to the beginning of the policy period.' ²

Arant maintains that, although the act of professional negligence charged in the Held action is his, Arant's, advice, the adverse impact of that advice did not occur until September 1972 when he retracted it. Relying upon Budd v. Nixen, 6 Cal.3d 195, 198, 98 Cal.Rptr. 849, 491 P.2d 433, ³ he contends that Held's decision to compromise the Nova-Tech claim, as a result of which Held paid Nova-Tech $130,000, marked the time that Held was damaged and therefore the time that the cause of action accrued.

'The statute of limitations, as it applies to actions for fraud and misrepresentation, establishes the time at which a cause of action accrues. It does not fix the time at which the injury giving rise to the cause of action accrued.' (Tijsseling v. General Acc. & Life Assur. Corp., supra, 55 Cal.App.3d 623, 628, 127 Cal.Rptr. 681, 684.)

The injury, or harm, in this case was done when the advice, later retracted as erroneous, was given concerning the scope of Held's contract with Nova-Tech. Held, it is true, did not suffer damages until after the advice was given ⁴ and professional liability insurance, as noted by the Supreme Court, indemnifies the insured against the consequences of the negligent act. ⁵ (Gribaldo, Jacobs, Jones & Associates v. Agrippina Versicherunges A.G. (1970) 3 Cal.3d 434, 446, 91 Cal.Rptr. 6, 476 P.2d 406.) Nevertheless, the policy cannot be extended to indemnify against the consequences of an act when the act itself took place beyond the limits of the policy period. The operation, or coverage, of the policy at bench is predicated on 'any act, error or omission' of the insured. The assertedly negligent advice upon which Arant's liability to Held is predicated was rendered in 1962--67, prior to the commencement of the policy period, and Signal was therefore not required to defend and indemnify Arant.

We note in conclusion that this case differs from Budd v. Nixen and its companion case Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 98 Cal.Rptr. 837, 491 P.2d 421 in the pragmatic respect that the ultimate damages which assertedly were the result of the lawyer's error was sustained in this case by reason of a settlement and not a judgment against the client as in Nexen and Neel. Nothing in this opinion should therefore be construed as an expression of opinion on the correctness of either the advice originally rendered by Arant (1962--67) or his opinion offered in 1972.

The judgment is affirmed.

FLEMING and COMPTON, JJ., concur.

APPENDIX

During the year 1955, Sidney Held (hereinafter Held) formed Nova-Tech, Inc. (Nova-Tech), a California corporation to engage in the manufacture and sale of certain electronic products. At the time of its organization, Held was the president and sole stockholder of said corporation. At and after the time of the organization of Nova-Tech, Arant was employed by that corporation to handle its patent affairs as well as those of Held. In 1959, Nova-Tech sold a portion of its capital stock to the public. Held continued thereafter as its principal shareholder, president and chief executive officer. Arant continued to represent Held and the corporation in patent matters.

In the forepart of 1962, Held designed a certain radio direction finder product (Product) to be manufactured and marketed by Nova-Tech. As a part of that design, Held invented a unique reading scale (Invention) which became a part of the Product and was essential to its designed operation. In July, 1962, Held employed Arant to represent him in connection with said invention. In addition, Held employed defendant, Arant, to advise him in connection with the legal relationship between himself and Nova-Tech created by the Invention and the contemplated patent application and patent thereon.

Arant advised that in his opinion, Held, as the inventor was the owner of the Invention subject to a nonexclusive shop right in Nova-Tech. He advised further that under said circumstances Nova-Tech would be in a position to manufacture and sell the Product on a nonexclusive basis and that he, Held, was free to license others or to manufacture and sell...