Arenson v. National Auto. & Cas. Ins. Co.

• Decision Date: 10 May 1957
• Citation: 310 P.2d 961,48 Cal.2d 528
• Court: California Supreme Court
• Parties: Irving ARENSON, Plaintiff and Appellant, v. NATIONAL AUTOMOBILE AND CASUALTY INSURANCE CO., a California corporation, Defendant and Respondent. L. A. 24193.

Page 961

310 P.2d 961

48 Cal.2d 528

Irving ARENSON, Plaintiff and Appellant, v. NATIONAL AUTOMOBILE AND CASUALTY INSURANCE CO., a California corporation, Defendant and Respondent.

L. A. 24193.

Supreme Court of California, In Bank.

May 10, 1957.

William Katz, Los Angeles, for appellant.

Parker, Stanbury, Reese & McGee and Charles Agor Harrison, Los Angeles, for respondent.

SCHAUER, Justice.

This is plaintiff's second appeal in an action based upon a policy of 'comprehensive' personal liability insurance issued to plaintiff by defendant insurance company. This litigation, as well as an earlier related action in the municipal court, which included an appeal to the appellate department of the superior court, has been occasioned by defendant company's wrongful refusal to either defend plaintiff in the prior (municipal court) action or to discharge the judgment entered against him in such prior action and reimburse him for his costs and attorney's fees incurred in defending that action. Plaintiff prevailed in his first appeal herein and we conclude, for reasons hereinafter stated, that he should again prevail.

The briefs and arguments indicate that there has been substantial confusion as to the nature of the current issue. It concerns the amount of plaintiff's obligation for an attorney's fee incurred in defending the municipal court litigation. Defendant has argued largely as though the action here were by an attorney to collect a fee. But the action is not one by an attorney against a client to collect a fee; neither does it involve a discretionary fee allowance by a judge as incident to a cause the proceedings in which have been heard by that judge who is, hence, presumed to be familiar enough with the attorney's services to know their extent and their propriety or impropriety, and to fix their value. This is quite another case; it is a suit by an insured against the insurer on a policy, liability under which has already been conclusively determined (Arenson v. National Automobile & Cas. Ins. Co. (1955), 45 Cal.2d 81, 84, 286 P.2d 816), and the services for which the insured incurred his obligation were rendered in courts other than the instant trial court.

On the first appeal in the current action this court (in reversing a judgment for defendant) held that plaintiff is entitled to recover from the company the principal amount of the judgment theretofore rendered against plaintiff in the municipal court action, together with interest, court costs, and attorney's fees properly incurred by plaintiff in defense of that action. (Arenson v. National Automobile & Cas. Ins. Co. (1955), supra.) Plaintiff's right to recover and the identity of the items for which he is entitled to reimbursement have been finally adjudicated; the only open question relates to the amount of recovery.

On the new trial which followed the reversal, although there was uncontradicted evidence prima facie establishing the proper rendition to plaintiff of services of a reasonable value of $2,000, judgment was rendered awarding plaintiff the total sum of $488.36, including an allowance of only $175 as indemnification of his debt for attorney's fees. Plaintiff again appeals, urging that the item of $175 is, in the circumstances, inadequate and unsupported by the evidence.

The municipal court action was filed against the present plaintiff after his minor son 'acting jointly with another pupil' started a fire in a waste basket which subsequently they were unable to extinguish, and which damaged property belonging to the Los Angeles City School District, of which the boy was a pupil. The school district, alleging that the boy's tort was wilful, instituted the action under section 16074 of the Education Code ¹ to recover the amount of its loss, claimed to be $274.18. Plaintiff, in accordance with the terms of the personal liability insurance policy hereinabove mentioned, promptly forwarded the summons and complaint to defendant insurer and demanded that it defend the school district action against him. Defendant first responded, 'We thank you for your report * * * (W)e can not see any legal liability on your part * * * We also wish to advise you that should claimant file suit * * * we will make defense on your behalf. In the event the court should erroneously award a judgment in favor of the school, we would then make payment on your behalf.' Some three months later, however, defendant advised plaintiff that 'the insurance policy which you had in effect * * * does not cover a loss of this type' and 'we will be unable to make any payment on this claim.' Defendant also refused to interpose any defense on plaintiff's behalf. Thereupon plaintiff engaged an attorney to defend the case for him on a quantum meruit basis. The attorney decided that the best defense to the action should include an attack on the constitutionality of section 16074; ² he further determined that such a defense would be quite costly to present. Accordingly, in fairness to the company as well as to his client, he put up to defendant insurance company by letter the question as to whether in its own interest, if not in fidelity to its policyholder, it should (1) assume the defense of the action for plaintiff (defendant there) or (2) settle the claim against him or (3) gamble on letting its insured shift for himself and defeating his claim on its policy. ³ It chose the latter alternative. This it had a right to do, and its good faith in so doing is not questioned. But it must have known that plaintiff had an equal right to press his claim under the policy it had written and that if he ultimately prevailed it should, in justice, have to make full reimbursement to him.

Following the company's refusal to defend, plaintiff's attorney prepared and presented the defense on certain questions of fact and on the above mentioned constitutional grounds. The municipal court rendered judgment for the school district in the amount of $255.16, plus costs, whereupon plaintiff appealed to the appellate department of the superior court and was initially successful. That court entered its order reversing the municipal court judgment. In a memorandum opinion it stated that 'We regard the statute here involved, Education Code section 16074, as valid,' but 'the evidence is not sufficient to show that the damage complained of was caused by any act of defendants' child,' and that hearsay evidence had been erroneously admitted. However, such reversal was based on an erroneous assumption of facts. To clarify the matter and to avoid the expense of a new trial on an issue of fact which did not in truth justify a new trial, counsel then stipulated to an amendment of the settled statement on appeal. ⁴ On the basis of the amended statement the school district obtained a rehearing and reargument of the case. Upon the rehearing the appellate department again ruled against plaintiff's (defendant there) contention that the statute was unconstitutional, but this time held that the evidence, in light of the amended settled statement, was sufficient to support the judgment and that the admission of the hearsay testimony was nonprejudicial, and affirmed the judgment. This terminated the litigation adversely to plaintiff insofar as his liability to the school district is concerned. Likewise it determined the issues involved in that litigation adversely to defendant insurance company if the policy it had sold to plaintiff covered his liability. The latter issue remained to be determined.

Plaintiff then instituted the present action in the superior court for a declaration of his rights and to recover from the insurance company the amount of the municipal court judgment, costs incurred in the school district's action, and his obligation to pay an attorney's fee for the defense of that action. Defendant answered admitting issuance of the 'certain personal Comprehensive insurance policy' relied on by plaintiff but denying any liability in the premises; it contended that plaintiff was not covered by the policy for the tort sued on by the school district. This raised directly the important issue of law determined by this court in the prior appeal. The trial court accepted defendant's theory but this court reversed. We held that the policy covered the tort sued on and that 'Plaintiff is entitled to recover the principal amount of the judgment against him with interest together with court costs and attorneys' fees properly incurred by him in defense of the school district's claim.' (Arenson v. National Automobile & Cas. Ins. Co. (1955), supra, 45 Cal.2d 81, 84(7), 286 P.2d 816.)

Upon retrial, the only issue in dispute was the amount properly chargeable to the insurer to indemnify plaintiff for his obligation to pay an attorney's fee 'properly incurred' in the defense of the action by the school district. The trial court had before it certain correspondence between plaintiff, the latter's attorney, and the insurance company, including the latter to the company hereinabove quoted in material part in footnote 3, and the records of the municipal court and the appellate department of the superior court in the school district's action. The only witness was the attorney, Mr. William Katz, who detailed his services and the charges therefor, which totaled $2,027.50, ⁵ for which he had billed plaintiff.

On cross-examination Mr. Katz testified that 'I had an agreement with them (Mr. and Mrs. Arenson) that my fee was the amount for which I billed them' but 'I want to clarify that a little further. Up to this point, I have received nothing. I have not received the return of my costs which I have advanced. My clients have been paying off the judgment rendered against them in the Municipal Court at the rate of $15.00 or $20.00 a month. * * * And if they * * * pay me * * * it would be in the same way. And, then, I doubt very much that I would get it. * * * As a matter of fact, this case was one that at the outset when I...