Assicurazioni Generali, S.P.A. v. First State Ins. Co.
| Decision Date | 18 June 1996 |
| Docket Number | No. 95-55138,95-55138 |
| Citation | 87 F.3d 1317 |
| Parties | NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. ASSICURAZIONI GENERALI, S.P.A., Plaintiff-Appellant, v. FIRST STATE INSURANCE COMPANY; Adams Duque & Hazeltine; Professional Liability Claims Managers, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Before: GIBSON, * NOONAN and THOMPSON Circuit Judges.
Insurer Assicurazioni Generali S.P.A. (Generali) paid $1.25 million to settle a bad faith action brought by lawyer Joseph Siler and Kurt Simon for Generali's withdrawal from Siler's defense under a professional liability policy issued by Generali and other insurers. Generali brought the instant action against the policy claims manager Professional Liability Claim Managers (PLCM), another insurer First State Insurance Company and PLCM's counsel Adams, Duque & Hazeltine (ADH). Generali appeals the district court's grant of PLCM's motion to dismiss under Fed.R.Civ.P. Rule 12(b)(6) and ADH's motion for summary judgment. We AFFIRM the district court.
Joseph Siler and Robert Mayman were partners in the law firm Mayman, Siler & Associates. The firm carried legal malpractice insurance issued by a number of subscribing insurers, including Generali. The firm applied annually for a subscription policy that was issued effective on March 10 of each year beginning in 1986 and ending in 1989. Generali had a 6% participation in the policy effective from March 1989--March 1990. First State had a 40% interest in the 1986 policy and no participation in the 1989 policy. To qualify for coverage a claim had to be both made and reported in the policy coverage period and had to fall under the period of "prior acts" coverage, which began on March 10, 1986.
In 1981 Siler and Mayman affiliated with California Corporation Leasing, Ltd. (California Leasing) as individuals. In 1982 Siler successfully solicited Kurt Simon, who was also Siler's client, to join California Leasing as a limited partner. Siler advised Simon that his liability would be limited to a pro rata share of $90,000 liquidated damages under an aircraft lease for a plane California Leasing leased from Marvin Trevillian and subleased to another party. In fact, Simon's liability potentially included costs to restore airworthiness of the aircraft if the sublessee breached. The sublessee defaulted on the lease in 1985, and in 1986 Trevillian sued Simon, Siler and Mayman individually in state court for alleged breach of the aircraft lease agreement (the "Trevillian Action"). In November 1986 Simon filed a cross-claim against Siler for breach of fiduciary duty (the "Simon Cross-Claim").
In November 1988 Siler was deposed for the Simon Cross-Claim. Simon's lawyer Dawn Whitney attempted to ask Siler about legal advice rendered to Simon. Upon objection by Siler's lawyer, Whitney countered that the claim encompassed Siler's acts as Simon's attorney. She also threatened to move to compel the answers and to amend the Simon Cross-Claim to include malpractice but never took either step. Later Whitney said it was not her view at the 1988 deposition that the Simon cross-complaint encompassed Siler's acts as an attorney.
Mayman completed Mayman, Siler & Associates' application for its 1989-90 insurance policy on January 25, 1989. He made no mention of the November 1988 deposition exchange, asserted no supplemental claims and answered "No" to the question "Have any claims of which the proposed insured is aware been made within the last ten (10) years or are any claims now pending?" He also answered that the firm was not aware of "any prior incident, act, error or omission which there is reason to suppose might fall within the scope of the proposed insurance."
Trial resulted in a judgment of $1,056,519.92 for Trevillian. In December 1989 Simon settled with Trevillian for $970,000 and all parties to the Trevillian Action and Simon Cross-Claim signed a Release, which stated: "Simon is not giving up any rights he may have against [Mayman and/or Siler] to pursue claims for attorney malpractice."
In March 1990 Simon sued Siler (the Malpractice Action) alleging that Siler's legal malpractice enhanced Simon's liability in the Trevillian Action. On March 8, 1990 Siler notified his insurance broker of this new complaint and requested coverage under the 1986, 1987, 1988 and 1989 policies. The broker tendered the notice to PLCM which unilaterally allocated the claim to the 1989 policy and appointed a law firm (the Wilson Firm) to defend Siler. On September 13, 1990, PLCM wrote to Mayman and Siler to indicate PLCM "had requested permission to issue a reservation of rights" because of the policy definition of professional services, the prior acts restriction and possible prior notice on the claim.
On October 2, 1992 the Wilson Firm provided PLCM information revealing the substance of the 1988 Siler deposition. PLCM immediately retained ADH to perform a coverage analysis of the Malpractice Action. In a letter to PLCM dated November 5, 1990 (the Coverage Opinion) Andrew Waxler of ADH concluded that Simon's Malpractice Claim was not covered by the 1989 policy because the claim was made, at the latest, at the November 1988 deposition but was not reported until 1990. Waxler also opined that Mayman, Siler & Associates knew of the claim but failed to disclose it on the application for the 1989 policy. Waxler advised PLCM that the underwriters could withdraw their defense of Siler. Generali received a copy of the Coverage Opinion.
The Coverage Opinion also enclosed a reservation of rights letter stating that none of the alleged wrongful acts fell under the prior acts period and that the claim was not made and reported during the applicable policy period. PLCM forwarded the reservation letter to Siler on November 5, 1990. Knowing that the trial date was set for December 27, 1990, Generali formally withdrew its defense on November 21, 1990.
The Coverage Opinion acknowledged that a decision to withdraw was not without risk, since it was not clear how a court would rule on any waiver arguments Siler might raise. After Siler wrote PLCM on November 21, 1990 raising waiver arguments Waxler analyzed them in a January 7, 1991 letter to PLCM. Waxler concluded that no waiver appeared to have occurred as to the defense that the claim had to be made and reported in the coverage period, because the carriers had no knowledge of facts establishing this defense until September 1990. Generali received this letter but did not change its decision to withdraw. Trial was continued to January 28, 1991. Siler represented himself pro se. In April 1991, judgment was entered against Siler for $1,352,221.
In October 1991 Simon and Siler sued Generali and the other underwriters except First State under all four malpractice policies (the Bad Faith Action). PLCM and the Wilson Firm were also named in the complaint, which included a bad faith claim for withdrawing coverage in Simon's Malpractice Action against Siler. On November 18, 1991 PLCM engaged ADH to represent all insurers in the Bad Faith Action for the limited purpose of narrowing and disposing of issues by demurrer and disposing of the case by summary judgment. The next day, ADH immediately informed PLCM of a conflict as to whether an advice of counsel defense should be asserted.
By letter dated November 30, 1992 Waxler notified the underwriters that because of further conflicts, ADH could no longer represent any of the parties even for the coverage summary judgment motion. When summary judgment was denied the other carriers settled out. Only Generali remained, which then settled for $1.25 million rather than litigate its coverage defenses.
In November 1993 Generali filed this suit in the district court against First State, ADH and PLCM, alleging breach of contract, negligence, breach of fiduciary duty and other claims. On June 8, 1994 the district court granted PLCM's motion to dismiss under Fed.R.Civ.P.Rule 12(b)(6) for failure to state a claim. The malpractice claims against ADH proceeded. ADH moved for summary judgment arguing that its advice to Generali was correct as a matter of law and its representation free of conflict. The district court granted summary judgment in December 1994.
A dismissal for failure to state a claim under Fed.R.Civ.P.Rule 12(b)(6) is a question of law reviewed de novo. Stone v. Travelers Corp., 58 F.3d 434, 436-437 (9th Cir.1995). Generali claimed PLCM's breach of contract, negligence and breach of fiduciary duty. The breach of contract claim alleged, inter alia, PLCM's failure to investigate the Malpractice Action, recommend issuing a reservation of rights, and assert the applicability of the 1986 policy, and alleged PLCM's error in retaining ADH to defend all insurers in the Bad Faith Action after being advised of the potential conflict of interest. Generali also alleged that PLCM breached its duty of reasonable care and its fiduciary duty in administration of Siler's claims.
The district court granted PLCM's motion to dismiss on the theory that the claims were "fundamentally claims for contribution and indemnity by one alleged co-tortfeasor or co-obligor against another" and thus barred by California's good faith settlement law, Cal.Code Civ.Pro §§ 877 and 877.6. Generali argues that because PLCM owed these duties directly to Generali the claims fall outside the bar of the statute. Historically, "indemnity" and "contribution" among tortfeasors have been distinguished. Se...
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