Barnett v. Fireman's Fund Ins. Co.

Decision Date04 June 2001
Citation108 Cal.Rptr.2d 657,90 Cal.App.4th 500
CourtCalifornia Court of Appeals Court of Appeals
Parties(Cal.App. 4 Dist. 2001) ALBERT E. BARNETT et al., Plaintiffs and Appellants, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant and Respondent. D037272 DIVISION ONE STATE OF CALIFORNIA Filed

(Super. Ct. No. 795732)

APPEAL from a judgment of the Superior Court of Orange County, Randell L. Wilkinson, Judge. Reversed.

THE COURT:

The opinion filed June 4, 2001, is ordered certified for publication.

The attorneys of record are:

Zimmerman, Koomer, Connolly & Finkel, Michael D. Koomer and Scott Z. Zimmerman for Plaintiffs and Appellants.

Mower, Koeller, Nebeker, Carlson & Haluck, Jon R. Mower and John R. Armstrong for Defendant and Respondent.

McDONALD, J.

In late 1996 and early 1997 MedPartners, Inc. (MedPartners), and a different entity, Southern California Medical Corporation (SCMC), filed lawsuits against appellants Albert E. Barnett, Gloria Mayer (G. Mayer) and Thomas Mayer (T. Mayer) (the underlying action). In the underlying action, MedPartners and SCMC alleged appellants engaged in a variety of misconduct, including making disparaging remarks about them. Appellants tendered the defense of the underlying action to respondent Fireman's Fund Insurance Company (Firemans), asserting they were additional insureds under a comprehensive general liability policy (the CGL policy) issued by Firemans to MedPartners. Firemans rejected the tender.

In the present lawsuit, appellants alleged Firemans's refusal to defend and indemnify them in the underlying action breached its obligations under the CGL policy. Firemans's demurrer to the complaint argued appellants were not entitled to a defense or indemnity because (1) there was no possibility appellants were acting in an insured capacity when they committed the conduct alleged in the underlying action and (2) the conduct alleged in the underlying action was not covered by the CGL policy. The trial court sustained the demurrer without leave to amend, and this appeal followed.

I

FACTUAL AND PROCEDURAL BACKGROUND

A. The Facts of the Underlying Action

Because this matter comes before us from a judgment of dismissal following the sustaining of a demurrer without leave to amend, our factual background accepts as true the facts alleged in the complaint, together with facts that may be implied or inferred from those expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.) We do not, however, accept the truth of contentions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Additionally, to the extent the factual allegations conflict with the content of the exhibits to the complaint, we rely on and accept as true the contents of the exhibits and treat as surplusage the pleader's allegations as to the legal effect of the exhibits. (Weitzenkorn v. Lesser (1953) 40 Cal.2d 778, 785; Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627.)

Barnett is a physician who founded and owned SCMC, a professional medical corporation that operated an integrated health care delivery system (the system) providing primary and specialty medical services and inpatient and outpatient hospital services under capitated contracts with health maintenance organizations. In November 1995 SCMC into entered a contract with Caremark Physician Services, Inc. (Caremark) under which Caremark managed the operations of the system on behalf of SCMC, but reserved to SCMC the exclusive control over all decisions relating to the practice of medicine. This reservation was required to comply with California's prohibition against the corporate practice of medicine. (See, generally, Conrad v. Medical Bd. of California (1996) 48 Cal.App.4th 1038, 1042-1043.)

In 1996 MedPartners, a large physician practice management company, acquired Caremark. Following the acquisition Barnett and G. Mayer became executive officers of MedPartners and T. Mayer became an employee of MedPartners. MedPartners is the named insured under the CGL policy issued by Firemans.

After MedPartners acquired Caremark, MedPartners made fundamental changes in the management and organizational structure of the system. Appellants expressed concern to MedPartners and others that, under the changes implemented by MedPartners, the system would no longer be supervised and directed by physicians concerned and entrusted with providing quality care to patients; instead the system would be directed by a corporation more concerned with corporate revenues than with the benefits provided to patients, thereby adversely affecting patient care and violating California's prohibition against the corporate practice of medicine. Appellants sought to advance the interests of MedPartners by urging MedPartners to comply with California's prohibition against the corporate practice of medicine.

In November 1996 MedPartners terminated appellants as officers and employees of MedPartners. One reason for the terminations was to retaliate against appellants for their complaints about MedPartners's noncompliance with the prohibition against the corporate practice of medicine. MedPartners then filed the underlying action against appellants; SCMC subsequently filed a complaint in intervention in the underlying action. MedPartners's lawsuit alleged, among other things, that appellants told numerous persons (within and outside of the MedPartners organization) that MedPartners's methods of doing business were flawed and would result in MedPartners's failure, and made other representations that disparaged and damaged MedPartners. MedPartners's complaint pleaded causes of action for breach of fiduciary duty, intentional interference with contractual relations, breach of the implied covenant of good faith and fair dealing, and fraud.

SCMC's complaint in intervention alleged similar misconduct by appellants and that appellants made disparaging and damaging remarks about SCMC. SCMC's complaint in intervention pleaded claims for declaratory relief and for intentional interference with contractual relations.

Appellants asked Firemans to defend and indemnify them in connection with both MedPartners's complaint and SCMC's complaint in intervention. Appellants asserted they were additional insureds under the CGL policy issued to MedPartners, and that the allegations of the complaint created a potentially covered claim for personal injury and/or advertising injury within the meaning of the CGL policy. Firemans declined to defend or indemnify appellants.

B. The Present Action

Appellants filed this action against Firemans, alleging its refusal to defend and indemnify them in the underlying action breached the contractual and good faith obligations owed to them under the CGL policy. Firemans's demurrer to appellants' complaint asserted two arguments. First, Firemans argued appellants were not insureds under the CGL policy because Barnett and G. Mayer qualified as insureds only "with respect to their duties as [MedPartners] officers," and T. Mayer qualified as an insured only "for acts within the scope of [his] employment." Firemans argued that under Milazo v. Gulf Ins. Co. (1990) 224 Cal.App.3d 1528 (Milazo), acts by an additional insured that are antagonistic or hostile to the business interests of the named insured cannot be acts "within the scope of their employment" or "with respect to their duties as officers" of the named insured. Second, Firemans argued that in the underlying action MedPartners and SCMC did not allege facts suggesting any possibility that appellants' alleged misconduct would be a covered act within the personal injury or advertising injury coverages of the CGL policy.

Appellants argued that CGL policy contained no language barring coverage under the circumstances alleged in the underlying action, and that Milazo was distinguishable because it involved insuring clauses and factual circumstances different from those present here. Appellants also argued that even if Milazo excluded coverage for MedPartners's lawsuit, Milazo's rationale had no application to a third party action like the SCMC lawsuit. Finally, appellants argued that in the underlying action MedPartners and SCMC alleged facts that could support liability for defamation within both the personal injury and the advertising injury coverages of the CGL policy.

The trial court sustained Firemans's demurrer without leave to amend and dismissed appellants' complaint.1 This appeal argues the trial court's ruling was in error.

II

STANDARD OF REVIEW

On appeal from a judgment dismissing an action after sustaining a demurrer we give the complaint a reasonable interpretation, and treat the demurrer as admitting all material facts properly pleaded, but not the truth of contentions, deductions or conclusions of law. We reverse if the plaintiff has stated a cause of action under any legal theory. (Walker v. Allstate Indemnity Co. (2000) 77 Cal.App.4th 750, 754.) However, we affirm the judgment if any one of the several grounds of demurrer is well taken. (Weikel v. TCW Realty Fund II Holding Co. (1997) 55 Cal.App.4th 1234, 1244.) We apply de novo review to decide whether it was proper to sustain the demurrer because that ruling involved construction of the CGL and its application to the facts alleged in the underlying lawsuits. (Ray v. Farmers Ins. Exchange (1988) 200 Cal.App.3d 1411, 1415-1416.)

III

PRINCIPLES GOVERNING DUTY TO DEFEND

The interpretation of the meaning of an insurance policy and the scope of coverage are questions of law. (Western Mutual Ins. Co. v. Yamamoto (1994) 29 Cal.App.4th 1474, 1481.) Whether a third party action asserts a potentially covered claim under the policy triggering the duty to defend requires us to interpret the language of the insuring agreement and is a question of law. (Alex Robertson Co. v. Imperial Casualty & Indemnity Co. (1992) 8 Cal.App.4th 338, 342-343 [potential for coverage under insuring language...

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