Bay Cities Paving & Grading, Inc. v. Lawyers' Mutual Ins. Co.

• Decision Date: 12 August 1993
• Docket Number: No. S023292,S023292
• Citation: 855 P.2d 1263,5 Cal.4th 854,21 Cal.Rptr.2d 691
• Court: California Supreme Court
• Parties: , 855 P.2d 1263 BAY CITIES PAVING & GRADING, INC., Plaintiff and Respondent, v. LAWYERS' MUTUAL INSURANCE COMPANY, Defendant and Appellant.

Page 691

21 Cal.Rptr.2d 691

5 Cal.4th 854, 855 P.2d 1263

BAY CITIES PAVING & GRADING, INC., Plaintiff and Respondent, v. LAWYERS' MUTUAL INSURANCE COMPANY, Defendant and Appellant.

No. S023292.

Supreme Court of California.

Aug. 12, 1993.

Richard Amerian, Sherman Oaks, Phillips, Greenberg, Dolven & Strain, Aaron M. Greenberg, San Francisco, Esner, Marylander & Zakheim, Stuart B. Esner, Grant Marylander and Rosalyn S. Zakheim, Santa Monica, for defendant and appellant.

Musick, Peeler & Garrett, R. Jospeh De Briyn, Harry W.R. Chamberlain II, Adams, Duque & Hazeltine, Richard T. Davis, Jr., Andrew J. Waxler, Jill Baran Scott, Gibson, Dunn & Crutcher, John L. Endicott, Scott R. Hoyt, Deborah A. Aiwasian, Meyers, Bianchi & McConnell, Martin E. Pulverman, Jeffrey M. Cohon and Lawrence P. House, Los Angeles, as amici curiae on behalf of defendant and appellant.

Arthur R. Abelson, San Leandro, for plaintiff and respondent.

BAXTER, Justice.

A general contractor was owed money for its work on a construction project. The attorney who had been representing the contractor in connection with the project recorded a mechanic's lien but thereafter failed to serve a stop notice on the project's construction lenders and failed to file a complaint to foreclose the mechanic's lien. As a result of the attorney's omissions, the contractor was unable to collect the amount it was owed.

The contractor then commenced this action against its attorney. The attorney's professional liability insurance policy contains a provision limiting coverage to a maximum of $250,000 "for each claim" and further provides that, "Two or more claims arising out of a single act, error or omission or a series of related acts, errors or omissions shall be treated as a single claim."

The narrow issue before us is one of first impression. Does the policy's $250,000 per claim limit apply to the attorney's two omissions? We hold the limitation applies for two independent reasons: (1) The contractor's suit against its former attorney is a single claim within the meaning of the insurance policy's definition of "claim." (2) Even if the contractor's action could be viewed as comprising two claims within the policy definition, those claims must be treated as a single claim under the policy's provision limiting coverage for claims arising out of a series of related acts, errors, or omissions.

FACTS

The facts are few and undisputed. Respondent Bay Cities Paving & Grading, Inc. (Bay Cities), a licensed general contractor, retained Attorney Robert Curotto to represent Bay Cities in connection with construction work it was performing. Bay Cities completed its work on the project but was unable to collect a substantial portion of the amount it was owed. Curotto filed a mechanic's lien on Bay Cities' behalf. Curotto, however, did not serve a stop notice on the project's construction lenders. Nor did he timely seek to foreclose the mechanic's lien.

Bay Cities sued Curotto for legal malpractice, alleging that he had been negligent in failing to serve a stop notice and in failing to foreclose the mechanic's lien. Curotto tendered the defense of the action to his professional liability insurance carrier, appellant Lawyers' Mutual Insurance Company (Lawyers' Mutual).

Curotto, Bay Cities, and Lawyers' Mutual stipulated as follows: Coverage under the Lawyers' Mutual policy issued to Curotto was limited to $250,000 per claim and an annual aggregate of $750,000. Bay Cities contended it was asserting two separate claims within the meaning of the policy and that the limit of coverage was therefore $500,000. Lawyers' Mutual contended that only one claim was being asserted. Lawyers' Mutual would pay Bay Cities $250,000, and the parties would try before the court the issue of whether two claims were The trial court ruled that Curotto had committed two acts of legal malpractice that were not related under the terms of the policy: (1) the failure to file a stop notice, and (2) the failure to file a timely action to foreclose the mechanic's lien. Bay Cities was awarded $169,000 in addition to the $250,000 already paid under the stipulation.

[855 P.2d 1265] being asserted within the meaning of the policy. If the court found there was only one claim, Bay Cities' recovery would be limited to the $250,000 stipulated payment. If the court found there were two claims, Bay Cities could recover additional damages up to a maximum of $187,000. Pursuant to the stipulation, Curotto was dismissed from the action, and Lawyers' Mutual was designated as the defendant.

Lawyers' Mutual appealed. The Court of Appeal affirmed, holding that: (1) each of Curotto's two errors gave rise to a separate claim under the policy, and (2) the two claims are not "related" within the meaning of the policy.

DISCUSSION

I. Meaning of "claim" under the policy

The attorney's liability policy states, " 'Claim' whenever used in this policy means a demand, including service of suit or institution of arbitration proceedings, for money against the insured. " (Italics added.) By any reasonable understanding, Bay Cities' suit against Curotto is a demand for money. Bay Cities does not contend otherwise. Rather, the dispute is centered on the policy's "Limits of Liability" section. It states, "The liability of the company under subsection 1 of the section of this policy entitled 'The Coverage' for each claim FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD shall not exceed the amount stated in the Declarations for 'each claim....' " (Italics added.) Bay Cities contends it is asserting two separate claims, each of which is subject to the per-claim limit of $250,000, because each of Curotto's two omissions resulted in a separate injury to Bay Cities. Lawyers' Mutual contends there is a single claim. The parties have stipulated that the pertinent portion of the policy is paragraph 3 of the policy's "Limits of Liability" section. It states: "The inclusion herein of more than one Insured or the making of claims or the bringing of suits by more than one person or organization shall not operate to increase the Company's limit of liability. Two or more claims arising out of a single act, error or omission or a series of related acts, errors or omissions shall be treated as a single claim." (Italics added.) As we shall explain, Lawyers' Mutual has the better view. Bay Cities has a single claim under the policy.

In concluding two claims are presented, the Court of Appeal rejected Lawyers' Mutual's argument there is only one claim because there is only one lawsuit. The court's premise was that, "There are two distinct causes of action and the fact that they are included within one lawsuit should not be the deciding factor." We agree with the Court of Appeal's view that including multiple claims within a single action does not render them a single claim. That conclusion, however, begs the question of whether there is more than one claim in the first instance. The Court of Appeal erred on that threshold question by starting with the underlying premise that Bay Cities was asserting two causes of action. We do not suggest that the number of claims is determined by rules of pleading. A correct understanding, however, of the nature of a "cause of action" does shed light on the question before us.

Bay Cities was not asserting two causes of action. Bay Cities had a single injury and thus a single cause of action against its attorney. ¹ "California has consistently applied the 'primary rights' theory, under which the invasion of one primary right gives rise to a single cause of action." (Slater v. Blackwood, supra, 15 Similarly, "[T]he 'cause of action' is based upon the harm suffered, as opposed to the particular theory asserted by the litigant.... Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief." (Slater v. Blackwood, supra, 15 Cal.3d 791, 795, 126 Cal.Rptr. 225, 543 P.2d 593, italics added.) Bay Cities suffered a single injury as a result of its attorney's omissions--the inability to collect the amount owed to Bay Cities for its work on the construction project.

                Cal.3d 791, [855 P.2d 1266] 795, 126 Cal.Rptr. 225, 543 P.2d 593;  Big Boy Drilling Corp. v. Rankin (1931) 213 Cal. 646, 649, 3 P.2d 13;  4 Witkin, Cal.Procedure (3d ed. 1985) Pleading, § 23, pp. 66-67.)   Bay Cities had one primary right--the right to be free of negligence by its attorney in connection with the particular debt collection for which he was retained.  He allegedly breached that right in two ways, but it nevertheless remained a single right
                

In Big Boy Drilling Corp. v. Rankin, supra, 213 Cal. 646, 649, 3 P.2d 13, we considered the concept of a "cause of action" in connection with a contractor's efforts (through its assignee) to recover money owed for work done on real property. "Whether plaintiff accomplishes this purpose by the foreclosure of mechanics' liens or by way of a personal judgment, or both, is immaterial. Both demands having arisen out of the same transaction, there is but one cause of action with two forms of relief. The seeking of different kinds of relief does not establish different causes of action.... The 'cause of action' is to be distinguished from the 'remedy' and the 'relief' sought, for a plaintiff may frequently be entitled to several species of remedy for the enforcement of a single right." (Big Boy Drilling Corp. v. Rankin, supra, 213 Cal. 646, 649, 3 P.2d 13 [citations omitted].)

The reasoning as to proper pleading, though not controlling, is illustrative in the present case. Bay Cities contends it had two sources of payment of its construction work: (1) foreclosure of the mechanic's lien, and (2) serving a timely stop notice on the project's construction lenders. These two procedures, however, arose from the same transaction--Bay Cities' work on the project--and were merely different remedies for nonpayment of the amount owed...