Blumberg v. Guarantee Ins. Co.

• Decision Date: 24 June 1987
• Citation: 238 Cal.Rptr. 36,192 Cal.App.3d 1286
• Court: California Court of Appeals Court of Appeals
• Parties: Myron BLUMBERG and Myron Blumberg, a Law Corporation, Plaintiffs and Appellants, v. GUARANTEE INSURANCE COMPANY, Defendant and Respondent. Civ. B022639.

Page 36

238 Cal.Rptr. 36

192 Cal.App.3d 1286

Myron BLUMBERG and Myron Blumberg, a Law Corporation, Plaintiffs and Appellants, v. GUARANTEE INSURANCE COMPANY, Defendant and Respondent.

Civ. B022639.

Court of Appeal, Second District, Division 3, California.

June 24, 1987.

Review Denied Sept. 16, 1987.

Myron Blumberg Law Corporation, John P. Blumberg, Ave Buchwald, Long Beach, for plaintiffs and appellants.

Cotkin, Collins & Franscell, William D. Naeve, Sheryl A. Weinstein, Los Angeles, for defendant and respondent.

ARABIAN, Associate Justice.

INTRODUCTION

Plaintiffs and appellants, Myron Blumberg and Myron Blumberg, a Law Corporation (Blumberg), appeal from a judgment dismissing their first amended complaint following the trial court's order sustaining the demurrer of defendant and respondent,

Guarantee Insurance Company (Guarantee), without leave to amend. We affirm.

FACTS

The Underlying Lawsuit.

On July 16, 1977, Blumberg and his law partner, Kenneth Zommick (Zommick) dissolved their partnership pursuant to a "Memorandum of Agreement." The agreement set forth the manner in which the partnership would be dissolved and the partnership assets divided between them. By the terms of the agreement, they divided all matters being handled by the partnership into two categories, (1) pending and (2) substantially concluded.

A lawsuit listed as "pending" was billed as of May 31, 1977. The attorneys' fees generated from these cases were characterized as partnership assets which were to be divided equally between Blumberg and Zommick upon dissolution. Subsequently generated fees were then designated as the personal property of the attorney identified as handling the case on the date the law partnership dissolved.

All other lawsuits being handled by the firm were identified as "substantially concluded" and remained the property of the partnership of Blumberg & Zommick. Accordingly, the attorneys' fees generated by these cases were to be equally divided between the two attorneys as they were received. Included in the pending category were a series of cases entitled "the Chamonix cases."

On June 21, 1981, Zommick filed a lawsuit against Blumberg for breach of the partnership. Zommick alleged that at the time the Memorandum of Agreement was executed and the partnership dissolved, Blumberg fraudulently misrepresented to him the status of the Chamonix cases. Specifically, Zommick alleged that Blumberg misrepresented that the Chamonix cases were pending, had no value, and that no attorneys fees could be recovered without substantial expenditure of time and money. In reliance on these representations, Zommick allegedly allowed the Chamonix cases to be classified as pending, whereby they became the personal property of Blumberg upon the dissolution of the partnership. Zommick alleged the Chamonix cases should have been characterized as substantially concluded, so that the attorneys fees generated by the Chamonix cases would remain a partnership asset to be distributed equally between the two partners when recovered.

Accordingly, Zommick's complaint alleged that Blumberg made misrepresentations, committed fraud, and breached his fiduciary duty to him, and prayed for damages of $225,000, one-half of the attorneys fees recovered by Blumberg when the Chamonix cases subsequently settled.

The Subject Lawsuit.

When Blumberg was served with the Zommick complaint, he was insured under a claims-made "Lawyers Professional Liability Policy" issued to him by Guarantee. That policy provided basic coverage, under Insuring Agreement I, for claims:

"arising out of ... any acts or omissions of the Insured in rendering or failing to render professional services for others ... in the Insured's capacity as a lawyer...." (Emphasis added.)

Under Insuring Agreement V, the policy provided the following complementary fiduciary coverage:

"When the insured acts as an administrator, conservator, executor, guardian, trustee or in any other similar fiduciary capacity, his acts and omissions in such capacity shall be deemed for the purpose of Insuring Agreement I to be the performance of professional services for others in the Insured's capacity as a lawyer." (Emphasis added.)

Additionally, the policy contained the standard duty-to-defend language obligating Guarantee to defend any lawsuit lodged against the insured, whether groundless, false or fraudulent, as long as the claimant was seeking recovery of damages otherwise payable under the policy.

Under the bold-faced caption "EXCLUSIONS," the policy provides, under exclusion (h), that it does not apply:

"to any claim arising out of or in connection with the conduct of any business enterprise (including the ownership On December 29, 1981, Blumberg tendered his defense of the Zommick breach of partnership lawsuit to Guarantee, purportedly under the terms of the malpractice policy. Guarantee, without explanation, refused to defend and indemnify Blumberg.

maintenance, or care of any property in connection therewith) owned by any Insured or in which any Insured is a partner, or which is directly or indirectly controlled, operated or managed by any Insured either individually or in a fiduciary capacity." (Emphasis added.)

On December 26, 1985, over three years after Guarantee refused Blumberg's tender of defense, Blumberg initiated this action.

The first amended complaint, which is the subject of this appeal, contains five causes of action, all of which are predicated upon Guarantee's refusal to assume Blumberg's defense of the Zommick breach of partnership lawsuit.

Guarantee's demurrer to Blumberg's first amended complaint was made on the grounds that it failed to state any causes of action, inasmuch as (1) Guarantee was not, as a matter of law, contractually obligated to assume his defense to the Zommick breach of partnership lawsuit and (2) the causes of action were barred by the applicable statutes of limitation. Blumberg opposed the demurrer, but did not offer to file a second amended complaint.

At the conclusion of the June 23, 1986, hearing, Guarantee's demurrer was sustained without leave to amend on the ground that, while the "fiduciary coverage" provision may provide coverage, exclusion (h) excludes claims arising out of the conduct of a business in which a lawyer is a partner. A judgment of dismissal (Code Civ.Proc., § 581, subd. (c)) was entered on June 23, 1986. Blumberg timely appealed.

CONTENTIONS ¹

I. The Guarantee policy provides coverage for the claims made by Zommick.

II. Exclusion (h) is void because it is irreconcilable with the purpose of the policy.

DISCUSSION

Inasmuch as this appeal was taken from the judgment of dismissal after the trial court sustained Guarantee's general demurrer without leave to amend, the question to be determined is whether Blumberg's first amended complaint states a cause of action. (Banerian v. O'Malley (1974) 42 Cal.App.3d 604, 611, 116 Cal.Rptr. 919.) In order to answer this question, we must make our own independent determination of the meaning of the language used in the Guarantee policy because the facts here are not in dispute and the trial court made its determination as a matter of law. (Hartford Fire Ins. Co. v. Superior Court (1983) 142 Cal.App.3d 406, 413, 191 Cal.Rptr. 37.)

The insurer's obligation is not unlimited; the duty to defend is measured by the nature and kind of risks which are covered by the policy. (Giddings v. Industrial Indemnity Co. (1980) 112 Cal.App.3d 213, 218, 169 Cal.Rptr. 278.) If there is no potential for coverage, Guarantee has no duty to defend. (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275-277, 54 Cal.Rptr. 104, 419 P.2d 168; Hartford Fire Ins. Co. v. Superior Court, supra, 142 Cal.App.3d at p. 413, 191 Cal.Rptr. 37.)

The courts must evaluate not only the provisions of the policy but construe them to give the insured the protection he reasonably had a right to expect. (Gray v. Zurich Insurance Co., supra, 65 Cal.2d at p. 270, fn. 7, 54 Cal.Rptr. 104, 419 P.2d 168; Cal-Farm Ins. Co. v. TAC Exterminators, Inc. (1985) 172 Cal.App.3d 564, 572, 218 Cal.Rptr. 407.) The best evidence of the intent of the parties to an insurance policy is the policy itself. (City of Mill Valley v. Transamerica Ins. Co. (1979) 98 Cal.App.3d 595, 599, 159 Cal.Rptr. 635.)

Basic Coverage Provision

In the basic coverage clause of its "Lawyers Professional Liability Insurance Coverage" policy, Guarantee agrees to pay claims arising out of the insured's activities The Zommick complaint alleges that Blumberg breached his partnership and fiduciary duties by making intentional and/or negligent misrepresentations regarding the Chamonix cases at the time the Memorandum of Agreement was executed, dissolving the partnership and making provision for the method by which the partnership assets were to be distributed.

in rendering "professional services for others" in his "capacity as a lawyer."

We conclude that at the time Blumberg made the alleged misrepresentations, he was not rendering professional services "for others" nor acting in his "capacity as a lawyer." Rather, Blumberg was acting in his capacity as Zommick's law partner and the fact that he happened to be a lawyer was of no import whatever. Therefore, the basic insuring clause of the Guarantee policy provides no coverage to Blumberg for the acts alleged in the Zommick complaint.

The Fiduciary Coverage Provision.

The fiduciary coverage provision likewise does not provide coverage for Blumberg's alleged misrepresentations and breach of the fiduciary duty he owed Zommick. Under that provision, the insured is covered only for his "acts as an administrator, conservator, executor, guardian, trustee or in any other similar fiduciary capacity" and the insured's acts and omissions are deemed, for the purpose of the basic insuring provision, "the performance of professional services for others in the insured's capacity as a lawyer." (Emphasis added.)

The language of the...