Buss v. Superior Court

• Court: California Supreme Court
• Writing for the Court: MOSK; GEORGE; KENNARD
• Citation: Buss v. Superior Court, 16 Cal.4th 35, 65 Cal.Rptr.2d 366, 939 P.2d 766 (Cal. 1997)
• Decision Date: 24 July 1997
• Docket Number: No. S052844,S052844
• Parties: , 939 P.2d 766, 97 Cal. Daily Op. Serv. 5855, 97 Daily Journal D.A.R. 9412 Jerry H. BUSS et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; TRANSAMERICA INSURANCE COMPANY, Real Party in Interest.

Page 366

65 Cal.Rptr.2d 366

16 Cal.4th 35, 939 P.2d 766, 97 Cal. Daily Op. Serv. 5855,

97 Daily Journal D.A.R. 9412

Jerry H. BUSS et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent TRANSAMERICA INSURANCE COMPANY, Real Party in Interest.

No. S052844.

Supreme Court of California.

July 24, 1997.

Paul, Hastings, Janofsky & Walker, David M. Roberts, Grace A. Carter, Jennifer S. Baldocchi and Keith F. Millhouse, Los Angeles, for Petitioners.

Daniel E. Lungren, Attorney General, Jan S. Stevens, Assistant Attorney General, John A. Saurenman, Deputy Attorney General, Cotkins & Collins, Roger W. Simpson, Didak & Jack, Mark F. Didak, Thomas & Elliott, Stephen L. Thomas, Jay J. Elliott, Latham & Watkins, David L. Mulliken, Dorn G. Bishop, Diana L. Strauss, G. Andrew Lundberg, The Ford Law Firm, William H. Ford, III, Claudia J. Serviss, Paul C. Cook, Irell & Manella, Gregory R. Smith, Thomas W. Johnson, Jr., Marc S. Maister, Harry A. Mittleman, Troop, Meisinger, Steuber & Pasich, Kirk A. Pasich, Lori Yankelevits, Brobeck, Phleger & Harrison, David M. Halbreich, Heller, Ehrman, White & McAuliffe, David B. Goodwin, Wayne S. Braveman, Munger, Tolles & Olson, Cary B. Lerman and Charles D. Siegal as Amici Curiae on behalf of Petitioners.

No appearance for Respondent.

Haines & Lea, John R. Brydon and James E. Gibbons, Long Beach, for Real Party in Interest.

Kaufman & Logan, Jeffrey Kaufman, Nancy S. Coan, Paulette Donsavage, San Francisco, Wiley, Rein & Fielding, Laura A. Foggan, Lon A. Berk, Scott S. Harris, Washington, DC, Sinnott, Dito, Moura & Puebla, and Randolph P. Sinnott, Los Angeles, as Amici Curiae on behalf of Real Party in Interest.

Greines, Martin, Stein, & Richland, and Robin Meadow, Beverly Hills, as Amici Curiae.

MOSK, Justice.

We granted review to resolve certain issues relating to standard commercial general liability insurance policies, which were formerly called comprehensive general liability insurance policies.

The questions we shall address, and the answers we shall give, are these: First, may the insurer seek reimbursement from the insured for defense costs? Yes, as to claims that are not even potentially covered, but no, as to those that are. Second, for what specific costs may the insurer obtain reimbursement? Those that can be allocated solely to claims that are not even potentially covered. Third, when the insurer seeks reimbursement, which party must carry the burden of proof? The insurer. Fourth and final, what is the burden of proof? Proof by a preponderance of the evidence.

I

This cause arises from a petition for writ of mandate, etc., filed in the Court of Appeal for the Second Appellate District, and assigned to Division Three thereof. The petitioners are Jerry H. Buss and California Sports, Incorporated (hereafter collectively Buss); the respondent is the Superior Court of Los Angeles County; and the real party in interest is Transamerica Insurance Company (hereafter Transamerica).

Read in conjunction with all its supporting papers, the petition for writ of mandate contains allegations to the following effect.

H & H Sports, Incorporated, brought an action against Buss and others in the superior court. In the final amended form of its complaint, it alleged, in pertinent part, as follows: Buss owned and operated the Los Angeles Lakers, a professional basketball team, the Los Angeles Lazers, a professional indoor soccer team, and the Los Angeles Kings, a professional hockey team; through one entity, Buss owned and operated the Great Western Forum indoor sports arena in the City of Inglewood; through another entity, Buss leased the facility and presented athletic competitions, including professional basketball, indoor soccer, and hockey, and also entertainment events, and in addition subleased the facility to others who presented similar competitions and events; Buss owned and operated, at least indirectly and in part, certain cable television broadcasting networks, including the Forum Entertainment Network, Box Seat, and Prime Ticket Network; Buss entered into various contracts with H & H Sports, including certain modifications and extensions, under which H & H Sports provided, and Buss obtained, advertising and other services; for a time, Buss and H & H Sports performed under the contracts; subsequently, however, H & H Sports continued but Buss did not, with Buss unilaterally terminating his relationship with H & H Sports. H & H Sports asserted 27 causes of action (up from 12 originally), with most but not all against Buss and Buss-related persons and entities, titled substantially as follows: (1) breach of contract and breach of implied covenant of good faith and fair dealing; (2) breach of contract extension; (3) fraud and deceit; (4) constructive fraud; (5) intentional interference with economic relations; (6) negligent interference with economic relations; (7) conversion; (8) specific performance; (9) quantum meruit; (10) inducing breach of contract; (11) concealment of fact; (12) intentional interference with economic relations; (13) negligent interference with economic relations; (14) breach of contract and breach of implied covenant of good faith and fair dealing; (15) inducing breach of contract; (16) intentional interference with economic relations; (17) negligent interference with economic relations; (18) breach of contract and breach of implied covenant of good faith and fair dealing; (19) breach of contract and breach of implied covenant of good faith and fair dealing; (20) inducing breach of contract; (21) intentional interference with economic relations; (22) negligent interference with economic relations; (23) defamation; (24) accounting; (25) constructive trust; (26) bad faith denial of existence of contract and contract modifications; and (27) bad faith denial of existence of contract. ¹ H & H Sports prayed for relief including an award of $297,050,000 in damages by way of compensation (up from $72,050,000 originally), largely against Buss and Buss-related persons and entities.

Buss tendered defense of the H & H Sports action to his insurers. With the exception of Transamerica, each refused, denying coverage.

Transamerica had issued Buss two comprehensive or commercial general liability insurance policies pertinent to the H & H Sports action.

Transamerica's earlier, comprehensive general liability insurance policy provided in pertinent part: Transamerica "will pay on behalf of" Buss "all sums which" he "shall become legally obligated to pay as damages," up to a limit of $1 million per occurrence and $2 million in the aggregate, either "because of personal injury," meaning "injury arising out of one or more of" certain "offenses," including the "publication or utterance" of a "libel or slander or other defamatory or disparaging material," or "because of ... advertising injury," meaning "injury arising out of an offense ... occurring in the course of ... advertising activities, if such injury arises out of," among other things, "libel, slander, [or] defamation...." (Boldface omitted.) It also provided: Transamerica "shall have the ... duty ² to defend any suit against" Buss "seeking damages on account of such injury...."

Similarly, Transamerica's later, commercial general liability insurance policy provided in pertinent part: Transamerica "will pay those sums that" Buss "becomes legally obligated to pay as damages," up to a limit of $1 million per occurrence and (apparently) in the aggregate, either "because of 'personal injury,' " meaning "injury ... arising out of one or more of" certain "offenses," including the "[o]ral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services," or "because of ... 'advertising injury,' " meaning "injury arising out of one or more of" certain "offenses," including the "[o]ral or written publication of material" of the same description. It also provided: Transamerica "will have the ... duty ³ to defend any 'suit,' " meaning a "civil proceeding," brought against Buss "seeking those damages."

Transamerica accepted the defense of the H & H Sports action as tendered by Buss, ultimately under both its comprehensive and commercial general liability insurance policies. As noted above, out of the 27 causes of action in the final amended form of the complaint, there was a single one for defamation against Buss: It was alleged that Buss made statements to third persons about H & H Sports that were "false and slanderous per se," and were "understood ... to mean that [it] had overcharged its customers and lacked integrity." (Italics added in place of underscoring in original.) It was in light of such allegations that Transamerica agreed to defend Buss, ultimately taking the position that the defamation cause of action, and only the defamation cause of action, was at least potentially covered. But it reserved all its rights, including to deny that any cause of action was actually covered, and, "[w]ith respect to defense costs incurred or to be incurred in the future, ... to be reimbursed and/or [to obtain] an allocation of attorney's fees and expenses in this action if it is determined that there is no coverage...." Because of its reservation of rights and the conflict of interests arising therefrom, Transamerica agreed to pay on Buss's behalf the cost of independent "Cumis" counsel--so called after the eponymous decision of San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 208 Cal.Rptr. 494--in accordance with Civil Code section 2860. Buss acknowledged Transamerica's reservation of rights with a reservation of rights of his own. Later, Buss and Transamerica entered into an agreement supported by consideration that provided, among other things, that "[i]f a court ... orders that defense costs be shared pro rata by ... Buss ... and Transamerica, ... Buss ... shall...