Buss v. Superior Court, B093806

• Decision Date: 29 February 1996
• Docket Number: No. B093806,B093806
• Citation: 42 Cal.App.4th 1663,50 Cal.Rptr.2d 447
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 42 Cal.App.4th 1663, 47 Cal.App.4th 679 42 Cal.App.4th 1663, 47 Cal.App.4th 679, 96 Cal. Daily Op. Serv. 1426, 96 Daily Journal D.A.R. 2372 Jerry H. BUSS et al., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent; TRANSAMERICA INSURANCE COMPANY, Real Party in Interest.

Page 447

50 Cal.Rptr.2d 447

Previously published at 42 Cal.App.4th 1663, 47 Cal.App.4th 679

42 Cal.App.4th 1663, 47 Cal.App.4th 679,

96 Cal. Daily Op. Serv. 1426,

96 Daily Journal D.A.R. 2372

Jerry H. BUSS et al., Petitioner, v. The SUPERIOR COURT of Los Angeles County, Respondent;

TRANSAMERICA INSURANCE COMPANY, Real Party in Interest.

No. B093806.

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

Feb. 29, 1996.

As Modified on Denial of Rehearing March 26, 1996.

Review Granted May 22, 1996.

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

No Appearance by Respondent.

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

CROSKEY, Associate Justice.

This case presents the question of whether, and under what circumstances, a liability insurer, which has provided a defense to its insured under a reservation of rights, may recover from that insured the attorney's fees and costs expended to defend the insured from claims for which there was no coverage under the policy. In answering this question, we necessarily recognize that a distinction must be made between two different types of noncovered claims: (1) those claims for which a potential for coverage existed but were ultimately determined not to be covered and (2) those claims for which there was never any potential for coverage under the terms of the policy but were nonetheless required to be defended because they were joined with other claims for which a potential for coverage did exist. We hold that in the former case an insurer may not recover its defense costs (incurred prior to the determination of noncoverage) absent an express policy term so providing or an agreement with the insured supported by a new consideration; however, in the latter situation, the insurer may recover such costs as it can prove, by a preponderance of the evidence, are fairly and reasonably allocable solely to the noncovered claims.

Because in this case the insurer seeks only to recover fees and costs expended in the defense of admittedly noncovered claims (which had been joined with a potentially covered claim) and has demonstrated that issues of material fact exist as to the fair and reasonable allocation of such defense costs, the trial court properly denied the insured's motion for summary judgment. We therefore deny the insured's petition for a writ of mandate.

FACTUAL AND PROCEDURAL BACKGROUND ¹

On March 10, 1989, the petitioners Jerry H. Buss and California Sports Incorporated (collectively, "Buss") were sued by H & H Sports, Incorporated ("H & H Sports"), a corporation which had, since approximately December 1981, acted as Buss's exclusive agent in obtaining advertising for the Forum Sporting Arena and the Prime Ticket Network. Buss, the master tenant of the Forum, owned a professional basketball team (Los Angeles Lakers) and a professional hockey team (Los Angeles Kings) both of which used the Forum as their home arena. In addition, Buss promoted other sporting and entertainment events at that facility.

H & H Sports and Buss entered into certain contractual agreements regarding the performance and duration of such exclusive relationship. The agreements relevant to this case were entered into in 1984 and 1986. However, in the summer and fall of 1988, Buss acted to terminate H & H Sports' exclusive advertising rights. This action on the part of Buss led to the filing of the underlying lawsuit on March 10, 1989.

In that action, H & H Sports asserted 14 claims. ² In its final amended form (Third Amended Complaint filed on or about August 10, 1990), the H & H Sports' complaint consisted of 27 counts which were based on the following principal allegations: (1) breach of a 1984 written contract between Buss and H & H Sports providing for a complex mechanism for commission payments; (2) breach of a 1986 contract extension, again relating to the payment of commissions; (3) Buss's failure to honor his promises to provide H & H Sports with an ownership interest in the fledgling Prime Ticket Network; (4) Buss's conversion of $200,000 of H & H Sports' money, and his failure to pay interest on a $200,000 loan from H & H Sports; (5) conspiracy to defraud H & H Sports of commissions on the change of name from the "Forum" to the "Great Western Forum"; and, finally, (6) termination of the contract between In addition, H & H Sports included a claim for defamation. In count 23 it was generally alleged that Buss, as set forth in paragraphs 29, 38 and 40 of the third amended complaint, ³ made statements about H & H Sports which were false and slanderous per se in that they tended directly to injure H & H Sports in respect to its business by imputing to it something with reference to its business which had a natural tendency to lessen its profits. H & H Sports also alleged that each of the persons to whom such defamatory statements were communicated understood such statements to mean that H & H Sports had overcharged its customers and lacked integrity.

H & H Sports and Buss. H & H Sports sought $70,000,000 in damages.

Buss tendered defense of this action to its liability insurers. Except for the real party in interest here, Transamerica Insurance Company ("Transamerica"), each of Buss's insurers denied coverage and refused a defense. Transamerica had issued two separate policies to Buss which covered the periods 1988-1989 and 1989-1990, respectively. The 1988-1989 policy provided coverage of $1 million per occurrence ($2 million aggregate), and the 1989-1990 policy provided coverage of $1 million per occurrence and in the aggregate. Each of the Transamerica policies also provided coverage for "personal injury" and "advertising injury" liability. Specifically, the policies covered advertising injuries arising out of "libel, slander, defamation, violation of right of privacy...." Under the personal injury clause, the policies covered "[w]rongful entry or eviction" and any publication or utterance of "a libel or slander or other defamatory or disparaging material...."

Because a defamation count had been alleged by H & H Sports, Transamerica conceded that a potential for coverage existed as to that one claim. ⁴ Transamerica therefore agreed to provide a defense to the entire action, subject to a reservation of its right to dispute coverage for the defamation claim on a number of grounds. Included in its reservation was the statement, "With respect to defense costs incurred or to be incurred in the future, Transamerica [ ] reserves [its] full rights to be reimbursed and/or an allocation of attorney's fees and expenses in this action if it is determined that there is no coverage under this policy." Because it asserted a reservation with respect to coverage as to the defamation claim, Transamerica agreed that Buss was entitled to representation by independent (Cumis ) counsel, the fees for whom Transamerica would pay as provided in Civil Code section 2860. Transamerica has produced evidence that, during the conduct On or about May 28, 1991, Buss and Transamerica entered into a specific agreement regarding Transamerica's claimed right to seek reimbursement of defense costs. As drafted on the letterhead of Buss's counsel, that agreement provided, "... [i]f a court, arbitrator or other legally binding tribunal orders that defense costs be shared pro rata by the Buss entities and Transamerica, the Buss entities shall reimburse Transamerica for the appropriate pro rata share of the fees and costs paid to that date." ⁶

of the litigation, Transamerica repeatedly requested that Buss's counsel keep accurate time records and include substantial detail in itemizing the work performed. Transamerica's counsel testified (in a deposition) in this matter that he specifically requested that Buss's counsel keep a careful record of the time allocable to the defamation claim. ⁵

After a substantial amount of discovery had been completed, Buss negotiated a settlement of the H & H Sports lawsuit for $8.5 million. Buss demanded that Transamerica contribute to this settlement but Transamerica refused to do so, claiming that there was no substantial evidence that Buss had in fact slandered or libeled H & H Sports in any way. Buss, therefore, funded the entire settlement on December 3, 1991. ⁷ Buss then filed this action against Transamerica and its other insurers for breach of contract and bad faith, alleging that they were liable to pay some portion of the settlement as to the 'covered' claim of defamation and had unreasonably refused to do so. Transamerica filed a cross-complaint for reimbursement of defense costs expended with respect to the noncovered claims.

On February 27, 1995, the trial court granted summary judgment in Transamerica's favor on Buss's complaint. The trial court ruled that the evidence presented on the claim(s) as to which a potential for coverage existed was not sufficient to provide a reasonable basis for Transamerica to participate in the settlement. In its Statement of Decision, the court concluded that Buss had been faced "with multiple claims that went far beyond the 'covered claims' in the policy ... [and] the known circumstances provided no reasonable basis for Transamerica to contribute to the settlement of an otherwise bad faith breach-of-contract case."

Buss then moved for summary judgment on Transamerica's cross-complaint. In opposing that motion, Transamerica produced evidence that it had an expert examine (1) the billing records of Buss's counsel and (2) the pleadings, discovery and deposition transcripts in the H & H Sports action. The expert submitted a declaration in which he expressed the opinion that of the total $1,066,000 in attorney's fees and costs which Transamerica had expended in defense of the entire H & H Sports action, only $21,000 to $55,000--depending on the method of allocation--was chargeable to the defense of the...