California State Auto. Assn. Inter-Ins. Bureau v. Bales

• Decision Date: 14 June 1990
• Docket Number: INTER-INSURANCE,No. A044424,A044424
• Court: California Court of Appeals Court of Appeals
• Parties: CALIFORNIA STATE AUTOMOBILE ASSOCIATIONBUREAU, Cross-complainant and Appellant, v. Bruce B. BALES, Cross-defendant and Respondent.

Page 421

270 Cal.Rptr. 421

221 Cal.App.3d 227

CALIFORNIA STATE AUTOMOBILE ASSOCIATION INTER-INSURANCE BUREAU, Cross-complainant and Appellant, v. Bruce B. BALES, Cross-defendant and Respondent.

No. A044424.

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

June 14, 1990.

Michael T. Stone, Joann M. Cook, Weinberg, Campbell & Stone, Sausalito, for cross-complainant and appellant.

Michael P. Bradley, Ryan T. Russell, Murphy, Pearson, Bradley & Feeney, San Francisco, for cross-defendant and respondent.

BARRY-DEAL, Acting Presiding Justice.

In this appeal we decide whether an insurer, sued by a third party claimant for violation of Insurance Code section 790.03, may obtain comparative equitable indemnity from the claimant's former attorney on the theory that the attorney's negligence at least partially caused the claimant's damage. We hold that public policy in favor of preserving the undivided loyalty of lawyer to client dictates that the insurer may not obtain indemnity in this situation. We affirm.

Facts and Procedural History

This is an appeal from judgment after the demurrer of respondent Bruce Bales (Bales) to the cross-complaint of appellant California State Automobile Association Inter-Insurance Bureau (CSAA) was sustained without leave to amend. Our review of the facts is limited. " 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the [cross-]complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]" (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) Accordingly, we summarize the facts as they appear in the cross-complaint, and assume for the purpose of this appeal that they are true, even though it may be difficult or impossible to prove them at trial.

In March 1983, Dorothy Cooper (Cooper) was injured in a car accident. The other car was driven by CSAA's insured. Cooper engaged Attorney Bales to represent her in her action against the insured. However, Bales did not energetically pursue Cooper's claim. He refused to negotiate a settlement with CSAA and did not inform CSAA that Cooper was especially susceptible to emotional distress. In addition, Bales did not seek preferential trial setting for Cooper, even though she was 70 years old and was entitled to an early trial date. (Code Civ.Proc., § 36, subd. (a).) Cooper's action against CSAA's insured was finally settled in May 1987. In December 1987, represented by new attorneys, Cooper filed the present bad faith and unfair practice suit against CSAA. ¹ The suit alleged that CSAA had breached its statutory and common-law duties to Cooper by failing to settle the action promptly even though the liability of its insured was clear. (See Ins.Code, § 790.03, subd. (h).) CSAA cross-complained against Bales for implied equitable indemnity, alleging that Bales was partially if not completely responsible for the delays that led to the damages alleged by Cooper, and that Bales should pay his comparative share of those damages. Bales demurred, the demurrer was sustained without leave to amend, and this appeal followed. We affirm.

Discussion

Ordinarily, where an indivisible injury is caused by two or more tortfeasors, the tortfeasors may claim against each other for implied equitable indemnity. (See American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 598, 146 Cal.Rptr. 182, 578 P.2d 899; and see 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 89 et seq., pp. 162-173.) This is the basis of CSAA's claim. CSAA argues that because Bales contributed in some part to the delay in settlement that is the basis of Cooper's action against CSAA, CSAA is entitled to comparative indemnity from Bales.

CSAA's claim might have merit in an another context. However, the ordinary rules of implied equitable indemnity in tort do not apply when the claim for indemnity is made against an attorney, is based on a breach of the attorney's duty to his or her client, and is brought by an adverse party in litigation which is the same as or related to that in which the alleged negligence took place. (See, e.g., Holland v. Thacher (1988) 199 Cal.App.3d 924, 929-935, 245 Cal.Rptr. 247 [discussing public policy considerations]; Rowell v. TransPacific Life Ins. Co. (1979) 94 Cal.App.3d 818, 821-822, 156 Cal.Rptr. 679; Held v. Arant (1977) 67 Cal.App.3d 748, 752, 134 Cal.Rptr. 422; and see 5 Witkin, Summary of Cal.Law, Torts, supra, at § 93, pp. 166-167.) Perceiving that attorneys would be reluctant to accept cases that might result in indemnity claims, and, more significantly, that if faced with a potential indemnity claim, the attorney's sense of self-preservation might impinge on his or her duty of undivided loyalty to the client, these cases have established an exception to the ordinary rule of equitable indemnity. (See Holland, supra, 199 Cal.App.3d at pp. 930, 933-934, 245 Cal.Rptr. 247.) CSAA acknowledges the existence of the exception, but argues that virtually all of these cases have involved distinguishable factual circumstances. However, we find that the same considerations which applied in those cases dictate the application of the exception here.

Where the attorney represents either a first or third party claimant on an insurance policy, the interest of the client is necessarily adverse to that of the insurer, even though there may not be any underlying action against the insurer. In such situations, there is a possibility that conduct of the insurer may subject it to liability for bad faith. ² That possibility in turn creates a potential conflict between the attorney's duty to pursue the client's claim vigorously, and the understandable desire to avoid conduct which might later be the basis for the attorney's personal liability in indemnity to the insurer. An attorney who believed that the insurer had engaged or was about to engage in bad faith claims practices might well choose to avoid such liability by acting to shield the insurer, even though his or her client would be ill-served by such action. For example, in the case at bench, CSAA seeks to hold Bales liable for his failure to warn CSAA that his client was particularly susceptible to emotional distress. However, had Bales relayed that information to CSAA, he might well be found to have breached his duties as zealous advocate and as protector of his client's confidences. In effect, were we to adopt CSAA's position, an attorney would be required to act as advocate not only for his or her client, but also for an adverse party. (Cf. Mason v. Levy & Van Bourg (1978) 77 Cal.App.3d 60, 67, 143 Cal.Rptr. 389 [forcing attorney to take interest of others into account inconsistent with duty to exercise independent professional judgment on behalf of client].) This is the evil which the general rule against such actions is designed to prevent. (See, e.g., Held v. Arant, supra, 67 Cal.App.3d at p. 752, 134 Cal.Rptr. 422 ["Where, however, an attorney is retained to represent the interests of his [or her] client against persons who are actual or potential adversaries, the possibility that one of those adversaries may seek indemnity from the attorney if he [or she] is held liable to the client can impinge upon the undivided loyalty owed by counsel."].) We therefore agree with the trial court that CSAA may not maintain this action for indemnity against Bales.

Our conclusion does not deprive CSAA of a defense based on Bales's conduct. CSAA may assert Bales's negligence as an affirmative defense to liability and has in fact done so in the main action. (See, e.g., Holland v. Thacher, supra, 199 Cal.App.3d at pp. 929-930, 245 Cal.Rptr. 247 [rules of agency allow application of comparative fault rules to plaintiff].) CSAA nonetheless asserts that if Cooper establishes that Bales acted outside the scope of his authority as an attorney, it may be deprived of that defense because "there is a question" whether Bales's acts will be imputed to Cooper. We do not reach the issue. CSAA cites no authority which would compel that result and does not establish from the record that Cooper has attempted to avoid such an imputation. We do not sit to give advisory opinions on matters which may or may not prove controversial, especially when the party most interested in the issue has not spoken. (See, e.g., Young v. Three for One Oil Royalties (1934) 1 Cal.2d 639, 647-648, 36 P.2d 1065 ["[A]ny decision...