Continental Cas. Co. v. Brady

• Decision Date: 05 December 1995
• Docket Number: Docket No. 21322
• Citation: 907 P.2d 807,127 Idaho 830
• Court: Idaho Supreme Court
• Parties: CONTINENTAL CASUALTY COMPANY, d/b/a The CNA Insurance Companies, Plaintiff-Respondent Cross-Appellant, v. Michael BRADY, Michael Powers, and Brady, Lerma & Thomas Chartered, Defendants-Appellants Cross-Respondents. . Boise, September 1995 Term

Page 807

907 P.2d 807

127 Idaho 830

CONTINENTAL CASUALTY COMPANY, d/b/a The CNA Insurance Companies, Plaintiff-RespondentCross-Appellant, v.Michael BRADY, Michael Powers, and Brady, Lerma & Thomas Chartered, Defendants-AppellantsCross-Respondents.

Docket No. 21322.

Supreme Court of Idaho.

Boise, September 1995 Term.

Dec. 5, 1995.

Cosho, Humphrey, Greener & Welsh, P.A., Boise, for appellants.Robert W. Talboy argued.

Hall, Farley, Oberrecht & Blanton, P.A., Boise, for respondent.Joseph K. West argued.

TROUT, Justice.

This declaratory judgment action was initiated by the respondent/cross-appellant, Continental Casualty Co.(CNA).CNA contends that the insurance policy it issued to the appellant/cross-respondent, Michael Brady et al. (Brady), does not provide coverage for certain third-party claims brought against Brady.For this reason, CNA also contends that it has no duty to defend Brady in the underlying lawsuit.

I.BACKGROUND

On July 1, 1989, Dale and Debbie Duvall hired attorney Golden Bennett to represent them in an action involving the near drowning of their son.Bennett and the Duvalls entered into a fee agreement whereby Bennett agreed to pursue a personal injury claim on behalf of the Duvalls.In return, the Duvalls agreed to pay Bennett thirty-three and one-third percent of any net settlement, recovery, or judgment realized on the personal injury claim.Subsequently, Brady took over the case pursuant to the existing fee agreement and successfully negotiated a $393,000 settlement.However, the settlement was divided in such a manner that only $216,930 of the money received was attributed to the Duvalls' personal injury claim.The remaining $176,070 was attributed to a separate "contingent wrongful death" claim.Accordingly, under the existing fee agreement, Brady was only entitled to thirty-three and one-third percent of $216,930 less costs and expenses.

On December 13, 1991, the day following settlement, Brady persuaded the Duvalls to enter into a second fee agreement.Under the terms of this agreement, the Duvalls agreed to compensate Brady in the amount of $122,500 for obtaining the $176,070 wrongful death settlement.On March 26, 1993, the Duvalls filed suit against Brady alleging that he improperly took too large a fee for his services in representing them.They sought to recover $122,000 in compensatory damages, and an unspecified "amount in excess of $10,000" in punitive damages.

Brady was insured by CNA under a "Lawyer's Professional Liability Policy" which provides coverage for liability arising from the insured's "wrongful acts."However, it contains an exclusion from coverage for any "claim for return of fees," and an exclusion for claims for punitive damages.On March 30, 1993, Brady formally tendered the defense of the Duvall matter to CNA and requested coverage for any damages resulting from the lawsuit.CNA denied coverage on the ground that the Duvalls' lawsuit did not relate to the rendering of professional services, and because the Duvalls sought only a return of fees and punitive damages.For this reason, it also refused to defend Brady in the Duvall lawsuit.On September 27, 1993, CNA filed the present action seeking a declaration that it has no duty to defend Brady, and that the malpractice liability policy issued to Brady provides no coverage for the claims asserted by the Duvalls.

II.PROCEDURAL HISTORY

On November 17, 1993, Brady filed a motion for partial summary judgment requesting the district court to rule as a matter of law that CNA had a duty to defend Brady in the Duvall case.On December 7, 1993, CNA filed a cross-motion for summary judgment requesting a ruling that it had no duty to defend Brady, and that the policy of insurance did not provide coverage for the claims asserted by the Duvalls.On January 27, 1994, Brady filed a motion asking the district court to stay its decision on the issue of coverage pending the resolution of Duvall v. Brady.

The district court concluded that CNA had no duty to defend Brady and that there was no coverage under the policy.Accordingly, it issued an order granting CNA's motion for summary judgment and denying Brady's motion for partial summary judgment and motion to stay.These rulings form the basis for Brady's appeal.

After the district court granted CNA's motion for summary judgment, CNA requested attorney fees pursuant to I.C. §§ 12-121 and -120(3).On June 9, 1994, the district court denied CNA's request.On September 6, 1994, the district court denied CNA's motion for reconsideration of its decision on attorney fees.The trial court's denial of attorney fees under I.C. § 12-120(3) forms the basis for CNA's cross-appeal.

III.STANDARD OF REVIEW

When reviewing a ruling on a motion for summary judgment, this Court's standard of review is the same as that used by the district court in passing on the motion.Curtis v. Firth, 123 Idaho 598, 610, 850 P.2d 749, 761(1993).We liberally construe the facts in favor of the non-moving party and determine whether there is a genuine issue as to any material fact, and whether the moving party is entitled to judgment as a matter of law.I.R.C.P. 56(c);Anderson v. City of Pocatello, 112 Idaho 176, 179, 731 P.2d 171, 174(1987).

IV.WHETHER THE DISTRICT COURT ERRED IN CONCLUDING THAT THE DUVALL COMPLAINT GAVE RISE TO NO POTENTIAL FOR A COVERED CLAIM

A.Duty To Defend

"The duty to defend arises upon the filing of a complaint whose allegations, in whole or in part, read broadly, reveal a potential for liability that would be covered by the insured's policy."County of Kootenai v. Western Cas. & Sur. Co., 113 Idaho 908, 910, 750 P.2d 87, 89(1988)(quotingState of Idaho v. Bunker Hill Co., 647 F.Supp. 1064, 1068(D.Idaho1986))(emphasis in original).An insurer seeking to establish that it has no duty to defend faces a difficult burden since, at this stage, any doubts as to coverage must be resolved in favor of the insured.Id. at 910-11, 750 P.2d at 89-90.In this case, however, the district court concluded that because the Duvall complaint gave rise to no potential for liability under the CNA policy, CNA did not owe Brady a defense.

On appeal, Brady contends that the district court took too restrictive a view of the allegations in the Duvall complaint, and that the complaint goes beyond a mere fee dispute.He supports this contention by pointing to the fact that the Duvalls allege a violation of the Idaho Consumer Protection Act and breach of fiduciary duty, in addition to claims relating directly to the enforceability or actual terms of the fee agreement.Brady also seems to assert that under his reading of the original fee agreement, the Duvalls are only entitled to a portion of the $122,000 claimed in damages as a return of fees.Therefore, according to Brady, the excess must represent damages beyond a return of fees.

The CNA insurance agreement provides that CNA will not defend or pay for "any fine, penalty, or claim for return of fees."¹The focus of this exclusion is clearly on the relief requested.If the party is requesting a "return of fees," it is immaterial what the actual theory of recovery is since the policy flatly excludes "all claims " for the return of fees.SeeHofing v. CNA Ins. Cos., 247 N.J.Super. 82, 588 A.2d 864(N.J.Super.Ct.App.Div.1991)(in interpreting the same exclusion the court concluded that even allegations of professional negligence would be excluded if they were aimed at the recovery of fees).Furthermore, whether the Duvalls are actually entitled to recover $122,000 or a lesser sum is not the issue.The issue is simply whether this amount represents fees paid to Brady.

The Duvall complaint contains five counts: (1) a claim that the fee agreement is unenforceable due to lack of consideration and overreaching; (2) a claim for breach of fiduciary duty; (3) a claim for unjust enrichment; (4) a claim for violation of the Idaho Consumer Protection Act; and (5) a claim for punitive damages.Each count, with the exception of the claim for punitive damages, contains an express reference to the cost and fee agreement entered into between Brady and the Duvalls.For example, as Brady points out, the Duvalls allege that he breached a fiduciary duty.However, the complaint expressly states that as a result of this alleged breach, Brady "must disgorge the attorney fees paid thereunder."

Moreover, all of the factual allegations in the complaint center on a dispute over attorney fees, and the $122,000 sum requested as damages is tied directly to that fee dispute.Brady represented the Duvalls in two claims: a personal injury claim and a "contingent wrongful death" claim.The entire matter settled for $393,000.Thereafter, Brady persuaded the Duvalls to enter into a new fee agreement concerning the wrongful death claim.As stated in the complaint, this new agreement obligated them to pay "an additional $122,500 for the ... settlement of the ... contingent wrongful death claim."In requesting $122,000 in damages, the Duvalls claim Brady was only entitled to $500 in fees with regard to the wrongful death claim.The request of nearly the full amount paid in fees with regard to this claim is supported by the allegation that the fee agreement governing that claim was unenforceable.

In short, with the exception of the claim for punitive damages, the Duvalls' complaint simply does not support a claim for any damages unrelated to a return of fees.For this reason, the allegations in the complaint, even if true, do not raise a potential for a covered claim.Therefore, CNA did not have a duty to defend Brady in Duvall v. Brady and the district court's order granting summary judgment to CNA on this issue is affirmed.

B.Coverage

Since the Duvall complaint does not raise even a potential for a covered claim, the district court's order granting summary judgment to CNA on the issue of coverage is likewise affirmed.

V.WHETHER THE DISTRICT COURT ERRED IN...