Cps v. Tig Specialty Ins. Co.
| Decision Date | 27 June 2001 |
| Docket Number | No. B142811.,B142811. |
| Citation | 90 Cal.App.4th 149,108 Cal.Rptr.2d 282 |
| Court | California Court of Appeals Court of Appeals |
| Parties | CONSTRUCTION PROTECTIVE SERVICES, INC., Plaintiff and Appellant, v. TIG SPECIALTY INSURANCE COMPANY, Defendant and Respondent. |
Devirian & Shinmoto and Donald B. Devirian, Los Angeles, for Plaintiff and Appellant.
Selman-Breitman, Alan B. Yuter, Los Angeles, and Rachel E. Hobbs, for Defendant and Respondent.
Plaintiff and appellant Construction Protective Services, Inc. (CPS) appeals an order of dismissal in favor of defendant and respondent TIG Specialty Insurance Company (TIG, or the insurer) following the sustaining without leave to amend of a demurrer interposed by TIG to CPS's original complaint.1
The essential issue presented is whether a cause of action is stated against the insurer for a failure to defend.
In the underlying action, CPS sued SHC/Mark Diversified (SHC), the general contractor, for payment for security services it rendered at a construction site.2 In its answer, SHC pled as an offset that CPS's failure to perform the contract had resulted in property damage to the project. CPS tendered the defense of the affirmative defense to TIG, which declined the matter.
CPS then brought this action against TIG. We conclude the instant complaint adequately pleads a breach of TIG's duty to defend a suit for damages against its insured. In the underlying action, CPS and SHC were parties to a suit in that they were (Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857, 878-879, 77 Cal.Rptr.2d 107, 959 P.2d 265.) Further, SHC's affirmative defense of an offset had the potential to negate any recovery by CPS and to lead to a damage award in favor of SHC, the defendant in the underlying action. The mere fact SHC elected to assert its claim against CPS by way of an offset pled in the answer, in accordance with section 431.70, rather than by way of a crosscomplaint, did not absolve TIG of the duty to defend its insured.
SHC was the general contractor on an Oakland high school construction project. SHC hired CPS to provide security services at the job site. On October 19,1996, the property was damaged by fire.
On May 20, 1998, CPS filed suit against SHC, alleging it was owed $26,790 for construction site guard services on the project.
SHC answered, generally denying the allegations and pleading numerous affirmative defenses, including its entitlement to "an offset pursuant to common law and/or Code of Civil Procedure section 431.70 as a result of [CPS's] conduct, including, but not limited to, numerous deficiencies in performance and its failure to perform its contract relating to security services, which resulted in damage to the construction project...."
On February 10, 2000, CPS, TIG's insured, filed suit against TIG for breach of contract and breach of the implied covenant of good faith and fair dealing. CPS alleged:
TIG issued CPS a comprehensive general liability (CGL) insurance policy. "Under the terms of the insurance policy, [TIG] agreed to indemnify [CPS], up to the amount of $1,000,000.00, for claims against [CPS] by third parties based upon bodily injury or property damage, and to defend plaintiff in any civil action or suit seeking such damages.'" (Italics added.)3 On May 20, 1998, CPS filed an action against SHC to recover $26,790 for security services rendered at the school construction site. In answering the complaint, SHC asserted the damages arising out of the school fire to offset the sum due and owing to CPS for services rendered. CPS tendered the defense of said affirmative defense to TIG. TIG refused the tender. Consequently, CPS was required to employ its own counsel to defend against the affirmative defense. On April 29, 1999, CPS "settled the obligation owing to it by [SHC] for the sum of $20,000.00, thereby forgiving the principal sum of $6,790.00, together with interest in the sum of $5,804.00 and attorney's fees and costs in the sum of $13,955.00, for a total of $26,589.00." In addition, CPS's complaint prayed for punitive damages.
TIG demurred, arguing SHC's affirmative defense did not constitute a "suit" as defined in the policy and in case law, and therefore there was no suit triggering a defense duty on TIG's part. TIG further contended in its points and authorities in support of the demurrer that in invoking the defense of an offset, SHC merely sought to mitigate its own damages, but did not seek any "damages" against CPS, as required for coverage. TIG also asserted it had contributed to a global settlement agreement, wherein SHC expressly agreed not to pursue any claims against CPS arising out of the fire loss, and therefore SHC's claim had no potential to result in a judgment holding CPS liable for damages.
CPS argued the demurrer should be overruled because SHC's affirmative defense was a "suit" sufficient to trigger the insurer's duty to defend. Further, merely because SHC had asserted its claim against TIG by way of an affirmative defense rather than by way of a cross-complaint should not enable TIG to avoid its obligation under the policy.
On May 2, 2000, the matter came on for hearing. The trial court sustained the demurrer without leave to amend, ruling that "under California law, an insurer does not have a duty to defend against affirmative defenses raised in response to an insured's complaint against another party."
CPS filed a timely notice of appeal from the order of dismissal.
CPS contends an insurance carrier may have a duty to defend an affirmative defense, and an offset can constitute damages under an insurance policy.
A demurrer serves to test the sufficiency of a pleading by raising questions of law. (Buford v. State of California (1980) 104 Cal.App.3d 811, 818, 164 Cal.Rptr. 264.) When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) The allegations are regarded as true and are liberally construed with a view to attaining substantial justice. (Shaeffer v. State of California (1970) 3 Cal.App.3d 348, 354, 83 Cal.Rptr. 347; King v. Central Bank (1977) 18 Cal.3d 840, 843,135 Cal.Rptr. 771, 558 P.2d 857.)
In addition, other relevant matters which are properly the subject of judicial notice (Evid.Code, § 452), such as CPS's underlying complaint against SHC and SHC's answer thereto, may be treated as having been pled. (Marina Tenants Assn. v. Deauville Marina Development Co. (1986) 181 Cal.App.3d 122, 128, 226 Cal.Rptr. 321.)
Generally, when a demurrer is sustained without leave to amend, we decide whether there is a reasonable possibility the defect can be cured by amendment. If it can, the trial court abused its discretion and we reverse; if not, there was no abuse of discretion and we affirm. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)
(California Federal Bank v. Matreyek (1992) 8 Cal.App.4th 125, 130-131, 10 Cal. Rptr.2d 58.)
The key allegations are: "Under the terms of the insurance policy, [TIG] agreed to indemnify [CPS], up to the amount of $1,000,000.00, for claims against [CPS] by third parties based upon bodily injury or property damage, and to defend plaintiff in any civil action or suit seeking such damages." (Italics added.) In the underlying action by CPS, SHC's answer pled as an affirmative defense an offset for property damage arising out of the fire, implicating TIG's duty to provide CPS with a defense thereto.
Thus, under the policy as alleged, TIG was required to defend CPS in a "suit seeking ... damages." Nonetheless, TIG asserts SHC's affirmative defense seeking an offset was merely a claim, and not a "suit" that could render CPS legally obligated to pay "damages."
As explained, CPS adequately alleged a suit seeking damages so as to give rise to the duty to defend.
In Foster-Gardner, Inc., supra, 18 Cal.4th at page 860, 77 Cal.Rptr.2d 107, 959 P.2d 265, the Supreme Court was called upon to determine whether environmental agency activity prior to the filing of a complaint, such as an order notifying the insured that it is a responsible party for pollution and requiring remediation, is a "suit" triggering the insurer's duty to defend under a CGL policy.
Foster-Gardner held the word "suit" in the policies meant a civil action commenced by the filing of a complaint; anything short of this was a "claim." (Foster-Gardner, Inc., supra, 18 Cal.4th at p. 878, 77 Cal.Rptr.2d 107, 959 P.2d 265.) Because the environmental agency's order was initiated prior to the filing of a complaint and did not initiate a suit within the meaning of the policies, it did not give rise to a duty to defend. (Id. at pp. 878-879, 77 Cal.Rptr.2d 107, 959 P.2d 265.)
In arriving at a definition of "suit," Foster-Gardner considered both a "literal meaning" approach and "functional" and "hybrid" approaches. (Foster-Gardner, Inc., supra, 18 Cal.4th at pp. 869-874, 77 Cal.Rptr.2d 107, 959 P.2d 265.) The court settled on the most restrictive definition, the "literal meaning" approach, so as to...
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