Delgado v. Interinsurance Exchange

• Decision Date: 24 May 2007
• Docket Number: No. B191272.,B191272.
• Citation: 59 Cal.Rptr.3d 799,151 Cal.App.4th 227
• Court: California Court of Appeals Court of Appeals
• Parties: Jonathan DELGADO, Plaintiff and Appellant, v. INTERINSURANCE EXCHANGE OF the AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA, Defendant and Respondent.

59 Cal.Rptr.3d 799

151 Cal.App.4th 227

Jonathan DELGADO, Plaintiff and Appellant, v. INTERINSURANCE EXCHANGE OF the AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA, Defendant and Respondent.

No. B191272.

Court of Appeal, Second District, Division 3.

May 24, 2007.

Ford, Walker, Haggerty & Behar and K. Michele Williams, Long Beach, for Defendant and Respondent.

Glaser & Damone and Robert P. Damone, Long Beach, for Plaintiff and Appellant.

ALDRICH, J.

INTRODUCTION

The appellant, Jonathan Delgado, appeals from the dismissal of his first amended complaint against the respondent Inter-insurance Exchange of the Automobile Club of Southern California (ACSC). Delgado had sued Craig Reid, ACSC's insured, for personal injuries (the underlying action). When the action was tendered to ACSC, it denied coverage and refused a defense. After settling his claim against Reid, in exchange for a stipulated judgment and an assignment of all of Reid's rights against ACSC, Delgado filed this action for declaratory relief, breach of the implied covenant of good faith and fair dealing, and for recovery on the stipulated judgment pursuant to Insurance Code section 11580, subdivision (b)(2).

In spite of the pleadings in the underlying action, which were sufficient to demonstrate a potential for coverage under the ACSC homeowner's policy issued to Reid, the trial court determined, on ACSC's demurrer, that there was no coverage under the policy and that the stipulated judgment agreed to by Delgado and Reid was "contrived." We conclude that this was error. As the underlying complaint contained allegations demonstrating a potential for coverage under the ACSC policy ACSC's refusal to provide its insured with a defense was without justification and constituted bad faith as a matter of law. The remaining issues raised as to actual coverage under the policy, the enforceability in whole or in part of the stipulated judgment, and the amount of Delgado's resulting damages, if any, raised issues of fact not resolvable on demurrer. We will therefore reverse and remand with directions.

FACTUAL AND PROCEDURAL BACKGROUND¹

On November 7, 2003, Reid kicked Delgado and struck him in the nose while the two were standing on the sidewalk across the street from Reid's residence. Delgado sustained physical injury as a result. On March 8, 2004, through his guardian ad litem, Delgado filed the underlying action against Reid. He alleged two causes of action. In the first, he alleged that Reid had "in an unprovoked fashion and without any justification physically struck, battered and kicked ... Delgado repeatedly causing serious and permanent injuries." In the second, Delgado alleged that Reid had "negligently and unreasonably believed and [sic] that [Reid] was engaging in self defense and unreasonably acted in self defense when [Reid] negligently and unreasonably physically and violently struck and kicked ... Delgado repeatedly causing serious and permanent injuries." (Italics added.)²

Reid had a homeowner's policy providing $100,000 liability coverage with ACSC and tendered Delgado's complaint to it for a defense. On or about April 22, 2004, without apparently conducting a factual investigation into the claim asserted against Reid, ACSC denied coverage and refused to provide a defense. ACSC did so on two grounds: (1) there was no "occurrence," as that term is defined in the policy, since an intentional unprovoked attack could not be considered an accident; and (2) the conduct of Reid (its insured), as alleged in the complaint, arose out of his intentional acts and thus triggered the policy's intentional acts exclusion or the statutory "wilful acts" exclusion that is incorporated into every policy of liability insurance. (Ins.Code, 533; see fn. 6, post.)

Thereafter, Reid and Delgado reached a settlement of the underlying action. The parties stipulated on the record that Reid's use of force constituted a negligent use of excessive force in the exercise of his right of self-defense. The stipulation was accepted by the court in the underlying action.³ As part of the settlement, Delgado dismissed the intentional tort cause of action. Judgment in the amount of $150,000 on the negligence claim was then entered in the underlying action. Reid agreed to pay Delgado $25,000 and assigned to him all of his (i.e., Reid's) claims against ACSC arising out of ACSC's refusal to provide a defense under the policy. In return, Delgado gave Reid a partial satisfaction of judgment and a covenant not to execute on the remainder of the $150,000 judgment.

Delgado then filed this action against ACSC asserting four causes of action for declaratory relief, for damages for bad faith, and for recovery on his stipulated judgment under the provisions of Insurance Code section 11580, subdivision (b)(2).⁴ Delgado sought a declaration that ACSC owed a duty to defend Reid in the underlying action and to indemnify him for the resulting judgment.

ACSC demurred to the complaint. At the hearing, the trial court asked what facts Delgado had pled in the underlying action that showed the ultimate fact that Reid believed he was acting in self defense. Delgado's counsel responded that such facts need not have been pled because the critical facts alleged were that Reid's conduct was not intentional where he mistakenly believed he had the right to defend himself. The trial court sustained the demurrer with leave to amend to allow Delgado to plead, among other things, facts to establish coverage under the policy.

In his first amended complaint, Delgado alleged six causes of action. Delgado sought a declaration that ACSC owed Reid a duty to defend (first cause of action) and a duty to indemnify (second cause of action), as well as recovery of the amount of the stipulated judgment under Insurance Code section 11580, subdivision (b)(2) (third cause of action). He also sought recovery for damages for ACSC's bad faith for failure to defend (fourth cause of action), failure to indemnify (fifth cause of action), and failure to make medical payments (sixth cause of action).

In response to the trial court's directions, Delgado amended his complaint to quote from Reid's policy and to allege that "at the time of the incident, Craig Reid was acting without intent to injure or break plaintiffs nose, but with intent to defend himself and his family, including his wife and children from what he perceived was an imminent threat of harm and with fear that plaintiff may wrongfully enter and evict him from his insured property. [Delgado] further alleges that Mr. Reid's reaction to what he perceived was an imminent threat of harm was an over-reaction, was not willful or malicious and was an accident that caused injuries and damages to plaintiff within the meaning of Mr. Reid's insurance policy."

The amended complaint also alleged the stipulated facts, dismissal of the intentional tort cause of action, and the entry of judgment on the negligence cause of action in the underlying lawsuit. Attached to and incorporated with the amended complaint were Reid's insurance policy, Delgado's complaint in the underlying action, and ACSC's letter to Reid denying both a defense and coverage.

ACSC demurred to the amended complaint. It argued that Delgado's amended complaint failed to state facts which established that the subject matter of the underlying action was covered by the policy because, as alleged, Reid's conduct did not fall within the policy's definition of "occurrence." Focusing on the underlying complaint's intentional tort cause of action, ACSC reasoned that "[a]n unprovoked physical attack, as that alleged, can never be considered `accidental'" Hence, ACSC argued, all of the causes of action failed.

The trial court sustained the demurrer without leave to amend. It found that "[manipulation of the settlement and stipulated judgment in an attempt to expose [ACSC] to liability is contrived." (Italics added.) Citing Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 297-298, 24 Cal.Rptr.2d 467, 861 P.2d 1153, the court reasoned that "[m]erely framing the incident in terms of negligence is not conclusive of the duty to defend." The trial court found that "[characterizing assault and battery as an `accident' is disingenuous at best." The court observed that Delgado had pled no facts in the underlying action "to support the conclusion that Reid believed he was engaging in self defense. There are no facts pled as to what Delgado may have done to be perceived as an imminent threat. Plaintiff still has not made allegations to support any finding that Reid acted in self defense or that his conduct was in any other manner justified." The action was dismissed and Delgado filed this timely appeal.

CONTENTIONS

Delgado contends that his amended complaint alleged sufficient facts to demonstrate that his claim against Reid, as set out in his complaint in the underlying action, presented the possibility of coverage under the policy and that this was sufficient, without more, to give rise to ACSC's duty to defend. Whether ACSC has any duty to indemnify under the policy will depend on whether there is actual coverage and that issue cannot be resolved on demurrer.

DISCUSSION

1. Standard of Review

"In reviewing a demurrer that is sustained without leave to amend, an appellate court assumes the truth of (1) all facts properly pleaded by the plaintiff, (2) all facts contained in exhibits to the complaint, (3) all facts that are properly the subject of judicial notice, and (4) all facts that reasonably may be inferred from the foregoing facts. [Citations.]" (Neilson v. City of California City, supra, 133 Cal. App.4th at p. 1305, 35 Cal.Rptr.3d 453, citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

For the purpose of determining the effect of the complaint, its allegations are liberally construed with a view toward substantial justice. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19...