Emerald Bay Community v. Golden Eagle Ins.

• Decision Date: 29 June 2005
• Docket Number: No. G032597.,G032597.
• Citation: 130 Cal.App.4th 1078,31 Cal.Rptr.3d 43
• Court: California Court of Appeals Court of Appeals
• Parties: EMERALD BAY COMMUNITY ASSOCIATION, Plaintiff and Appellant, v. GOLDEN EAGLE INSURANCE CORPORATION, Defendant and Respondent.

31 Cal.Rptr.3d 43

130 Cal.App.4th 1078

EMERALD BAY COMMUNITY ASSOCIATION, Plaintiff and Appellant, v. GOLDEN EAGLE INSURANCE CORPORATION, Defendant and Respondent.

No. G032597.

Court of Appeal, Fourth District, Division 3.

June 29, 2005.

Prenovost Normandin Bergh & Dawe, Michael G. Dawe, Santa Ana; Snell & Wilmer, Richard A. Derevan, Marc L. Turman and Michael S. McIntosh, Irvine, for Plaintiff and Appellant.

Richard H. Benes; Ault Davis & Schnofeld, Richard P. Edwards; Koeller Nebeker Carlson & Haluck and Sharon A. Huerta, San Diego, for Defendant and Respondent.

OPINION

RYLAARSDAM, J.

Plaintiff Emerald Bay Community Association sued defendant Golden Eagle Insurance Corporation for allegedly failing to promptly investigate and respond to a request that it provide a defense in a pending lawsuit and by eventually denying coverage existed for the claim. Before trial, one department of the superior court denied defendant's motion for summary judgment or summary adjudication of issues, which, in part, argued no liability existed because a second insurer had defended and indemnified plaintiff in the underlying lawsuit. At trial held in another department, the court bifurcated certain legal issues and tried them without a jury. (Code Civ. Proc., § 592.) It found plaintiff had no supportable damages for breach of contract or breach of the covenant of good faith and fair dealing. In addition, although the court suggested plaintiff amend the complaint to allege an assignment of the second insurer's claims against defendant, plaintiff declined to do so. Only long after the trial court ruled for defendant did plaintiff seek leave to amend its complaint to allege the assignment. The court denied that motion.

Plaintiff appeals the judgment, contending: (1) The second judge's ruling constituted an invalid reconsideration of the first judge's denial of the motion for summary judgment/adjudication; (2) it incurred cognizable damages permitting the matter to proceed to a jury trial; and (3) the trial court erred by denying the motion to amend the complaint. We affirm the judgment. Notwithstanding the pretrial motion ruling, the trial judge had jurisdiction to determine whether plaintiff had incurred cognizable damages and, based on the record before us, he correctly determined plaintiff failed to plead or prove it suffered any compensable loss. On the third issue, the court did not abuse its discretion in denying plaintiff's posttrial motion to amend the complaint.

FACTS

Plaintiff is the homeowners association for a common interest residential development. Diana and George Lopez, the owners of a residence in plaintiff's development, sued plaintiff and the members of its board of directors over a dispute concerning the Lopezes' efforts to construct improvements to their residence. The Lopez complaint sought injunctive relief and damages for the lost use of and damage to their property, and contained a cause of action for discrimination in violation of the Unruh Civil Rights Act (Civ.Code, § 51), alleging members of plaintiff's board had made disparaging comments about the Lopezes.

Plaintiff carried a $2 million commercial general liability insurance policy issued by defendant. It also had a $1 million self-liquidating directors and officers liability policy and a $10 million excess/umbrella policy, both issued by Federal Insurance Company (Federal). Plaintiff tendered defense of the Lopez action to each insurer. The tender made to defendant appeared in a letter dated June 3, 1998.

Federal agreed to provide a defense under its directors and officers policy with a reservation of rights. At trial, the parties stipulated "Federal['s] ... policies provided" both a "defense" and "some coverage for the Lopez lawsuit."

Thereafter, both plaintiff's counsel as well as Federal's representatives sent several requests to defendant concerning the tender and seeking a determination of coverage under its policy. In March 1999, defendant sent a check for $45,508 to a law firm that had represented plaintiff. Three months later, defendant sent written notice accepting the "tender of this lawsuit subject to a strict reservation of rights." The letter noted, "As this case develops, facts may arise showing that one or more exclusions previously listed or defenses to coverage may apply.... Furthermore, [defendant] expressly reserves and does not waive any right to raise other coverage defenses at any subsequent time, as circumstances may warrant...." (Capitalization omitted.)

In September 2000, defendant sent plaintiff a letter stating that after "receiv[ing] [the Lopezes'] second amended complaint" and having "reviewed [it] in light of the coverages afforded under your polic[y]," it had "concluded ... your polic[y] provide[s] no coverage for the claims set forth in the complaint." Defendant informed plaintiff that it would "be unable to provide [plaintiff] with a defense or indemnification in this matter." Nonetheless, the parties stipulated that defendant thereafter paid nearly $200,000 for attorney fees and defense costs on plaintiff's behalf.

Plaintiff filed this action against defendant in February 2001, stating causes of action for breach of contract, breach of the covenant of good faith and fair dealing, declaratory relief, and unfair business practices. Plaintiff alleged defendant breached the insurance policy by "failing to promptly respond to the tender of defense" or "thoroughly investigate the [Lopez] claim," "making false representations" to plaintiff, and "promising to provide coverage for defense and indemnity and then failing and refusing to do so." The complaint alleged plaintiff had sustained approximately "$600,000.00 in the form of defense costs and fees ... paid by Federal," which "have ... directly reduced the indemnity limits of the Federal policy...." Finally, plaintiff alleged that, since defendant "failed to honor its duty to defend, or ... participate ... in attempting to protect its Insureds," plaintiff had "retained insurance coverage counsel in order to attempt to the obtain benefits to which it was entitled under its Policies."

In November 2001, plaintiff settled the Lopez action for $2 million. Federal funded the settlement. The parties stipulated that the amounts paid by Federal for defense and settlement of the Lopez action exceeded $3.3 million. They also stipulated that, of the $11 million in policy limits provided by Federal, "over $6,000,000 remained in unexhausted limits."

In early 2002, plaintiff and Federal executed a 16-page agreement. It provided: "Federal . . . agreed to conditionally advance and pay, . . . subject to the terms of this Agreement, the Defense Costs incurred . . ., as well as $2 million in settlement of the [Lopez] Action"; plaintiff "in consideration of Federal's agreement to advance the . . . Settlement [and] its payment of defense costs in the [Lopez] Action and . . . [the present suit], . . . hereby commits to repay said sums" and agreed to "pursue [defendant] for damages and, or, [sic] coverage under [defendant's] policy. . . ." Satisfaction of plaintiff's repayment obligation would occur by: "1. Full repayment to Federal . . .; or, [¶] 2. Payment by [plaintiff] to Federal of any compromised amount accepted by Federal; or, [¶] 3. Payment of any amount . . . to Federal which is deemed to constitute satisfaction . . .; or, [¶] 4. The final . . . ruling . . . against [plaintiff] in the legal proceedings against [defendant]." But plaintiff would "only be liable" to repay Federal "from funds actually paid to [plaintiff] by [defendant]. . . ."

In addition, the agreement contained a provision whereby Federal "conditionally assign[ed]" to plaintiff its rights against defendant, "subject to [plaintiff's] compliance with the obligations set forth in this agreement and . . . upon [plaintiff] having the right and standing to assert these claims against [defendant]. . . . [I]n the event . . . it is ever determined that [plaintiff] is without legal standing to assert the conditionally assigned rights, such rights shall immediately revert to Federal."

Before trial, defendant moved for summary judgment. Noting the only damages alleged in the complaint were the fees and costs paid by Federal, defendant argued "[a]s a matter of law, an insured is not damaged when its insurer pays a claim." Judge Jonathon H. Cannon heard the motion and denied it, finding genuine issues of material fact existed.

The case was transferred to Judge David R. Chaffee for trial. He granted defendant's request under Code of Civil Procedure section 592 to bifurcate the trial and first try two legal issues without a jury: "[T]he first being . . . defendant's claim that the plaintiff[] . . . do[es] not have standing to assert the rights of another insurer who . . . paid a . . . settlement on behalf of the plaintiff"; and "[t]he other . . . has to do with the legal effect of the coverage that was afforded under [defendant's] policy. . . ."

Defendant argued plaintiff had suffered no recoverable damages because both it and Federal paid the defense costs and settlement, leaving as the only viable claim Federal's asserted right to reimbursement from defendant. While defendant conceded Federal could assign to plaintiff its rights against defendant, the complaint contained no allegation of an assignment of Federal's claims. After receiving the parties' joint stipulation of facts and numerous exhibits, plus listening to several days of argument, the court granted a motion for judgment in defendant's favor on the first issue. "As a matter of law, [plaintiff] has no supportable damages in this dispute. Its interest was and is entirely subsumed by the carrier Federal. [¶] As a matter of law, [plaintiff] has no legal interest to pursue save and except by way of assignment from Federal of its claims. . . . [¶] . . . [¶] I don't believe that [plaintiff] is properly in a position today to pursue the claims that it did not...