Fireman's Fund Ins. Co. v. Haslam

• Decision Date: 31 October 1994
• Docket Number: No. A060458,A060458
• Citation: 29 Cal.App.4th 1347,35 Cal.Rptr.2d 135
• Court: California Court of Appeals Court of Appeals
• Parties: FIREMAN'S FUND INSURANCE COMPANY, Cross-complainant and Respondent, v. Edward J. HASLAM, Cross-defendant and Appellant.

Page 135

35 Cal.Rptr.2d 135

29 Cal.App.4th 1347

FIREMAN'S FUND INSURANCE COMPANY, Cross-complainant and Respondent, v. Edward J. HASLAM, Cross-defendant and Appellant.

No. A060458.

Court of Appeal, First District, Division 4, California.

Oct. 31, 1994.

Certified for Partial Publication. ^*

Rehearing Denied Nov. 29, 1994.

Review Denied Feb. 16, 1995.

Wilson, Elser, Moskowitz, Edelman & Dicker, Jerome N. Lerch, Louise H. Castoria, David M. Helbraun, San Francisco, for appellant.

Michael A. Willemsen, Palo Alto, for amicus curiae on behalf of appellant.

James P. Kleinberg, McCutchen, Doyle, Brown & Enersen, San Jose, Paul Glusman, Novato, for respondent.

REARDON, Associate Justice.

When Joseph Miranda sued respondent Fireman's Fund Insurance Company and its agent, appellant Edward J. Haslam, for negligence and bad faith, Fireman's Fund settled with Miranda for $1,050,000 and cross-complained against Haslam for indemnity. In a special verdict, the jury held Haslam liable to Fireman's Fund for the full amount of this settlement. After Haslam's posttrial motions were denied, judgment was entered consistent with the jury's verdict. Haslam appeals, contending that (1) an insurer cannot state a cause of action for indemnity against an insurance broker for extracontractual damages paid in settlement of the insurer's bad faith claims; (2) even if an insurer can state such a cause of action, public policy considerations preclude application of this doctrine; (3) the trial court should have determined as a matter of law that Miranda's policy was terminated by mutual agreement rather than sending this issue to the jury; and (4) the court erred by admitting evidence of Haslam's insurance and of an opinion rendered by Fireman's Fund's counsel stating that Haslam was negligent. We affirm the judgment.

I. FACTS

In January 1988, Joseph B. Miranda asked Rudy Honrado to insure an apartment building he owned on Woodward Street in San Francisco. Honrado was an insurance broker, but he only handled life and disability insurance. He approached appellant Edward J. Haslam, doing business as Edward J. Haslam Company, to obtain this insurance on Miranda's behalf. He told Haslam that Miranda wanted to insure the Woodward Street property. Haslam was an authorized agent of respondent Fireman's Fund Insurance Company. Haslam filled out a Fireman's Fund application for insurance without describing the Woodward Street address as the insured property, but listing Miranda's mailing address on Capp Street in San Francisco. The Capp Street property was Miranda's residence and a rest home--not an apartment building. Fireman's Fund issued a policy listing the Capp Street address as the insured property instead of the Woodward Street apartment building. Miranda made his first premium payment by check, noting the Woodward address on it. He regularly paid his premiums believing that his Woodward Street apartment building was insured.

In May 1988, Fireman's Fund conducted a routine loss control inspection of its insured property. The loss control report stated that the Capp Street property was not an apartment building as the insurance application had stated, but was a residence and rest home. Fireman's Fund treated the disparity between its report and Miranda's application as a misrepresentation. Accordingly, in June 1988, it instructed Haslam to return Miranda's policy for cancellation and to obtain replacement insurance.

In August 1988--two months after Fireman's Fund had issued its instructions to cancel the policy and obtain replacement insurance--Haslam passed on these instructions to Honrado, who obtained Miranda's signature on a Haslam-prepared cancellation form on August 15. Miranda did not want to cancel his insurance, but signed the form because Honrado insisted. Miranda also dated the form in his handwriting under his signature. Honrado told Miranda that he had no more insurance as of that day. When Miranda signed the form, the space for the cancellation date was blank. When the form was returned to Haslam, an employee typed in the August 15 date.

Fireman's Fund cancelled the policy on August 15, 1988, but accepted two more monthly premiums from Miranda. At first, Miranda sought insurance coverage elsewhere. When he received another billing from Fireman's Fund, he believed that it had corrected its error and that the Woodward Street site was still insured. No replacement insurance was obtained.

On September 27, 1988, a fire destroyed the Woodward Street apartment building. When Miranda made a claim on the policy, Haslam discovered the address error on its application for insurance. On October 4, 1988, Haslam explained to Fireman's Fund that he had omitted the Woodward Street property address from the insurance application in error. He asked that Fireman's Fund reform the policy to conform to Miranda's expectations and pay his claim. However, Fireman's Fund denied coverage, stating that the policy had been cancelled before the loss was incurred. It refunded the two additional monthly premiums that Miranda paid.

In August 1989, Miranda filed an action against Fireman's Fund, Haslam and Honrado for negligence, bad faith and related claims. He sought reformation of the contract, rescission of policy cancellation, as well as compensatory and punitive damages.

In December 1989, Haslam sought indemnity from Fireman's Fund, disclaiming any direct liability for Miranda's loss. By April 1990, Haslam, Honrado and Fireman's Fund had each cross-complained against the others for indemnity. In November 1991, Fireman's Fund discovered that Miranda had not filled in the date blank on the cancellation form, bringing the validity of the cancellation into question. In January 1992, Fireman's Fund settled with Miranda for $1,050,000.

In March 1992, Fireman's Fund filed its first amended cross-complaint against Haslam and Honrado, alleging causes of action for indemnity, fraud and deceit, negligence, fraud and negligence by a fiduciary, and breach of contract. Haslam's motions to exclude evidence of his malpractice insurance and of a Fireman's Fund attorney letter opining that Haslam was negligent were denied.

Trial began in July 1992. Fireman's Fund brought out evidence that Haslam did not inspect the property before issuing the policy on behalf of Fireman's Fund. When the loss control investigation prompted Fireman's Fund to instruct Haslam to cancel the policy, Haslam did not investigate the matter, but merely instructed Honrado to obtain Miranda's signature on the cancellation form. Haslam expected that Honrado would check out these matters. Fireman's Fund also introduced evidence that Honrado's involvement in the policy application process constituted brokered business--a practice which Haslam knew Fireman's Fund forbade. The jury also heard evidence that Haslam carried errors and omissions insurance--a type of malpractice insurance.

The jury heard other evidence of the results of an attorney's investigation of the Miranda matter, prepared for Fireman's Fund. The attorney was assigned to assess the legal liabilities, responsibilities and obligations of Fireman's Fund to Miranda before Fireman's Fund learned that the cancellation form might not be valid. She prepared an opinion letter, outlining her findings. She concluded that Haslam was negligent in not transmitting the correct address to Fireman's Fund. The jury was admonished that this evidence was admitted only for a limited purpose--not as a legal conclusion, but to show that Fireman's Fund received this information.

In the opinion letter, the attorney also concluded that a valid policy cancellation release from Miranda terminated the policy, ending any Fireman's Fund liability for Haslam's negligence. She relied on the August 1988 cancellation form to make this finding and recommended denial of the claim. She did not know that the date was not on the cancellation form at the time that Miranda signed it. If the cancellation was invalid, the policy would still be in force, she testified.

At the close of Fireman's Fund's evidence, Haslam moved for a directed verdict on extracontractual damages--the $800,000 portion of the settlement that was in excess of the $250,000 policy limit. The motion was denied. The trial court did grant his motion for directed verdict on the issue of punitive damages, declining to instruct the jury on this issue. It denied Haslam's motion for a directed verdict on causes of action for fraud and fraudulent breach of fiduciary duty, but granted Fireman's Fund's motion to dismiss these claims. In his defense, Haslam put on evidence that Fireman's Fund unilaterally and involuntarily cancelled Miranda's insurance in violation of statute; that Fireman's Fund should have reformed the policy once it learned of the error on the application; and that he had been within his rights to use Honrado as a broker.

In effect, Haslam urged that he was not at fault--that Fireman's Fund incurred its extracontractual damages because it acted in bad faith by denying Miranda's claim. The insurer should have accepted his recommendation to reform Miranda's insurance policy and pay the claim. He also argued that the policy cancellation was involuntary and was not legally effective because Fireman's Fund did not comply with applicable statutory procedures. Haslam argued that he could not be held liable for the insurer's improper acts, while Fireman's Fund urged the jury to find that its denial of Miranda's claim was proximately caused by Haslam's negligence.

Ultimately, the jury's special verdict awarded Fireman's Fund $1,050,000 from Haslam. The jury found that Haslam was negligent when he incorrectly filled out Miranda's application for insurance, that...