Hartford Cas. Ins. Co. v. J.R. Mktg., L. L.C.
| Decision Date | 10 August 2015 |
| Docket Number | No. S211645.,S211645. |
| Citation | 61 Cal.4th 988,190 Cal.Rptr.3d 599,353 P.3d 319 |
| Court | California Supreme Court |
| Parties | HARTFORD CASUALTY INSURANCE COMPANY, Cross-complainant and Appellant, v. J.R. MARKETING, L.L.C., et al., Cross-defendants and Respondents. |
Horvitz & Levy, David M. Axelrad, Emily V. Cuatto, Andrea A. Ambrose, Encino; Mendes & Mount, Dean B. Herman, Catherine L. Rivard, Los Angeles; Edwards Wildman Palmer, Ira G. Greenberg ; Wiggin and Dana and Jonathan M. Freiman for Cross-complainant and Appellant.
Aguilera Law Group, A. Eric Aguilera, Raymond E. Brown and Lindsee Falcone, Costa Mesa, for Complex Insurance Claims Litigation Association and American Insurance Association as Amici Curiae on behalf of Cross-complainant and Appellant.
Squire Sanders (US), Squire Patton Boggs (US), Mark C. Dosker, Ethan A. Miller, Barry D. Brown, Jr., Michelle M. Full, San Francisco, Pierre H. Bergeron ; Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., and Julian W. Poon, Los Angeles, for Cross-defendants and Respondents.
Newmeyer & Dillion, Thomas F. Newmeyer, Joseph A. Ferrentino and Rondi J. Walsh, Newport Beach, for California Building Industry Association as Amicus Curiae on behalf of Cross-defendants and Respondents.
Payne & Fears, J. Kelby Van Patten, Irvine, and Jeffery M. Hayes for Centex Homes as Amicus Curiae on behalf of Cross-defendants and Respondents.
Latham & Watkins, Brook B. Roberts and John M. Wilson, San Diego, for Montrose Chemical Corporation of California as Amicus Curiae on behalf of Cross-defendants and Respondents.
Diamond McCarthy, Christopher D. Sullivan, Kenneth A. Brunetti, Matthew S. Sepuya, San Francisco; California Appellate Law Group, Myron Moskovitz, Fresno, William N. Hancock and Ben Feuer, San Francisco, as Amici Curiae on behalf of Cross-defendants and Respondents.
Thomas & Elliott, Stephen L. Thomas, Jay J. Elliott, Los Angeles; Benedon & Serlin, Gerald M. Serlin ; Ford & Serviss, William H. Ford III, Los Angeles; Irell & Manella, Marc S. Maister, Brian Bark, Newport Beach; Dickstein Shapiro and Kirk A. Pasich, Los Angeles, for California Insureds Counsel as Amici Curiae.
Steven W. Murray, Sherman Oaks, as Amicus Curiae.
This court has long maintained that if any claims in a third party complaint against a person or entity protected by a commercial general liability (CGL) insurance policy are even potentially covered by the policy, the insurer must provide its insured with a defense to all the claims. (E.g., Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081, 17 Cal.Rptr.2d 210, 846 P.2d 792.) The insurer's provision of an immediate, complete defense in such a “mixed” action, we have explained, is “prophylactically” necessary, even if outside of the policy's strict terms, to protect the insured's litigation rights with respect to the potentially covered claims. (Buss v. Superior Court (1997) 16 Cal.4th 35, 49, 65 Cal.Rptr.2d 366, 939 P.2d 766 (Buss ).) Nevertheless, we concluded in Buss that the insured would be unjustly enriched at the insurer's expense if not ultimately required to bear the cost of litigating those claims for which the insured had never purchased defense or indemnity protection. Accordingly, we held in Buss that the insurer may seek reimbursement from the insured of defense fees and expenses solely attributable to the claims that were clearly outside policy coverage. (Ibid. )
We had no occasion in Buss to consider the related question presented here. From whom may a CGL insurer seek reimbursement when: (1) the insurer initially refused to defend its insured against a third-party lawsuit; (2) compelled by a court order, the insurer subsequently provided independent counsel under a reservation of rights—so-called Cumis counsel (see San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 208 Cal.Rptr. 494 (Cumis );1 see also Civ.Code, § 28602 )—to defend its insured in the third party suit; (3) the court order required the insurer to pay all “reasonable and necessary defense costs,” but expressly preserved the insurer's right to later challenge and recover payments for “unreasonable and unnecessary” charges by counsel; and (4) the insurer now alleges that independent counsel “padded” their bills by charging fees that were, in part, excessive, unreasonable, and unnecessary?
The insurer urges that it may recoup the overbilled amounts directly from Cumis counsel themselves. Cumis counsel respond that, if the insurer has any right at all under the facts of this case to recover overbilled amounts, the insurer's right runs solely against its insureds. Cumis counsel's erstwhile clients might then have a right of indemnity from these counsel.
We conclude that under the circumstances of this case, the insurer may seek reimbursement directly from Cumis counsel. If Cumis counsel, operating under a court order that expressly provided that the insurer would be able to recover payments of excessive fees, sought and received from the insurer payment for time and costs that were fraudulent, or were otherwise manifestly and objectively useless and wasteful when incurred, Cumis counsel have been unjustly enriched at the insurer's expense. Cumis counsel provide no convincing reason why they should be absolutely immune from liability for enriching themselves in this fashion. Alternatively, Cumis counsel fail to persuade that any financial responsibility for their excessive billing should fall first on their own clients—insureds who paid to receive a defense of potentially covered claims, not to face additional rounds of litigation and possible monetary exposure for the acts of their lawyers. For these reasons, we reverse the judgment of the Court of Appeal insofar as it concluded that in this case, reimbursement cannot be obtained directly from Cumis counsel.
In the summer of 2005, appellant Hartford Casualty Insurance Company (Hartford) issued one CGL insurance policy to Noble Locks Enterprises, Inc. (Noble Locks), effective from July 28, 2005, to July 28, 2006, and a second CGL policy to J.R. Marketing, L.L.C. (J.R. Marketing), effective August 18, 2005, to August 18, 2006. In these policies, Hartford promised to defend and indemnify the named insureds, and their members and employees, against certain claims for business-related defamation and disparagement.
In September 2005, an action was filed in Marin County Superior Court against J.R. Marketing, Noble Locks, and several of their employees (the Marin County action). The complaint stated claims for intentional misrepresentation, breach of fiduciary duty, unfair competition, restraint of trade, defamation, interference with business relationships, mismanagement, and conspiracy. Around the same time, related actions were filed against many of the same parties in Nevada (the Nevada action) and Virginia (the Virginia action). In the Marin County action, certain defendants, apparently represented by the law firm of Squire Sanders (US) LLP (Squire Sanders),3 filed cross-complaints.
On September 26, 2005, defense of the Marin County action was tendered to Hartford under the J.R. Marketing and Noble Locks policies. In early January 2006, Hartford disclaimed a duty to defend or indemnify the defendants in the Marin County action on the grounds that the acts complained of appeared to have occurred before the policies' inception dates, and that certain of the defendants appeared not to be covered insureds. The Marin County defendants, represented by Squire Sanders, thereupon filed the instant coverage action against Hartford (the coverage action). Hartford subsequently agreed to defend J.R. Marketing, Noble Locks, and several of the individual defendants in the Marin County action as of January 19, 2006, subject to a reservation of rights. However, Hartford declined to pay defense costs incurred before that date, and also declined to provide independent counsel in place of its panel counsel.
In July 2006, the trial court in the coverage action entered a summary adjudication order, finding that Hartford had a duty to defend the Marin County action effective on the date the defense was originally tendered. The order also provided that, because of Hartford's reservation of rights, Hartford must fund Cumis counsel to represent its insureds in the Marin County action. The insureds retained Squire Sanders as Cumis counsel.
On September 26, 2006, the trial court in the coverage action issued an enforcement order directing Hartford to promptly pay all defense invoices submitted to it as of August 1, 2006, and to pay all future defense costs in the Marin County action within 30 days of receipt. The order, which was drafted by Squire Sanders and adopted by the court, further stated that Hartford had breached its defense obligations by refusing to provide Cumis counsel until ordered to do so and by thereafter failing to pay counsel's submitted bills in a timely fashion. The order also declared that although Squire Sanders's bills “still [had to] be reasonable and necessary,” as a result of its breach, Hartford would be precluded from “invok[ing] the rate provisions of Section 2860.”4 Finally, the order provided that, “[t]o the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursement after resolution of the [Marin County action].” The Court of Appeal subsequently affirmed both the summary adjudication and enforcement orders.
In October 2009, the Marin County action was resolved. The coverage action, stayed during the pendency of the Marin County action, resumed. Hartford thereafter filed a cross-complaint, and then a first amended cross-complaint, against (1) various persons for whom it had allegedly paid defense fees and expenses in the Marin County, Nevada, and Virginia actions, and (2) Squire Sanders. The cross-complaint asserted that Hartford was entitled to recoup from the cross-defendants a significant portion of some $15 million in defense...
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Hartford Cas. Ins. Co. v. J.R. Mktg., L. L.C.
...61 Cal.4th 988353 P.3d 319190 Cal.Rptr.3d 599HARTFORD CASUALTY INSURANCE COMPANY, Cross-complainant and Appellantv.J.R. MARKETING, L.L.C., et al., Cross-defendants and Respondents.No. S211645.Supreme Court of CaliforniaAug. 10, 2015.190 Cal.Rptr.3d 601Horvitz & Levy, David M. Axelrad, Emily......