Home Ins. Co. v. Zurich Insurance Company

• Decision Date: 07 February 2002
• Docket Number: No. C036889.,C036889.
• Citation: 116 Cal.Rptr.2d 583,96 Cal.App.4th 17
• Parties: HOME INSURANCE COMPANY, Plaintiff and Appellant, v. ZURICH INSURANCE COMPANY et al., Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

116 Cal.Rptr.2d 583

96 Cal.App.4th 17

HOME INSURANCE COMPANY, Plaintiff and Appellant, v. ZURICH INSURANCE COMPANY et al., Defendants and Respondents.

No. C036889.

Court of Appeal, Third District.

February 7, 2002.

Review Denied May 22, 2002.^*

Bishop, Barry, Howe, Haney & Ryder, Nelson C. Barry, Sr., and Carol L. Healey, San Francisco, for Plaintiff and Appellant.

Stevens & O'Connell and David A. Cheit, Sacramento, for Defendants and Respondents.

MORRISON, J.

Home Insurance Company appeals from a judgment of dismissal in favor of Zurich Insurance Company after a demurrer to its first amended complaint for fraud, declaratory relief, and subrogation or indemnity was granted without leave to amend. Home's action is premised on an alleged misrepresentation by counsel for Zurich's predecessor. Counsel allegedly misrepresented the available insurance policy limits to induce settlement of a lawsuit. Since any such statement is absolutely privileged under the litigation privilege of Civil Code section 47, subdivision (b), it will not support a direct fraud action for damages. In addition, such a misrepresentation constitutes intrinsic, not extrinsic, fraud and provides no basis for equitable relief. We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The following facts are derived from the complaint since we assume the truth of all properly pleaded material allegations in reviewing a ruling on a demurrer. (Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170, 164 Cal.Rptr. 839, 610 P.2d 1330.) This case arises from an automobile accident. On November 5, 1993, Michelle Canfield, the daughter of Patricia and Norman Fahrner, was driving their car with their consent and permission. She was negligent and inattentive and rear-ended Luana Pinasco's car.

The Fahrners had an automobile liability policy with Maryland Casualty Company (Maryland Casualty) with policy limits of $500,000 per automobile accident. Pinasco and her husband, Norman Main, had an automobile liability policy with Home Insurance Company (Home) with limits of $500,000 per accident.

Pinasco and Main sued Canfield for damages and Maryland Casualty assumed the defense. The lawsuit was settled for $15,000 and Pinasco and Main executed a full release. Pinasco and Main then made a claim against Home under the provisions of their underinsured motorist coverage. The claim was arbitrated, resulting in a net award to Pinasco and Main of $222,465.82, which Home paid.

Maryland Casualty was acquired by Zurich Insurance Company (Zurich).

Home brought suit against Zurich to set aside the release, and for fraud, a declaration of rights, and indemnity and subrogation. Home alleged that during the course of the lawsuit of Pinasco and Main, Maryland Casualty advised counsel for Pinasco and Main that Canfield was a permissive user only and that the financial responsibility limits of Vehicle Code section 17151 applied to restrict the policy limits to $15,000. Relying on these representations, Pinasco and Main settled the case for $15,000, although their damages were greater. Home further alleged that Canfield, as a permissive user, was an insured under the Fahrners's policy and the agents and employees of Maryland Casualty knew the applicable policy limits were $500,000. The misrepresentation of the policy limit was made to induce Pinasco and Main to settle their suit for less than the actual value of their claims.

Home agreed to arbitrate the underinsured motorist claim, believing the settlement and release were valid. The fraudulently induced release precluded Home from pursuing an indemnity or subrogation claim against Canfield or Maryland Casualty. This fraudulent conduct damaged Home in the amount of $222,465.82, plus $33,549.19 in attorney fees incurred during the arbitration, plus additional attorney fees. Home also sought a declaration that the release executed by Pinasco and Main was obtained through fraud and was null and void. Finally, Home claimed the release could not bar Home from pursuing its claim against Canfield and Maryland Indemnity and it was entitled to recoup the funds it paid to Pinasco and Main and attorney fees.

Zurich demurred to this complaint on the basis that it was barred by Insurance Code section 11580.2, subdivision (p), which bars subrogation actions by underinsured motorist carriers; it failed to state facts constituting a cause of action; and it improperly sought to state a direct cause of action against a liability insurer without a prior adjudication of the liability of the insured.

The court sustained the demurrer with leave to amend.

Home filed a first amended complaint for fraud and misrepresentation, declaration of rights, and indemnity and subrogation. This amended complaint contained two significant changes from the original complaint. First, Home alleged that during the course of the Pinasco and Main lawsuit against Canfield, Maryland Casualty "by and through its retained counsel, represented to counsel for Luana Pinasco, Norman Main and Home Insurance Co. that the policy limits available to Michelle Canfield were $15,000." This fraudulent misrepresentation was made to induce Pinasco and Main to settle their tort claim for only 3 percent of the policy limits, with knowledge that Pinasco and Main would seek the balance of their damages from Home. Second, Home alleged that a business relationship had developed between counsel for Pinasco and Main and counsel for Maryland Casualty, and Home, such as to cause Pinasco, Main, and Home to place confidence in the integrity of Maryland's counsel and rely on the representations of fact. They had no reason not to rely on these representations as Maryland Casualty had superior knowledge of its policy and "had developed a high degree of integrity among other insurance companies and legal counsel in the Sacramento area."

Zurich again demurred, on the same grounds as before.

The court sustained the demurrer without leave to amend. It found Home failed to allege justifiable reliance and there was no cause of action available for indemnity or subrogation.

DISCUSSION

I

Home contends it was error to sustain the demurrer on the ground that Home's reliance on the misrepresentation was not reasonable as a matter of law. Home asserts the rule of caveat emptor is dead. It argues the question of whether reliance is reasonable is one of fact and it had no duty to investigate the limits of Canfield's insurance coverage.

On the facts of this case, reliance on the representation of available policy limits by counsel for Maryland Casualty was unreasonable as a matter of law because such representation was absolutely privileged under the litigation privilege.¹ Although Zurich raises it on appeal, it did not assert the litigation privilege as a ground for the demurrer. Zurich relegated discussion of the privilege to a footnote in its points and authorities supporting the demurrer, arguing the absolute litigation privilege underscored the unreasonableness of relying on a statement made by opposing counsel during litigation. Zurich's failure to raise the issue below does not prevent our consideration of it on appeal. "A party may present a pure issue of law to the reviewing court even if it has not been raised below; with respect to a ruling on the pleadings, we review the result and not the reasons therefor, so that the ruling will be upheld if correct on any theory. (Carman v. Alvord (1982) 31 Cal.3d 318, 324 [182 Cal.Rptr. 506, 644 P.2d 192].)" (Courtesy Ambulance Service v. Superior Court (1992) 8 Cal.App.4th 1504, 1519, fn. 12, 11 Cal.Rptr.2d 161.)

Under Civil Code section 47, subdivision (b), "A privileged publication or broadcast is one made: [¶] . . . [¶] (b) In any . . . judicial proceeding, . . ." "Despite its explicit wording, the privilege described by section 47(b) has been given expansive application by California courts. Although originally enacted with reference to defamation actions alone [citation], the privilege has been extended to any communication, whether or not it is a publication, and to all torts other than malicious prosecution. [Citations.] Thus, the privilege has been applied to suits for fraud [citations], negligence and negligent misrepresentation [citation], and interference with contract [citation]." (Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 29, 61 Cal.Rptr.2d 518, italics in original.) "Any doubt as to whether the privilege applies is resolved in favor of applying it. [Citations.]" (Adams v. Superior Court (1992) 2 Cal.App.4th 521, 529, 3 Cal. Rptr.2d 49.)

The litigation privilege furthers several policies. "The principal purpose of section 47[, subdivision (b)] is to afford litigants and witnesses [citation] the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions. [Citations.]" (Silberg v. Anderson (1990) 50 Cal.3d 205, 213, 266 Cal.Rptr. 638, 786 P.2d 365.) The privilege promotes effective judicial proceedings by encouraging "`open channels of communication and the presentation of evidence'" without the external threat of liability. (Ibid.) The litigation privilege "further promotes the effectiveness of judicial proceedings by encouraging attorneys to zealously protect their clients' interests." (Id. at p. 214, 266 Cal.Rptr. 638, 786 P.2d 365.) "Finally, in immunizing participants from liability for torts arising from communications made during judicial proceedings, the law places upon litigants the burden of exposing during trial the bias of witnesses and the falsity of evidence, thereby enhancing the finality of judgments and avoiding an unending roundelay of litigation, an evil far worse than an occasional unfair result. [Citations.]" (Ibid.)

"For our justice system to function, it is necessary that litigants assume responsibility for the complete litigation of their cause during the proceedings. To allow a litigant to attack the integrity of evidence after the...