National Union Fire Ins. Co. v. Lynette C.

• Decision Date: 31 August 1994
• Docket Number: No. C014874,C014874
• Citation: 33 Cal.Rptr.2d 496,27 Cal.App.4th 1434
• Court: California Court of Appeals
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY, Plaintiff, Cross-defendant and Appellant, v. LYNETTE C., Defendant, Cross-complainant and Respondent.

Page 496

33 Cal.Rptr.2d 496

27 Cal.App.4th 1434

NATIONAL UNION FIRE INSURANCE COMPANY, Plaintiff, Cross-defendant and Appellant, v. LYNETTE C., Defendant, Cross-complainant and Respondent.

No. C014874.

Court of Appeal, Third District, California.

Aug. 31, 1994.

Thomas R. Fellows, Robinson & Wood, Inc., San Jose, Michael A. Bishop, Matheny, Poidmore and Sears, Sacramento, for plaintiff, cross-defendant and appellant.

Robert L. Davis, Leonard & Lyde, Chico, for defendant, cross-complainant and respondent.

DAVIS, Acting Presiding Justice.

This is our second encounter with this case, the first of which also resulted in a published decision--National Union Fire Ins. Co. v. Lynette C. (1991) 228 Cal.App.3d 1073, 279 Cal.Rptr. 394 (National Union I ). The subject is insurance coverage for a foster parent who negligently fails to protect his or her foster child from sexual molestation by the other foster parent. In National Union I, we reversed a summary judgment in favor of National Union Fire Insurance Company (National), concluding that the language of the relevant insurance policy provided such coverage and the principles of public policy did not prohibit it. We remanded the matter to the trial court to determine another issue raised in the summary judgment proceedings, the amount of coverage.

On remand, the amount of coverage was determined in summary adjudication proceedings, and other pertinent issues were decided in a court trial. The most pertinent of these other issues concerned whether National was bound by the judgment that the foster child (Lynette) had obtained against National's insured, the negligent foster mother Debra Lopes (Debra). ¹

On appeal, National contends that Lynette's judgment against Debra, which Lynette obtained by presenting evidence of liability and damages in an uncontested court proceeding, cannot fairly be applied to National in light of principles of collateral estoppel and the "no action" clause of the insurance policy. The "no action" clause is a standard liability insurance provision that permits an injured party to sue directly an insured tortfeasor's insurance company if "the amount of the insured's obligation to pay [has] been finally determined by judgment against the insured after actual trial." (See Ins.Code, § 11580, subd. (b)(2); 3 Cal. Insurance Law & Prac., § 41.63[a].) In light of the California and other relevant authorities on the subject, we conclude that the term "actual trial" has two components: (1) an independent adjudication of facts based on an evidentiary showing; and (2) a process that does not create the potential for abuse, fraud or collusion. Applying this two-component test here, we conclude the judgment Lynette obtained against Debra resulted from an "actual trial."

Our approach to the "no action" clause also applies to National's argument on collateral estoppel. We therefore conclude that National is bound by the judgment that Lynette obtained against Debra.

National also contends on appeal that the trial court erred in determining the amount of coverage. We disagree. There were three successive one-year term policies in effect during the relevant time frame here. All three policies cover liability for any act, error or omission by the foster parent that occurs during the policy period and that arises out of foster parent activity while the foster child is in the foster parent's care and custody. Debra was found to have engaged in negligent supervision and care of Lynette during each of the three policy periods. Consequently, all three policies are available to satisfy the judgment.

In light of our determinations, we affirm the judgment.

BACKGROUND

We provided some background information in our National Union I decision and we now quote from that decision.

"In August 1980, when Lynette was 10 years old, she was placed by Colusa County as a foster child with Debra and Duane. Beginning in October or November 1980, and continuing until Lynette was removed from the Lopeses' home in May 1983, Duane repeatedly sexually molested Lynette.

"As a result of these molestations, Duane in November 1984 pleaded guilty to violating Penal Code section 288, subdivision (a) (lewd or lascivious acts upon a child under 14 years of age).

"In August 1987, following three years of mental health treatment arising from the molestations, Lynette sued Duane and Debra (hereafter, the Lopes action). As to Debra, Lynette alleged she was negligent in allowing Lynette's placement in the Lopeses' foster home because Debra knew, or should have known, that Duane had a propensity to sexually molest children, and Debra was negligent in not protecting Lynette from Duane's molestations.

"In February 1988, National filed a complaint for declaratory relief, contending that neither Duane nor Debra was covered under the National insurance policy for the allegations in the Lopes action.

"Pursuant to stipulation, the Lopes action was tried before a judge as an uncontested matter in September 1988. Judgment was rendered against Duane and Debra, jointly and severally, in the amount of $1,250,000. The trial court found that Debra's failure to use reasonable care to prevent Lynette's molestation injuries 'was, along with [Duane's] batteries, a concurring legal cause of harm' to Lynette." (National Union I, supra, 228 Cal.App.3d at p. 1076, 279 Cal.Rptr. 394, fns. omitted.) ²

During the trial of National's declaratory relief suit, which comprises the proceedings before us, evidence was submitted concerning the decision to present the Lopes action as an uncontested matter. That evidence showed the following.

Lynette's attorney, Robert L. Davis, testified that the Lopes action was scheduled for trial on Monday, August 29, 1988. On the weekend before that date, Charles Painter, National-retained counsel for Debra, phoned Davis. Painter proposed a settlement short of a jury trial because he thought the facts were too repugnant to present to a jury. ³ Davis was anxious to avoid a jury trial as well because he did not want Lynette to have to relay her experiences to 12 people. Davis proposed a $1.25 million settlement against Debra, and Painter tentatively accepted.

Upon further reflection, Davis became concerned about the binding nature of such a stipulated judgment against Debra. On the day set for trial, therefore, Davis dismissed that option. Instead, he told the assembled defense counsel--Painter, Phillip Jaret (the National-retained counsel for Duane), and Donald Wahlberg (Cumis counsel for Duane) ⁴--that he would proceed at that time either with the scheduled jury trial or with an uncontested court trial at which he would submit evidence on liability and damages and the judge "would make up his mind on those issues." All three-noted defense counsel agreed to the uncontested procedure.

When the Lopes action was called for trial, the trial judge said he understood there was an agreement. But Cumis counsel for Debra, John Edwards, whom Davis had never heard about previously, appeared and said he did not know the nature of the agreement. The transcript of this hearing in the Lopes action, which was before the trial court in National's declaratory relief action, showed that Painter told the judge in the Lopes action that he had not had the chance to explain fully the agreement to Debra or Edwards; Painter was then given the opportunity to do so. After this, Edwards informed the judge in the Lopes action that an agreement had been reached.

Davis then outlined the agreement on the record in the Lopes action and reiterated it in a letter to all defense counsel, including the attorney representing National in the pending declaratory relief action, Michael Bishop. ⁵ In exchange for a covenant by Lynette not to execute against any personal assets of Debra or Duane, and an additional covenant to seal the records in the Lopes action and not disclose any terms of any judgment rendered therein (except as appropriate in National's declaratory relief action), Debra and Duane would agree to treat the Lopes action as an uncontested matter with Lynette, through Davis, presenting evidence regarding liability and damages to the court for its decision on those issues. Davis further explained that the parties would not have to relitigate liability and damages in the declaratory relief action.

All of the defense counsel in the Lopes action agreed to this procedure save for Painter who remained neutral. Prior to Davis outlining the agreement, Painter had informed the court in the Lopes action that he found himself in an "enormous conflict situation." After Davis outlined the proposal, Painter further explained that he was retained by National to represent Debra, that National had reserved its rights regarding coverage and had filed a declaratory relief action, and that Edwards had assumed Debra's defense. With that said, Painter indicated his neutrality. Edwards confirmed that he had assumed Debra's defense.

Painter maintained this posture on the record when the uncontested proceeding in the Lopes action was heard some two weeks later. Painter added that although he had several telephone conversations with attorney Davis during the weekend before the Lopes action was scheduled for trial, at no time did he (Painter) offer to stipulate to a judgment with National's approval. At the uncontested proceeding, Davis confirmed that Painter had reported to him that National would not agree to a stipulated judgment.

The uncontested proceeding in the Lopes action encompassed an approximately one and one-half hour hearing with Davis presenting evidence on liability and damages. This evidence included Lynette's deposition, Duane's deposition, the sheriff's investigation report, the depositions of a psychiatrist and of a vocational rehabilitation expert who had examined Lynette, as well as several reports detailing Lynette's mental health and employment prospects.

In a written decision, the trial...