Safeco Ins. Co. of America v. Parks

• Decision Date: 28 January 2009
• Docket Number: No. B200267.,No. B199364.,B199364.,B200267.
• Citation: 88 Cal. Rptr. 3d 730,170 Cal.App.4th 992
• Court: California Court of Appeals Court of Appeals
• Parties: SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff and Appellant, v. JAMEY LYNN PARKS, Defendant and Respondent. JAMEY LYNN PARKS, Plaintiff and Respondent, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant and Appellant.

170 Cal.App.4th 992

88 Cal. Rptr. 3d 730

SAFECO INSURANCE COMPANY OF AMERICA, Plaintiff and Appellant, v. JAMEY LYNN PARKS, Defendant and Respondent.

JAMEY LYNN PARKS, Plaintiff and Respondent, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant and Appellant.

No. B199364.

No. B200267.

Court of Appeals of California, Second District, Division Six.

January 28, 2009.

CERTIFIED FOR PARTIAL PUBLICATION^*

[170 Cal.App.4th 996]

Demler, Armstrong & Rowland, Robert W. Armstrong, Scott K. Murch; Law Offices of Raymond W. Scutts and Raymond H. Goettsch for Plaintiff and Appellant and for Defendant and Appellant.

Law Office of Herb Fox, Herb Fox; Pulverman and Pulverman, Martin E. Pulverman, Raymond J. Pulverman and James S. Bianchi for Defendant and Respondent and for Plaintiff and Respondent.

[170 Cal.App.4th 997]

The Arkin Law Firm and Sharon J. Arkin for United Policyholders as Amicus Curiae on behalf of Defendant and Respondent and Plaintiff and Respondent.

OPINION

YEGAN, J.

Respondent Jamey Lynn Parks obtained a personal injury judgment of $2,187,886 against 16-year-old Michelle Miller. Safeco Insurance Company of America (Safeco) issued a homeowner's policy to Eddie Barnette, the man with whom Michelle's mother lived and with whom Michelle periodically stayed. It issued a similar policy to Michelle's grandmother Evelyn Miller, with whom Michelle and her father Charles resided. Safeco declined to defend Michelle, to settle Parks's action against her, and to indemnify her under the policy it issued to Barnette. Michelle assigned her causes of action against Safeco to Parks. When Parks later made a claim under the belatedly discovered policy issued to Evelyn Miller, Safeco paid Parks the $100,000 policy limits but refused to pay any part of the excess judgment.

A jury found that Safeco breached the covenant of good faith and fair dealing implied in the policy issued to Evelyn Miller when Safeco failed to settle the personal injury case or to defend or indemnify Michelle Miller. The trial court entered judgment in favor of Parks against Safeco for $3,245,333.76. It later awarded Parks costs of $70,104.23 and attorney fees of $426,208 as cost of proof sanctions for Safeco's failure to admit certain matters in response to Parks's requests for admission. (Code Civ. Proc., § 2033.420.)¹

Safeco appeals from that judgment and from postjudgment orders entered in the related declaratory relief action. Parks cross-appeals in the bad faith action, contending the trial court improperly limited his recovery on a judgment creditor's claim.

We reverse the order awarding Parks his attorney fees as cost of proof sanctions. We affirm the judgments in all other respects.

Facts

We described the facts of the underlying accident in our prior published opinion, Safeco Ins. Co. of America v. Parks (2004) 122 Cal.App.4th 779 (Safeco I), and again, more briefly, in our subsequent unpublished opinion, Safeco Ins. Co. of America v. Parks (Super. Ct. Santa Barbara County, 2006, B185335) (Safeco II). In summary, during the early morning hours of February 28, 1999, Parks was walking on Highway 101 north of Santa Barbara when he was struck by a passing motorist. Parks suffered serious, permanent injuries in the collision including having his leg amputated. He was on the side of the freeway because his then girlfriend, 16-year-old Michelle Miller, and two of her friends left him there. Miller had been driving Parks, who was drunk, from Santa Barbara to his home in Santa Maria when the car got a flat tire. She called a friend, Teresa Cooney, to pick them up. Cooney arrived with her friend Isaiah Rivera and the group started back to Santa Maria in Cooney's car. Parks was soon forced out of the car because he was being violent toward Miller. Over one mile and more than 15 minutes later, Parks was struck by a car as he walked back to his own car.

At the time, Miller lived with her father, Charles Miller, and grandmother Evelyn Miller, in a condominium rented by the grandmother. Miller's parents were divorced. Her father, Charles, had sole legal and physical custody of Michelle. Her mother was living with Eddie Barnette whom she later married. Miller sometimes stayed with her mother at Barnette's house. Barnette had a homeowner's insurance policy issued by Safeco.

Parks sued Cooney, Rivera and Miller. Cooney's automobile insurer provided all three with a defense, retaining Richard Phillips to represent them. Cooney and Rivera settled with Parks for the policy limits of $30,000. Phillips tendered Miller's defense to Safeco under the homeowner's policy issued to Barnette. Safeco declined the defense. Miller and Parks submitted their claims to binding arbitration. The arbitrator, a retired superior court judge, James Slater, found in favor of Parks, awarding damages of $2,187,886 after a 50 percent reduction for comparative fault. A judgment in that amount was entered against Miller in January 2002. Miller settled with Parks by assigning to him any claims she might have against Safeco.

In July 2002, Parks sued Safeco to recover the judgment he obtained against Miller (the bad faith action). He alleged that Safeco breached the Barnette policy and its implied covenant of good faith and fair dealing by refusing, in bad faith, to defend Miller under the Barnette policy and to settle within the limits of that policy. In August, Safeco filed a separate action for declaratory relief against Miller and Parks, alleging that it had no duty to defend or indemnify Miller under the Barnette policy (the declaratory relief action). The two cases were consolidated.

Parks served Safeco with requests for production of documents that asked Safeco to produce all "applicable insurance policy or polices providing coverage for the nature and extent of the damages alleged . . .," and all "applicable umbrella insurance policy or policies providing coverage for the nature and extent of the damages alleged . . . ." Safeco objected that the document requests were vague, ambiguous, overbroad, burdensome and oppressive and that the documents they sought were not relevant or reasonably calculated to lead to the discovery of admissible evidence. It declined to produce any documents in response to the requests. Parks did not move to compel further responses to the request for production of documents.

The bad faith action was stayed while the parties tried the declaratory relief action to the court sitting without a jury. Charles Miller testified at the trial. Afterwards, he went home and asked his mother Evelyn, apparently for the first time, whether she had any insurance on her condominium. Charles then discovered that Safeco had issued Evelyn a renter's insurance policy covering the condominium. He gave the policy to Michelle or to her lawyer.

In August 2003, the trial court entered a declaratory judgment in favor of Parks and against Safeco, finding that Safeco had a duty to defend and to indemnify Miller because she was an insured under the Barnette policy. The parties agreed to rescind the order consolidating the bad faith and declaratory relief actions and to stay the bad faith action "until further order of the court."

Safeco appealed the declaratory judgment in October 2003. In August 2004, we reversed, holding that Safeco had no duty to defend Miller under the Barnette policy because she was not an insured under that policy. (Safeco I, supra, 122 Cal.App.4th at pp. 792-794.)

In September 2004, Parks's counsel demanded that Safeco pay the policy limits under the policy issued to Evelyn Miller. Safeco assigned the claim to James Diley, an adjuster who had not participated in the prior coverage determination or the litigation between Safeco and Parks. Diley interviewed Charles Miller and reviewed portions of the transcripts of Charles and Michelle Miller's depositions in the personal injury action. He purposefully did not review the claims file for the Barnette policy because he wanted to make an independent evaluation of the present claim. Diley also did not review the arbitrator's award in Parks v. Miller. Within one week of receiving the demand letter from Parks's counsel, Diley concluded that Michelle was an insured under the policy issued to her grandmother and its automobile exclusion did not preclude coverage. He forwarded a check for the policy limits of $100,000 to Parks on September 17, 2004. In May 2005, after receiving another demand from Parks, Safeco forwarded to him a check for the $1,000 medical payments coverage limits.

In February 2005, Parks amended his complaint in the bad faith action to allege for the first time that Safeco had a duty under the policy issued to Evelyn Miller (the Miller policy) to pay the judgment and that it breached the implied covenant of good faith by refusing to defend or indemnify Miller under the Miller policy.

As required by our decision in Safeco I, the trial court, in June 2005, entered a declaratory judgment in favor of Safeco. It later reversed itself, however, denying Safeco's motions for costs and attorneys fees and eventually vacating the judgment entirely. The trial court reasoned that, although we held Safeco had no duty to defend Miller, we had not decided whether it had a duty to indemnify her. As a result, the trial court decided it had prematurely entered judgment in favor of Safeco.

Safeco appealed a second time. We reversed in Safeco II, holding that there could be no duty to indemnify without a duty to defend: "In the prior appeal, we considered only Safeco's potential duty to defend Miller under the Barnette policy. We held that it had no such duty. It follows that Safeco has no duty to indemnify Miller under that policy." (Safeco II, supra, B185335.) Our opinion noted that, while the holding in Safeco I, foreclosed continued litigation with respect to the Barnette policy, the declaratory judgment had no "res judicata or collateral estoppel effect on the question of whether Safeco owes a duty to...