Smith v. Fin. Pac. Ins. Co.

• Docket Number: B302014
• Decision Date: 15 November 2021
• Parties: MARSHALL W. SMITH, Plaintiff and Appellant, v. FINANCIAL PACIFIC INSURANCE COMPANY, Defendant and Appellant, TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

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MARSHALL W. SMITH, Plaintiff and Appellant, v. FINANCIAL PACIFIC INSURANCE COMPANY, Defendant and Appellant, TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Defendant and Respondent.

B302014

California Court of Appeals, Second District, Fifth Division

November 15, 2021

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No. BC711308 Dennis J. Landin, Judge. Affirmed in part reversed in part, and remanded.

Law Offices of Richard A. Jones, Richard A. Jones and Jarrick S Goldhamer for Plaintiff and Appellant.

Selman Breitman, Eldon S. Edson and Laura R. Ramos for Defendant and Appellant.

Weston & McElvain, Aaron C. Agness and Edmond Sung for Defendant and Respondent.

RUBIN P. J.

INTRODUCTION

In this insurance coverage and bad faith action, we consider two different insurance policies. Plaintiff Marshall Smith, while riding a motorcycle, was injured in a collision with an SUV driven by Luke Gardner. Gardner's insurer accepted the claim and is not a party here. At issue is insurance provided to Gardner's father-in-law, Gerry Paddock, who was held vicariously liable for Gardner's negligence. Paddock was the sole proprietor of two businesses which operated under fictitious names.^[1] One, a construction business, was Carmel Valley Construction. The other, a cattle ranching business was Paddock Land & Cattle. Prior to the automobile accident, Paddock had suffered a stroke and was unable to handle the day-to-day affairs of Paddock Land & Cattle. His daughter, Emily, was his ranch manager. On the day of the accident, Emily had requested her husband, Gardner, to drive the SUV to some leased land and take care of the cattle. Gardner, who was not an employee of Paddock, agreed. He collided with motorcyclist Smith on his way to the property.

At the time of the accident, Paddock had policies from two different insurers. Travelers Property Casualty Company of America provided an Agribusiness policy, covering the operations of Paddock Land & Cattle. That policy contained an automobile exclusion. Financial Pacific Insurance Company provided liability insurance for Paddock's construction operations, Carmel Valley Construction. Its policy included automobile insurance. Gardner's accident was tendered to Travelers and Financial Pacific. Both denied coverage.

In the underlying personal injury action between Smith and Paddock (and Gardner), the court entered a judgment in Smith's favor in excess of the combined policy limits of Travelers and Financial Pacific. Paddock then assigned both contractual and extra-contractual rights to Smith, and Smith brought suit against both insurers for breach of contract and bad faith.

Broadly speaking, the theories were these: (1) as against Travelers (which provided Agribusiness coverage to Paddock dba Paddock Land & Cattle, with an auto exclusion), Smith argued the auto exclusion did not apply, because that exclusion applied only when the vehicle was used by an insured, and Gardner was not an insured; and (2) as against Financial Pacific (which issued a policy in the fictitious business name Carmel Valley Construction, with auto coverage), Smith argued that the auto portion of the policy covered Paddock and all of his sole proprietorships, and was not limited to the construction business. On cross-motions for summary judgment/summary adjudication, the court concluded: (1) the Travelers policy did not cover the accident; (2) the Financial Pacific policy did provide coverage; but (3) Financial Pacific did not act in bad faith. The court entered judgment in favor of Travelers; and in favor of Smith as against Financial Pacific, in the full amount of the underlying judgment, in excess of policy limits. Smith appeals the judgment in favor of Travelers; Financial Pacific appeals the judgment against it on coverage; Smith cross-appeals the finding of no bad faith against Financial Pacific. We conclude: (1) the Travelers policy did not cover the accident; (2) the Financial Pacific policy did cover the accident; and (3) Financial Pacific did not negate a triable issue of fact on the bad faith claim. We therefore affirm the judgment in favor of Travelers, reverse the judgment against Financial Pacific, and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

The facts and relevant policy language are largely, if not entirely, undisputed. The main issues on appeal are questions of coverage, which we resolve as a matter of law on undisputed facts. (Crown Capital Securities, L.P. v Endurance American Specialty Ins. Co. (2015) 235 Cal.App.4th 1122, 1128.)

1. The Accident

On October 5, 2014, Gardner was driving his Bronco to Palo Corona Regional Park, where he planned to tend to Paddock's cattle. There were a number of motorcycles coming up behind him; the lead one was driven by Smith. Gardner slowed to turn left into the park; whether he used his turn signal was disputed. As the Bronco slowed, Smith decided to pass it on the left. As Smith began to pass, Gardner started his turn, and the vehicles collided. Smith lost control of the motorcycle and was thrown some distance. He was evacuated from the scene by helicopter. When the matter was ultimately tried, fault was apportioned 50/50 between Gardner and Smith.

2. The Underlying Action

A. Complaint

On July 31, 2015, Smith brought suit against Gardner. He also named Paddock dba Paddock Land & Cattle and Paddock Land & Cattle as two additional defendants.^[2] The action was filed on a form complaint. In the complaint, Paddock dba Paddock Land & Cattle and Paddock Land & Cattle were alleged to be liable as employers and/or principals of Gardner. Smith specifically alleged that Gardner "was acting in the scope of his agency at the time of the accident for defendant Gerry Paddock, dba Paddock Land & Cattle, Paddock Land & Cattle and [Does]."

B. Travelers and Financial Pacific Deny Coverage

Gardner was insured by GEICO. GEICO provided a defense to both Gardner and Paddock in the underlying action, although GEICO's policy limit was $15, 000. The action was tendered to Travelers, whose Agribusiness policy to Paddock dba Paddock Land & Cattle had a $1, 000, 000 limit. The record is not entirely clear whether Travelers declined the defense; there is no dispute, however, that it declined coverage. The action was also tendered to Financial Pacific, who purported to insure "Carmel Valley Construction" with $1, 000, 000 of auto liability coverage. Financial Pacific refused to defend or indemnify Paddock in the underlying action.

C. Covenant Not to Execute

On December 21, 2017, prior to the trial of the underlying action, Smith entered into a settlement with Gardner and one or more Paddock entities.^[3] In exchange for a covenant not to execute on the anticipated judgment, Gardner and the Paddock signatories assigned to Smith all their rights to indemnity from Travelers and Financial Pacific as well as their rights to extra-contractual damages, including bad faith.^[4]

D. Judgment

The underlying personal injury action was tried to a referee over two days in February 2018. The referee heard testimony and reviewed transcripts, declarations and other documentary evidence. The referee found Smith's damages to be $4, 000, 000. As he was 50 percent negligent, the net damages awarded were $2, 000, 000.^[5]

As to the issue of the liability of Paddock dba Paddock Land & Cattle and Paddock Land & Cattle, the referee's written ruling - ultimately incorporated into the court's judgment - stated as follows: "AGENCY - a major issue in the case was whether Luke Gardner was the agent of the Paddock defendants. Clearly, he was. At the time of the accident here involved, Gardner was driving on his way to land leased for cattle grazing by the Paddock defendants. At that location, he was to feed, medicate, inspect and otherwise care for the cattle. He was doing this at the request of and under the direction of Paddock Land & Cattle made by its Ranch Manager, Emily Paddock. The evidence on this point was uncontroverted. [¶] Gardner was not an employee of the Paddock defendants, but employment is not required to establish an agency relationship. The CACI jury instructions dealing with agency ([Nos.] 3700 & 3701) and the cases cited there use the term 'agent' and 'employee' interchangeably. Gardner was not merely 'doing a favor'; he was doing Paddock's work, at Paddock's direction and under Paddock's control. [¶] Gardner was driving his own vehicle, but was not in a 'going or coming' situation, rather, he was using the vehicle in furtherance of the tasks assigned to him by Paddock. This is the essence of an agency relationship."

On March 29, 2018, judgment in the underlying action was entered in favor of Smith against Gardner, Paddock dba Paddock Land & Cattle, and Paddock Land & Cattle in the amount of $2, 000, 000 plus costs and prejudgment interest.

3. Pleadings in the Current Action

A. Smith's Complaint

On June 25, 2018, Smith, pursuant to the direct action statute (Ins. Code, § 11580, subd. (b)(2)) and his assignment that was part of the covenant not to execute, filed the current action against Travelers and Financial Pacific. He stated three causes of action: (1) breach of contract; (2) bad faith; and (3) declaratory relief.

As to breach of contract, Smith alleged that the defendant insurance companies violated their contractual duties to defend, indemnify and settle the underlying action. He alleged that, as a proximate result of their failure to defend and indemnify, the underlying trial resulted in a judgment in excess of $2.4 million.

As to bad faith, Smith enumerated a laundry list of ways in which the defendants purportedly violated the implied covenant of good faith and fair dealing - including...