Tamrac, Inc. v. California Ins. Guarantee Ass'n

• Decision Date: 30 April 1998
• Docket Number: No. B112554,B112554
• Citation: 63 Cal.App.4th 751,74 Cal.Rptr.2d 338
• Court: California Court of Appeals
• Parties: , 63 Cal. Comp. Cases 418, 98 Daily Journal D.A.R. 4487 TAMRAC, INC., Plaintiff and Respondent, v. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Defendant and Appellant.

Page 338

74 Cal.Rptr.2d 338

63 Cal.App.4th 751, 63 Cal. Comp. Cases 418,

98 Daily Journal D.A.R. 4487

TAMRAC, INC., Plaintiff and Respondent, v.CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Defendant and Appellant.

No. B112554.

Court of Appeal, Second District, Division 4, California.

April 30, 1998.

Jones Nelson Screeton & Evidon, Jones Nelson Screeton & Cornforth, and Alan D. Sarvas, Panorama, for Defendant and Appellant.

Heenan & Blaikie and Deborah F. Sirias, Beverly Hills, for Plaintiff and Respondent.

CHARLES S. VOGEL, Presiding Justice.

INTRODUCTION

In La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co.(1994)9 Cal.4th 27, 36 Cal.Rptr.2d 100, 884 P.2d 1048(hereafter La Jolla ), the California Supreme Court held that because workers' compensation benefits can never be awarded in a civil lawsuit for damages, there is no potential that a judgment in the civil suit can come within the indemnity provisions of a workers' compensation insurance policy, and therefore a workers' compensation insurance carrier has no duty to defend a civil suit against the insured.In the present casethe trial court held that appellantCalifornia Insurance Guarantee Association(CIGA), pursuant to its statutory obligations for certain claims against an insolvent insurer, is nevertheless liable for costs incurred by respondentTamrac, Inc.(Tamrac) in defending such a civil lawsuit.The trial court ruled that La Jolla does not apply because La Jolla, which expressly overruled a prior Court of Appeal decision to the contrary, was not decided until after Tamrac's underlying civil action was concluded.We reverse.The La Jolla decision means there never was a potential for coverage and never was a duty to defend.La Jolla states the rule applicable to this case, and CIGA is entitled to rely on it, having reserved its rights at the time of agreeing conditionally to accept the defense of the underlying civil action.

FACTUAL AND PROCEDURAL BACKGROUND

The material facts are undisputed.The following is a detailed chronology.

Pacific States Casualty Company issued a policy of workers' compensation and employer liability insurance to Tamrac.Pursuant to Insurance Code section 1063 et seq., CIGA became obligated for certain claims presented against Pacific States Casualty Company.

Mary Waterrose commenced employment with Tamrac on September 25, 1990, and was terminated from employment on February 26, 1993.

On September 20, 1993, Waterrose filed a complaint against Tamrac (Waterrose v. Tamrac, Inc.(Super. Ct. L.A. County, 1993, No. BC089461)).Waterrose alleged nine causes of action, for age discrimination, wrongful termination, breach of contract, breach of implied covenant of good faith and fair dealing, fraud and deceit, negligent misrepresentation, promissory estoppel, and intentional and negligent infliction of emotional distress.

On October 27, 1993, Tamrac tendered the defense of the action to CIGA.¹In its letter tendering the defense, Tamrac argued that Waterrose's eighth and ninth causes of action for emotional distress raised claims potentially covered by workers' compensation, and cited Wong v. State Compensation Ins. Fund(1993)12 Cal.App.4th 686, 16 Cal.Rptr.2d 1 for the proposition that such potential for recovery under the policy obligated CIGA to defend.

On April 7, 1994, CIGA offered to provide a defense, through attorneys of its choosing, subject to a reservation of rights to withdraw from its agreement to defend, "upon reasonable notice to Tamrac."

Tamrac objected to that offer on two grounds.First, on April 18, 1994, Tamrac cited a potential for conflict of interest if attorneys of CIGA's choosing defended the entire action including those causes of action having no potential for coverage.Second, on May 25, 1994, Tamrac cited the difficulty of bringing a new attorney into the case in light of the imminence of urgent fast-track deadlines.Tamrac preferred that CIGA agree to pay the cost of the attorneys who were already defending Tamrac in the Waterrose action.

On June 6, 1994, CIGA agreed to accept the defense subject to certain conditions and with a reservation of rights to withdraw from the defense and to seek reimbursement from Tamrac.CIGA agreed to the retention of Tamrac's attorneys, at a maximum rate of $125 per hour, from April 11, 1994.CIGA's letter stated preliminarily, "California law presently appears to obligate the workers' compensation insurer to provide defense in the civil action to this type of claim only because the compensation carrier may be obligated to pay workers' compensation benefits to the employee in the event that the civil court determines that certain of the civil claims are cognizable only at the Workers' Compensation Appeals Board and the employee thereafter invokes the jurisdiction of the WCAB and prevails in that administrative forum."But CIGA reserved its rights as follows: "CIGA's acceptance of the tender of defense of the civil case is based upon the potential for liability for workers' compensation benefits.CIGA reserves its right to withdraw its acceptance of the tender of defense in the event that it is determined, either factually or legally, that there is no longer any potential for liability to indemnify for workers' compensation benefits.Further, CIGA also reserves its rights to seek reimbursement, in whole or in part, from the policy holder for all costs of defense paid by CIGA in the event that it is determined that there is no potential for liability for payment of compensation benefits or that the claims made against CIGA are not 'covered claims' as defined by statute.Further, CIGA reserves all rights to seek reimbursement from the policy holder for that proportion of the costs of defense which are attributable to causes of action that do not create any potential for liability for workers' compensation benefits.Thus, CIGA reserves all rights to seek allocation of attorney fees and costs...."CIGA's letter concluded by requesting that CIGA be kept abreast of the costs and estimated costs and the status of the case.

On August 5, 1994, Tamrac submitted to CIGA its detailed invoices for attorney fees incurred to date.CIGA did not pay them.

On September 19, 1994, the court in the Waterrose case granted summary adjudication of issues in favor of Tamrac on all causes of action except breach of contract and breach of the covenant of good faith and fair dealing.The ground for summary adjudication of the eighth and ninth causes of action for emotional distress was that "these claims are barred by the exclusive provisions of the Workers' Compensation Act."Tamrac asserts in its respondent's brief that Tamrac settled with Waterrose in October 1994 and that the Waterrose case was dismissed in November 1994.

On October 12, 1994, Tamrac demanded that CIGA pay the previously submitted invoices and additional invoices for services in July, August, and September.Tamrac's letter referred to a previous letter from CIGA of September 30, 1994, which is not in the record; apparently CIGA therein balked at paying the defense costs.

On October 27, 1994, CIGA faxed a response which reminded Tamrac of the April 7, 1994, and June 6, 1994, reservations of rights to withdraw the defense and seek reimbursement of all attorney fees and costs.CIGA commented, "We both know that the status of the law pertaining to civil claims and compensation policies is in almost constant flux.The Supreme [Court] has accepted La Jolla [see post ], and a reversal of the lower [court] may totally eradicate an obligation of a comp insurer to defend civil claims."

On November 3, 1994, CIGA notified Tamrac unequivocally that CIGA would not pay the defense costs.CIGA interpreted the allegations of Waterrose's underlying complaint to be a claim for emotional distress suffered from and after termination of employment, rather than during employment, and cited the recent decision in Bray v. Workers' Comp. Appeals Bd.(1994)26 Cal.App.4th 530, 31 Cal.Rptr.2d 580 that post-termination injuries are not compensable by workers' compensation.CIGA "has concluded that the civil action filed by Mary Waterrose does not present, and never has presented, covered claims.Therefore, [CIGA] has further concluded that it does not owe, and has never owed, any duty to [Tamrac] to pay for costs of defense in reference to the Waterrose civil action.[CIGA] exercises its rights and hereby rejects all demands by [Tamrac] to defend and indemnify, defend, or indemnify as to any and all claims for reimbursement or payment of past or future attorneys' fees or costs incurred by [Tamrac] in reference to [the Waterrose ] civil action."

On December 19, 1994, the California Supreme Court decided La Jolla, supra, 9 Cal.4th 27, 36 Cal.Rptr.2d 100, 884 P.2d 1048.The Supreme Court held, contrary to the Court of Appeal decision, that a workers' compensation insurance policy is unambiguous and cannot reasonably be construed to provide a duty to defend a civil suit seeking damages.Workers' compensation benefits and civil damages are mutually exclusive.Because workers' compensation benefits can never be awarded in a civil suit, a civil suit for damages has no potential for a judgment within the indemnity provisions of a compensation insurance policy, and hence cannot give rise to a duty to defend such a civil suit.(Id. at pp. 43-46, 36 Cal.Rptr.2d 100, 884 P.2d 1048.)The Supreme Court expressly disapproved Wong v. State Compensation Ins. Fund, supra, 12 Cal.App.4th 686, 16 Cal.Rptr.2d 1. (9 Cal.4th at p. 46, fn. 4, 36 Cal.Rptr.2d 100, 884 P.2d 1048.)

In January 1995 Tamrac filed the present action against CIGA seeking to collect its attorney fees and costs incurred in the Waterrose action.Both parties moved for summary judgment.They agreed upon virtually all the facts relating to the duty to defend.CIGA argued that under the La Jolla decision CIGA had no duty to defend, and that CIGA had...