Ticor Title Ins. Co. v. Employers Ins. of Wausau

• Decision Date: 15 December 1995
• Docket Number: No. A068090,A068090
• Citation: 48 Cal.Rptr.2d 368,40 Cal.App.4th 1699
• Court: California Court of Appeals Court of Appeals
• Parties: , 95 Cal. Daily Op. Serv. 9635, 95 Daily Journal D.A.R. 16,734 TICOR TITLE INSURANCE COMPANY et al., Plaintiffs and Respondents, v. EMPLOYERS INSURANCE OF WAUSAU, Defendant and Appellant.

Page 368

48 Cal.Rptr.2d 368

40 Cal.App.4th 1699, 95 Cal. Daily Op. Serv. 9635,

95 Daily Journal D.A.R. 16,734

TICOR TITLE INSURANCE COMPANY et al., Plaintiffs and Respondents, v. EMPLOYERS INSURANCE OF WAUSAU, Defendant and Appellant.

No. A068090.

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

Dec. 15, 1995.

Review Denied April 11, 1996.

Zelle & Larson, Steve D. Meier, San Francisco, Zelle & Larson, Patricia St. Peter, Pro Hac Vice, Minneapolis, Minnesota, for appellant.

Pillsbury Madison & Sutro, Walter R. Allan, Stephen Stublarec, John M. Grenfell, Warren H. Nelson, Jr., Roger E. Booth, San Francisco, for respondents.

ANDERSON, Presiding Justice.

I. INTRODUCTION AND BACKGROUND

This appeal involves yet another insurance squabble in the tangle of litigation stemming from the demise of Technical Equities Corporation (TEC), a diversified investment services company that sought bankruptcy court protection in February 1986. Appellant is Employers Insurance of Wausau (Wausau), provider of second layer excess general liability insurance to respondent Ticor Title Insurance Company and Ticor Title Insurance Company of California (Ticor).

The bankruptcy estate of TEC (Estate) sued Ticor for its alleged acts or omissions in preparing and recording title documents which obscured the illusory underpinnings of a TEC real estate option program and thereby aided TEC directors and officers in their scheme to loot and defraud the company. Certain investors in TEC also asserted claims against Ticor arising out of the same conduct.

Ticor tendered defense of the Estate's claims to Wausau in December 1990, appending the Estate's petition to "add on" Ticor as a defendant in its existing, coordinated actions. The next month Wausau denied coverage for Ticor's claims and the Estate filed its first amended complaint formally targeting Ticor as a defendant.

In September 1991 Ticor settled the Estate and investor claims for $7.5 million. Two months later Ticor turned around and sued the various insurers in the ladder of its primary and excess liability insurance program. ¹ Ticor sought declaratory relief as well as damages for breach of contract and breach of the implied covenant of good faith and fair dealing. CNA and National Union settled with Ticor. Ticor's case against Wausau proceeded to trial and judgment, with a $4,192,339 ² verdict against Wausau, plus an additional $1,870,00 in attorney fees and litigation expenses pursuant to Brandt v. Superior Court (1985) 37 Cal.3d 813, 210 Cal.Rptr. 211, 693 P.2d 796.

Wausau challenges the multimillion dollar judgment on all fronts. First, it urges that Ticor had no right, under the "bodily injury" clause of the policy, to indemnification for settlement of the investor claims because in the last analysis the investors' injuries flowed from financial losses, for which the policy afforded no coverage. Second, Wausau maintains it had no duty to defend the Estate's claims because (1) given that it was an excess carrier, its duty to defend did not kick in until the underlying CNA coverage was exhausted and (2) in any event there was no potential for coverage under the Wausau policy. We agree on all points and reverse the judgment in its entirety.

II. DISCUSSION

A. There Was No Coverage for Investor Claims Under the Bodily Injury Clause

The investors never filed suit against Ticor. However, Alan Ruby, attorney for the investors, appeared at the settlement conference between Ticor and the Estate and inserted the investor claims into the settlement negotiations. Ruby indicated that his clients intended to sue Ticor for economic damages in excess of $100 million as well as emotional distress damages. Ticor quickly settled these claims for $2.2 million.

At the trial against Wausau, Ruby explained the basis for seeking emotional distress damages: "The consequences of the collapse of Technical Equities took a financial toll on all of our clients. [p] There was also a very heavy emotional toll taken on our clients.... [p] Many of our clients were elderly people. Many of them were people who had lost money that was for their retirement and for their support in retirement or otherwise. [p] And when that money suddenly vanished the emotional consequences were awful." And further: "They suffered [emotional distress] from losing their life savings."

By requested (but denied) jury instruction as well as motions for nonsuit and directed verdict, Wausau argued that under authority of McLaughlin v. National Union Fire Ins. Co. (1994) 23 Cal.App.4th 1132, 29 Cal.Rptr.2d 559 and Chatton v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 846, 13 Cal.Rptr.2d 318, both decided under the coordinated TEC litigation proceedings, ³ there was no coverage under its "bodily injury" provisions for the investor claims because any "bodily injury" sustained by the investors resulted directly from their investment losses. The trial court disagreed and the cause was submitted to the jury with interrogatories querying (1) whether there was an occurrence resulting in bodily injury to the investor claimants and, if so (2) what amount, if any, of the settlement paid to the investors should be paid by Wausau.

The trial court erred. In Chatton we had occasion to examine whether National Union's CGL policy afforded coverage for emotional distress suffered by TEC investors when that distress arose from their investment losses caused by negligent misrepresentations of TEC officers and directors. Under that policy, coverage was forthcoming for "bodily injury" or "property damage" caused by an "occurrence." ⁴

We first held that the phrase "bodily injury, sickness, or disease" is plain and unambiguous, limiting coverage to physical injury to the body and excluding nonphysical, emotional, or mental harm. (Chatton, supra, 10 Cal.App.4th at pp. 853-856, 13 Cal.Rptr.2d 318.) Next, we explained that the investment loss suffered by the investors, upon which their emotional trauma was predicated constituted an injury to intangible property and, hence, by definition such loss was not recoverable under the policy. (Id., at pp. 857-859, 13 Cal.Rptr.2d 318.) Finally, we concluded that the negligent misrepresentations of the insured officers and directors were not "occurrences" within the meaning of the policy. We clarified that negligent misrepresentations, however, causing loss of economic interest, are purposeful rather than accidental acts for purposes of CGL coverage because they require an intent to reduce reliance and, thus, are relatives of fraud. (Id., at p. 861, 13 Cal.Rptr.2d 318.)

McLaughlin took the above analysis a step further in light of the investors' contention that they suffered emotional and physical distress which in turn derived from investment loss negligently inflicted upon them by the insureds. Reiterating that damage for loss of investment is not cognizable under the property damage clause of the CGL policy, we further held: "[S]ince Plaintiffs' physical distress was induced by an uncovered economic loss it defies reason that bodily injury coverage would nevertheless independently obtain. 'It would expand coverage of [CGL] policies far beyond any reasonable expectation of the parties to sweep within their potential coverage any alleged emotional or physical distress that might result from economic loss that is itself clearly outside the scope of the policy. [Citation.]' (Keating v. National Union Fire Ins. (9th Cir.1993) 995 F.2d 154, 156-157.)" (McLaughlin, supra, 23 Cal.App.4th at p. 1150, 29 Cal.Rptr.2d 559.)

Very recently our Supreme Court followed suit and agreed that parties to a CGL policy could not reasonably expect that coverage would be expanded simply because a claim of emotional or physical distress is alleged as a result of an uncovered economic loss. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 23, 44 Cal.Rptr.2d 370, 900 P.2d 619.)

McLaughlin controls here. For all practical purposes, save one, the relevant Wausau policy provisions are virtually the same as their National Union counterparts. The one difference is the Wausau definition of "bodily injury" which includes physical injury, etc., as well as "mental or emotional injury, sickness, disease, disability, anguish, or shock...." This difference does not in fact make any difference.

Ticor argues that the Wausau "bodily injury" coverage is independent of its "property damage" coverage and there is no basis for reading the limitations of the latter into the former, pointing to expert testimony of former California Insurance Commissioner Richard Roddis. Roddis testified that coverage under a CGL depends on "the nature of the damage, property damage versus some other sort of damage...." No one would argue with that statement. Then, in response to a question whether one could recover economic loss under the policy, he used the illustration of an automobile accident to explain that if an injured pedestrian becomes permanently disabled from the accident, the policy would cover economic loss in the nature of lost career earnings because it results from the bodily injury.

This illustration is the flip side of our situation. Under the former Insurance Commissioner's example, you start with a primary injury that is covered under the policy--bodily injury from an accident. Economic loss stemming from that injury is covered. But, if you start with an uncovered economic loss in the form of dissipated investments, McLaughlin and Keating teach that you cannot then tag on emotional or physical distress induced by that uncovered loss. Thus, even though a CGL policy such as Wausau's provides coverage for emotional harm caused by an occurrence, if that harm is the by-product of an uncovered financial loss there is no coverage, period.

As a matter of law there is no basis to support Ticor's claim for indemnification of the settlement paid to the investors and, therefore, we reverse the judgment awarding $2,000,000 on that...