Tomerlin v. Canadian Indem. Co.

Decision Date13 August 1964
CourtCalifornia Supreme Court
Parties, 394 P.2d 571 David W. TOMERLIN, Plaintiff and Respondent, v. The CANADIAN INDEMNITY COMPANY, Defendant and Appellant. S. F. 21371.

Hanna & Brophy, Eugene A. Biglow, Fresno, and George Brunn, San Francisco, for defendant and appellant.

McCormick, Barstow, Sheppard, Coyle & Best and Robert E. Coyle, Fresno, for plaintiff and respondent.

TOBRINER, Justice.

This case involves four issues which emanate from the representations of an attorney retained by an insurance company to defend and insured under a personal liability insurance policy. First, we hold that substantial evidence supports the trial court's findings that the attorney possessed the authority to bind the insurer by his representations respecting the coverage of the policy; second, we believe that the attorney's representations estop the insurer from denying such coverage; third, we find no dictate in public policy that prevents an estoppel from imposing liability found upon an intentional tort; finally, the damages, predicated upon estoppel, must comprise the promised coverage.

We set forth the facts of the case. Defendant issued a comprehensive liability policy obligating it to pay for liability incurred by plaintiff for bodily injury sustained by any person. Defendant agreed under the policy to defend any action alleging such injury. The policy specifically excluded coverage for 'Bodily injury * * * sustained by any person as a result of an assault committed by, or at the direction of, the insured.'

On August 28, 1959, plaintiff personally assaulted and battered one Maurice Jack Villines. On September 3, 1959, at defendant's request, plaintiff executed a reservation of rights agreement providing that defendant could investigate the incident and defend any action by Villines 'without prejudice to the (defendant) under the policy, and still reserving unto the said (defendant) all its rights and defenses under said policy. * * *' Shortly thereafter, Villines filed an action against plaintiff alleging assault and battery and claiming compensatory and punitive damages.

Plaintiff engaged Hollis G. Best as his personal attorney. Best contacted defendant's adjuster, who eventually notified Best that defendant would defend the action under the reservation of rights agreement. Defendant thereafter retained a San Francisco attorney, Edward A. Friend, to defend plaintiff and 'represent * * * (defendant's) interests in the lawsuit.' Best advised Friend that he was plaintiff's personal counsel and that Friend was to keep him informed of all proceedings in the Villines suit. Until his withdrawal from the case, Best remained in continuous contact with Friend, and was listed on the depositions as attorney of record together with Friend.

On September 14, 1960, Villines filed an amended complaint adding two counts of negligence to the assault and battery allegation. The answer filed on plaintiff's behalf raised as affirmative defenses, the defense of self and defense of property.

On November 15, 1960, while Friend and Best were discussing the Villines case, Friend referred to the decision in Walters v. American Insurance Co. (1960) 185 Cal.App.2d 776, 8 Cal.Rptr. 665, 1 giving his views of its effect. Best testified that Friend 'advised me that in his opinion the decision * * * would do away with the reservation of rights agreement, and (defendant) would have to afford coverage.' On December 5, 1960, Best received a copy of a letter from Friend to defendant, in which Friend advised defendant that 'If the (Walters) opinion becomes final, as it will unless the State Supreme Court grants a hearing this month, then our reservation of rights agreement will become a nullity.'

After this court, on December 21, denied a hearing in Walters, Best and Friend again discussed the matter. Best asked Friend whether defendant's position on the reservation of rights had altered as a consequence of the Walters decision. Friend replied that defendant 'was continuing without a reservation of rights to defend the action.' Best correctly interpreted Friend's statement to mean that defendant would afford coverage, and not that it merely would present the defense, which, in fact, it was rendering under the reservation of rights agreement. Best told Friend that 'in view of that' he would no longer 'be concerned with representing Mr. Tomerlin. * * *' Best then informed plaintiff that defendant was accepting liability without reservation, and that plaintiff no longer needed personal counsel. Best had nothing further to do with Villines suit.

On the first day of trial, counsel for Villines dismissed the two negligence counts and the claim for punitive damages. Plaintiff testified that 'At this time I asked Mr. Friend if this changed my picture as far as my insurance coverage was concerned, and he said no, that the coverage is still the same as it had been before he dropped the negligence counts.' On the same day plaintiff's wife asked Friend if 'this lets the insurance company off the hook?', to which Friend replied 'No, not as far as I am concerned.'

In March, 1961, the jury returned a verdict of $15,000 against plaintiff. When a juror attempted to console Mrs. Tomerlin, by telling her that 'it was all insurance money,' Friend, who was present, did not deny coverage but stated only that it was a staggering amount. A short time later Friend again assured Mrs. Tomerlin that under the Walters decision the insurance company remained liable. In April, 1961, however, Friend notified plaintiff that defendant disclaimed any liability to pay the Villines judgment.

Plaintiff brought this action seeking a declaration of defendant's liability. The trial court found that Friend had represented to plaintiff that defendant was defending the Villines action without any reservation, that such representations were binding upon defendant, that in reliance upon these representations plaintiff permitted his personal counsel to withdraw from the Villines suit, and that defendant was therefore estopped to deny its obligation to pay the judgment. The trial court entered judgment that the defendant is obligated to pay, on plaintiff's behalf, the amount of the award in the Villines action. Defendant appeals the judgment of the trial court.

The primary issue in this case turns upon whether an attorney hired by an insurance company to defend an insured possesses the authority to bind the insurer with regard to coverage of the policy. We have concluded that upon the facts of this case the attorney, Friend, had both actual and ostensible authority to bind defendant.

Initially we point out that defendant's contention on appeal that Friend lacked such authority constitutes a challenge to the sufficiency of the evidence; we need therefore determine only whether the record contains any substantial evidence to support the findings of the trial court. (Nichols v. Mitchell (1948) 32 Cal.2d 598, 197 P.2d 550; Kazanteno v. California-Western etc. Ins. Co. (1955) 137 Cal.App.2d 361, 290 P.2d 332; Correa v. Quality Motor Co. (1953) 118 Cal.App.2d 246, 257 P.2d 738.)

Actual authority arises as a consequence of conduct of the principal which causes an agent reasonably to believe that the principal consents to the agent's execution of an act on behalf of the principal. (Civ.Code, § 2316; County First National Bank of Santa Cruz v. Coast D. & L. Co. (1941) 46 Cal.App.2d 355, 364, 115 P.2d 988; Correa v. Quality Motor Co., supra, 118 Cal.App.2d 246, 251, 257 P.2d 738; Gaine v. Austin (1943) 58 Cal.App.2d 250, 260, 136 P.2d 584; 1 Rest.2d Agency (1957) § 26.) Similarly, ostensible authority arises as a result of conduct of the principal which cause the third party reasonably to believe that the agent possesses the authority to act on the principal's behalf. (Civ.Code, §§ 2300, 2317; Donnelly v. San Francisco Bridge Co. (1897) 117 Cal. 417, 421, 49 P. 559; County First National Bank of Santa Cruz v. Coast D. & L. Co., supra, 46 Cal.App.2d 355, 366, 115 P.2d 988; Kazanteno v. Calfornia-Western etc. Ins. Co., supra, 137 Cal.App.2d 361, 372, 290 P.2d 332; Rest.2d Agency, supra, §§ 8, 27, 49.)

To establish actual or ostensible authority the principal's consent need not be express. 'Agency may be implied from the by his acts has led others to believe that he has conferred authority upon an agent, he cannot be heard to assert, as against third persons who have relied thereon in good faith, that he did not intend to confer such power. * * * An agent's authority may be proved by circumstantial evidence * * *.' (Gaine v. Austin, supra, 58 Cal.App.2d 250, 260-261, 136 P.2d 584, 590.)

The record contains substantial evidence to support the finding of both actual and ostensible authority. With respect to actual authority the evidence shows that defendant engaged Friend to represent plaintiff in the Villines suit, and, in the words of defendant's claims manager, 'to represent * * * our interests in the lawsuit.' Defendant failed to notify Friend of any actual limitations upon his authority although it knew that Friend concerned himself with the question of policy coverage, and, indeed, had notified defendant that its reservation of rights agreement was ineffective.

Mr. Biglow, defendant's counsel in the instant proceeding, stated to the trial court that '* * * in every one of these situations, the defense attorneys hired by * * * the insurance company * * * are called upon by (the insurer) to write letters and express opinions relative to the efficacy of insurance policies. * * *' The record, in fact, discloses a volume of correspondence between Friend and defendant concerning coverage problems. Defendant's silence in the face of this continuing correspondence could reasonably cause Friend to believe that he possesed actual authority to represent defendant in his relations with plaintiff concerning questions of coverage.


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