Tomerlin v. Canadian Indem. Co.

• Decision Date: 14 February 1964
• Docket Number: No. 262,262
• Citation: 37 Cal.Rptr. 15
• Court: California Court of Appeals Court of Appeals
• Parties: David W. TOMERLIN, Individually and dba The Fresno Motel, Plaintiff and Respondent, v. CANADIAN INDEMNITY COMPANY, Defendant and Appellant.

Page 15

37 Cal.Rptr. 15

David W. TOMERLIN, Individually and dba The Fresno Motel, Plaintiff and Respondent, v. CANADIAN INDEMNITY COMPANY, Defendant and Appellant.

No. 262.

District Court of Appeal, Fifth District, California.

Feb. 14, 1964.

Rehearing Denied March 12, 1964.

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

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

R. M. BROWN, Justice.

Plaintiff, David W. Tomerlin, hereinafter Tomerlin, one of the named insureds under a comprehensive bodily injury and property damage liability policy insuring plaintiff and the partnership of which he was a member for loss or liability occurring in the operation of a motel and restaurant business, issued by The Canadian Indemnity Company, hereinafter Canadian, brought this action for a declaration of his rights and a determination of defendant's liability under the policy. The trial court determined that defendant was liable; judgment was entered accordingly; and defendant appeals.

The policy was issued to Tomerlin and his partner doing business as Fresno Motel, a copartnership, and provided that Canadian agreed to pay all sums up to $200,000 which the named insureds became obligated to pay by reason of the liability for damage imposed upon them by law, including damages for bodily injury sustained by any person. In the event of suit founded on such injury, Canadian agreed to 'defend in his name and behalf any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent; the company shall have the exclusive right to settle any claim or suit at its own cost at any time, and irrespective of the amount of coverage hereunder, or the amount involved in any claim, suit or judgment, shall have the exclusive right of determination whether to settle or to litigate the same, and whether or not to appeal from an adverse judgment thereon.' Expressly excluded from coverage are the following: 'Bodily injury, sickness, disease, or death sustained by any person as a result of an assault committed by, or at the direction of, the insured.'

On August 28, 1959, Tomerlin personally assaulted and battered on Maurice Jack Villines, causing injuries to his person. On September 3, 1959, Tomerlin executed a reservation of rights agreement. In December 1959 Villines sued Tomerlin, charging assault and attack, alleging certain injuries, and praying for compensatory and punitive damages. Tomerlin engaged Hollis G. Best as his personal attorney. (Canadian at first refused to defend on the basis that there was no coverage, but a few days later determined to defend the Villines suit under the reservation of rights agreement. It engaged attorney Edward A. Friend under a general retainer to conduct the defense for Tomerlin and Canadian. Both Canadian, through its independent adjuster, and Friend were advised by Best that he represented Tomerlin personally in the litigation.

On September 14, 1960, Villines filed an amended complaint containing three counts. The first count was predicated on the theory of assault and battery; the second and third counts were predicated upon theories of negligence. Upon being advised of the filing of the amended complaint, Best wrote Tomerlin, stating that he would communicate with Friend and ascertain whether Canadian was still defending under the reservation of rights agreement in view of the addition of the two counts sounding in negligence. Such inquiry being made, Friend replied that Canadian was continuing to defend under the reservation of rights agreement as to the first count but not with reference to the negligence counts.

The answer filed in behalf of Tomerlin in the Villines suit raised as affirmative defenses the defense of self and defense of property.

About the middle of November 1960, Friend and Best discussed the effect of the decision in the case of Walters v. American Ins. Co., 185 Cal.App.2d 776, 8 Cal.Rptr. 665, which was decided on October 31, 1960. In the cited case an insurer was held liable to the extent of a settlement, without litigation, made by the insured with a third person who had threatened to sue the insured for damages for injuries claimed to have been sustained through an assault and battery at the hands of the insured. Liability of the insurer was predicated upon the theory that the trial court found the insured acted in self defense; that acts committed in self defense are not unlawful; that, in view of the defense, the insurer had a contractual obligation to defend the insured; that the duty to defend was breached in that the insurer was noncommittal as to whether it would conduct a defense in the event the insured was sued; and that, under contract principles, the measure of damages for such breach was an amount which would compensate the insured for all detriment proximately caused thereby, i. e., the amount of the settlement. In brief, the decision seems to hold that there is a distinction between the duty to defend and the duty to indemnify on the part of an insurer, and that the insurer must defend claims against the insured founded on assault and battery, despite noncoverage, in cases where the insured claims he acted in self-defense. However, Best testified that Friend stated that the decision in Walters 'would do away with the reservation of rights agreement, and they would have to afford coverage' in the Villines suit.

On December 2, 1960, Friend wrote to Canadian calling its attention to the Walters case, summarizing the facts, and then stating:

'The District Court of Appeal held that the insurer wrongfully declined the defense under those circumstances; and that the exclusion contemplates only wilful, wanton and aggressive assault, not a mere act of self-defense.

'The facts of the alleged injury in the Walters case are similar to the facts in our case. If the opinion cited 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.

'My belief, as indicated in earlier reports, is that the torts case can be defended on its merits with reference to both the alleged assault and the alleged negligence. Our company, unlike American, has accepted the defense all along in the highest degree of good faith and it was perfectly justified in requesting a reservation of rights agreement at the time it did, based upon the original complaint.'

Without the knowledge of Canadian, Friend sent a blind copy of the letter to Best.

The Supreme Court declined to hear Walters. Friend then told Best that the reservation of rights in this case was without effect and that Canadian was proceeding to defend without reservation. Best, in turn, informed Tomerlin that Canadian had accepted liability without reservation and that Tomerlin no longer needed personal representation. With Tomerlin's permission, Best then notified Friend that he had withdrawn from the Villines suit.

After a jury was selected in the Villines trial, Villines dismissed the two negligence counts and abandoned his claim for punitive damages, leaving as issues for trial his cause of action for damages for assault and battery and Tomerlin's defenses of self and property. Mr. Tomerlin testified that Friend then assured him that he was covered. During the first recess on the first morning of trial of the Villines action, Mrs. Tomerlin asked Friend if the dismissal of the negligence counts 'let the insurance company off the hook,' and Friend replied, 'No, not as far as I am concerned.' He assured her the Tomerlins had nothing to worry about. When the verdict came in, Tomerlin again asked Friend if he was covered by the policy and Friend replied in the affirmative.

Villines obtained judgment against Tomerlin and the copartnership for $15,000 which Canadian declined to pay on the ground that it was excluded from the coverage of the policy. The judgment was affirmed on appeal. (Villines v. Tomerlin, 206 Cal.App.2d 448, 23 Cal.Rptr. 617.)

Tomerlin filed this declaratory relief suit and obtained judgment decreeing that Canadian was obligated to pay the whole of the Villines judgment, together with Tomerlin's costs of suit. The Motel Fresno, a copartnership, is not a party.

The judgment is predicated upon two grounds. First, that by assuming the defense of the main suit, Canadian is estopped from setting up the defense of noncoverage and disclaiming liability; and, second, that Canadian is estopped from disclaiming liability by the conduct and representations of its attorney which are binding upon it. We have concluded that the judgment cannot be sustained on either ground.

The general rule is that, where an insurer, with full knowledge of the fact of noncoverage or a policy defense nevertheless defends an action brought against the insured, without notice of disclaimer of liability or a reservation of rights, it is thereafter estopped in an action upon the policy from asserting noncoverage or the policy defense. (J. Frank & Co. v. New Amsterdam Cas. Co., 175 Cal. 293, 295, 165 P. 927; McDanels v. General Ins. Co., 1 Cal.App.2d 454, 459, 36 P.2d 829; Rodgers v. Pacific Coast Casualty Co., 33 Cal.App. 70, 72, 164 P. 1115; Merchants Indemnity Corp. of N. Y. v. Eggleston, 68 N.J.Super. 235, 172 A.2d 206, 216; Claverie v. American Casualty Co. of Reading, Pa. (1935, 4th Cir.), 76 F.2d 570; William M. Moore Const. Co. v. United States F. & G. Co., 293 N.Y. 119, 56 N.E.2d 74, 75.) In McDanels it is said that the estoppel is that form of estoppel in pais known as quasi estoppel; and that it is based upon the equitable principle that one cannot blow both hot and cold. Thus, an insurer cannot treat a policy as operative by defending, without disclaimer, an action brought against the insured and subsequently, after an adverse judgment, assert noncoverage. However, the...