Twentieth Century-Fox Film Corp. v. Harbor Ins. Co.

• Decision Date: 27 September 1978
• Docket Number: CENTURY-FOX
• Citation: Twentieth Century-Fox Film Corp. v. Harbor Ins. Co., 149 Cal.Rptr. 313, 85 Cal.App.3d 105 (Cal. App. 1978)
• Court: California Court of Appeals
• Parties: TWENTIETHFILM CORPORATION, Plaintiff and Respondent, v. HARBOR INSURANCE COMPANY, Defendant and Appellant. Civ. 52184.

Page 313

149 Cal.Rptr. 313

85 Cal.App.3d 105

TWENTIETH CENTURY-FOX FILM CORPORATION, Plaintiff and Respondent, v. HARBOR INSURANCE COMPANY, Defendant and Appellant.

Civ. 52184.

Court of Appeal, Second District, Division 3, California.

Sept. 27, 1978.

Hearing Denied Dec. 13, 1978.

Chase, Rotchford, Drukker & Bogust and David Clark, Los Angeles, for defendant and appellant.

Simon & Sheridan, Thomas R. Sheridan, James J. Coyle, and Randall E. Greer, Los Angeles, for plaintiff and respondent.

COBEY, Acting Presiding Justice.

Defendant, Harbor Insurance Company (Harbor), appeals from a summary judgment and a supplemental minute order with respect to attorneys' fees, under which plaintiff, Twentieth Century-Fox Film Corporation (Fox), recovered from Harbor the principal amount of $548,138.90, together with interest thereon in the sum of $53,086.52, attorneys' fees in the total amount of $47,780, and costs in the sum of $920.75. ¹ The appeal lies and is timely. (Code Civ.Proc., §§ 437c, 904.1, subds. (a), (b); Cal. Rules of Court, rule 3, subd. (b).)

Aside from $45,000 in attorneys' fees awarded, we propose to affirm this excess judgment and related relief. In our view, Harbor became liable to Fox for such damages when it failed on July 23, 1975, to accept a reasonable settlement offer of the plaintiff in the underlying action, Sujac Productions, Ltd., et al. (Sujac) ², although there was at that time a substantial likelihood of an excess judgment against Fox and information to that effect was communicated to Harbor along with the offer by Fox's trial counsel.

Harbor's brief puzzles us somewhat. It first argues that the trial court incorrectly applied a rule of strict liability against Harbor. The record does not support this contention. It next asserts that abundant questions of material fact were presented to the trial court. We perceive none that affect either the liability or the damages challenged. ³ It then contends that the trial court should have granted its motion for summary judgment, but if the summary judgment for Fox was proper, such cannot be the case. It finally challenges the propriety of the award of attorneys' fees to Fox to the extent that such award includes $45,000 in such fees for the prosecution of the instant action.

We have examined the foregoing contentions of Harbor and have concluded for reasons stated herein that each is without merit, aside from Harbor's challenge to the attorneys' fees awarded Fox for Fox's prosecution of the instant action. We propose to disallow such fees and will modify the judgment under appeal accordingly before affirming it.

FACTS

On February 3, 1969, Harbor issued to Fox a three year, one million dollar maximum (including defense costs), errors and omissions, blanket producers liability insurance policy covering, among other things, claims against the insured by reason of unfair competition. The policy provided that Harbor would have the right to take over and defend in the name of Fox any claim or legal proceeding which, in the judgment of Harbor, might ultimately involve it in liability under the policy and that Harbor would have the right to dispose of any claim or legal proceeding at its sole discretion. This policy remained in effect from February 3, 1969 until February 3, 1972.

On or about April 24, 1970, a civil action, numbered 975612 and entitled Sujac Productions Ltd., et al. v. Twentieth Century-Fox Film Corporation, was filed in the Los Angeles County Superior Court in which it was alleged, among other things, that Fox was liable for unfair competition and in which compensatory damages of eight million dollars and punitive damages of two million dollars were sought. The alleged unfair competition lay in the production and release thereafter of a feature motion picture entitled "Beyond the Valley of the Dolls", which was not a sequel or an adaption of the best selling book "Valley of the Dolls" and was not based thereon as allegedly required by the 1965 and 1968 agreements between Sujac and Fox.

Fox immediately notified Harbor of the Sujac action and caused to be delivered to Harbor two copies of the summons and complaint therein. Harbor thereupon took charge of, controlled, and paid generally for the defense of the action. ⁴ It authorized the law firm of Musick, Peeler & Garrett to defend Fox therein, which the Musick firm thereafter did.

In 1970, 1972, and 1973 Sujac offered various settlements of the litigation within the policy's limit of one million dollars, but Harbor refused them all. At the mandatory settlement conference on May 1, 1975, Sujac, through its trial counsel, offered to settle the case for $500,000 or $550,000, but Fox replied, through its trial counsel, that it was not authorized to offer more than $85,000. ⁵ At this conference counsel for Sujac emphasized that their primary claim was unfair competition in Fox's alleged unlawful use of the title, "Beyond the Valley of the Dolls." Counsel for Fox took the position that under Fox's aforementioned 1968 agreement with Sujac, Fox was authorized to use the title. Counsel for Sujac indicated that they would introduce evidence of Fox's profits on this motion picture as a measure of Sujac's damages resulting from Fox's unfair competition. A representative of Harbor attended this conference. The judge presiding at the conference placed the settlement value of this case at $125,000.

By letter dated May 8, 1975, Sujac, through its trial counsel, raised its settlement offer to $775,000. Such counsel explained in the letter that this demand represented less than 50% Of Fox's exposure which he calculated at $1,600,000 aside from punitive damages. Fox did not reply to this letter.

On June 19, 1975, trial of the case commenced. During the trial all causes of action except those involving unfair competition were dropped and the prayer of Sujac's complaint was consequently reduced to $4,400,000. After the case had been assigned a courtroom, trial counsel for both parties essentially re-exchanged their settlement offers of May 1, 1975.

On July 23, 1975, the trial court ruled that there was no contract defense to Sujac's unfair competition claim. Previously the court had indicated that it would permit introduction of evidence regarding the profits Fox made on the challenged film. Thereupon Sujac's trial counsel informed Fox's trial counsel that Sujac would settle the case for $775,000, which Sujac's trial counsel said was about 50% Of Sujac's anticipated recovery. Fox's trial counsel replied that he would relay this offer to the insurer.

Upon the return of Fox's trial counsel to their office on that same day, July 23, 1975, lead counsel telephoned Harbor's claims manager. He told the claims manager that the case was going badly in view of the just-stated ruling on Fox's contract defense and the court's prior indication that Sujac would be able to introduce in evidence Fox's profits on the picture as evidence of damages. He then relayed Sujac's $775,000 settlement offer and explained that Sujac's trial counsel had indicated that this figure was premised upon 50% Of Sujac's anticipated recovery and therefore Fox's lead counsel assumed that his adversary was looking at profits in excess of one and a half million dollars. Fox's lead counsel also told Harbor's claims manager at this time that Sujac was also seeking in damages the $2,199,000 distribution fee, $440,000 in alleged loss of sales of a paperback book to be based on the treatment sequel submitted to Fox, and $220,000 for alleged loss of sales of the book "The Love Machine." Harbor's claims manager replied that the case was in the hands of the reinsurer and that the matter would be submitted to it. The next day Fox's counsel reported to his adversary that he was unable to get an answer from the insurer.

On August 1, 1975, the jury returned a verdict of $2,000,000 against Fox and judgment was entered in that amount. On September 17, 1975, Fox and Harbor compromised the judgment for $1,425,000 of which, pursuant to a written agreement between Harbor and Fox, Harbor paid $876,861.10, its policy limits, ⁶ and Fox paid $548,138.90. Fox also paid $2,780 in attorneys' fees in connection with this compromise of the judgment.

Harbor refused to make Fox whole for the expenses it had incurred as a result of the Sujac action and on February 25, 1976, Fox sued Harbor for, among other things, such expenses and related relief, including attorneys' fees incurred in compromising the aforementioned judgment and for prosecution of the instant litigation.

DISCUSSION

1. The Propriety of the Judgment Under Appeal in General

There is an implied covenant of good faith and fair dealing in every insurance policy that neither party to the policy will do anything that will injure the right of the other to receive the benefits of the policy. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658, 328 P.2d 198.) This implied covenant imposes on the insurer a duty to settle a claim against its insured within policy limits by accepting a reasonable settlement offer "whenever there is a substantial likelihood of a recovery in excess of those limits." (Johansen v. California State Auto Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 14-15, 17, fn. 6, 123 Cal.Rptr. 288, 291, 538 P.2d 744, 747; Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 941, 132 Cal.Rptr. 424, 553 P.2d 584.) The only permissible consideration in evaluating the reasonableness of a settlement offer is whether in light of the probable liability of the insured, the ultimate judgment is likely to exceed the offer. (Johansen v. California State Auto Assn. Inter-Ins. Bureau, supra, 15 Cal.3d at p. 16, 123 Cal.Rptr. 288, 538 P.2d 744.) A judgment in excess of the limits of a policy inferentially suggests that the value of the claim is the equivalent of the amount of the judgment and that acceptance of an offer within those limits was the most reasonable method of dealing with the...