Zurich Ins. Co. v. Peterson

Decision Date29 December 1986
Citation232 Cal.Rptr. 807,188 Cal.App.3d 438
CourtCalifornia Court of Appeals Court of Appeals
PartiesZURICH INSURANCE CO., et al., Plaintiffs, Cross-Defendants and Appellants, v. Winford C. PETERSON, Defendant, Cross-Complainant and Respondent, Tri-Tool, Inc., et al., Defendants and Respondents. Civ. 24056.

Keogh, Marer & Flicker, Gerald Z. Marer and John F. Schuck, Palo, Owen, Melbye & Rohlff and Yale W. Rohlff, Redwood City, for plaintiffs, cross-defendants and appellants.

Peter B. Van Gelder, Sacramento, for defendant cross-complainant and respondent.

Weintraub, Genshlea, Hardy, Erich & Brown, Anthony D. Osmundson and Sara A. Clark, Sacramento, for defendants and respondents.

CARR, Associate Justice.

In this appeal from a summary judgment, we determine when, for purposes of insurance coverage, an act or offense of malicious prosecution is "committed." Is it the date on which the maliciously prosecuted action was filed? Or, as held by the trial court herein, does the "when" period encompass the entire time from the initiation of the maliciously prosecuted action by the filing of the complaint to the termination by final judgment, with joint and several liability on all insurers providing Respondent Winford C. Peterson (Peterson) was awarded damages of $2.3 million in a malicious prosecution action against Tri-Tool, Inc. (Tri-Tool). A dispute then arose as to whether Tri-Tool's successive insurers during the pendency of the malicious prosecution action were jointly and severally liable for costs of defending Tri-Tool and for satisfying the Peterson judgment.

                coverage within this time frame?   We conclude that under the insurance policy provisions herein, the controlling date is the date of filing the complaint.  This necessarily engenders the further finding that, for insurance purposes, malicious prosecution is not a continuing tort
                

Zurich Insurance Company (Zurich) and American Guarantee and Liability Insurance Company (American), appellants herein, filed an action for declaratory relief to determine this issue. The trial court granted motions for summary judgment in favor of Peterson, Tri-Tool and Home Insurance Company (Home) and held Zurich and American liable for the unsatisfied portion of the judgment, some $2.1 million.

On appeal, Zurich and American contend (1) they had no duty to defend or indemnify Tri-Tool as Tri-Tool's act of malicious prosecution was committed prior to the effective dates of the Zurich and American insurance policies; (2) Insurance Code section 533 1 precludes coverage for malicious prosecution or, alternatively, limits appellants' liability to defense costs; (3) appellant Zurich, as an excess insurer, had no duty to defend the malicious prosecution action; (4) respondent Home Insurance Company breached its duty of good faith and fair dealing owed to both appellants and Tri-Tool, thereby relieving appellants of any liability; and (5) respondents' collusion in reaching an agreement in the malicious prosecution case absolves appellants of liability. We shall find for appellants on their first contention and reverse the summary judgment. This finding is dispositive of the appeal and renders it unnecessary to reach the remaining appellate contentions.

FACTUAL AND PROCEDURAL BACKGROUND

This appeal is the culmination of proceedings in three separate actions in the trial court. A factual review of each case is necessary to the resolution of the essential issue we consider.

1. Tri-Tool Inc. v. Peterson (Sacramento Superior Court No. 285067)

On October 31, 1979, Tri-Tool, Inc. filed suit against its president, Winford Peterson, seeking rescission of his employment contract. The complaint alleged Peterson made fraudulent misrepresentations to gain employment, breached the employment contract and grossly mismanaged Tri-Tool's business. Peterson cross-complained, charging breach of contract and tortious interference with contractual relations.

At the time the complaint was filed, Tri-Tool was insured for malicious prosecution by Home. Home's policy provided coverage in the sum of $500,000 for personal injury and stated, "This Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of injury (herein called ' "personal injury" ') arising out of one or more of the following offenses: [p] Group A--false arrest, detention or imprisonment, or malicious prosecution; [p] ... if such offense is committed during the policy period...." (Italics added.)

In February 1980, Home's policy was replaced by a $500,000 general policy issued by American and a $5,000,000 excess policy by Zurich. American's policy provided, "The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury ... to which this insurance applies, sustained by any person ... and arising out of the conduct Zurich's policy provided coverage for personal injury, including "injury resulting from false arrest, detention or imprisonment, wrongful entry or eviction or other invasion of private occupancy, malicious prosecution or humiliation except that maliciously inflicted by, at the direction of, or with the consent of the insured." "Occurrence" of malicious prosecution was defined as "an act or series of acts of the same or similar nature, committed during this policy period which causes such personal injury." (Italics added.)

of the named insured's business, ..." The policy defined "personal injury" as an "injury arising out of one or more of the following offenses committed during the policy period: [p] false arrest, detention, imprisionment [sic], or malicious prosecution; ..." (Italics added.)

In November 1980 the trial court ordered the action between Tri-Tool and Peterson to arbitration, as provided by the parties' employment contract. In October 1981 the arbitration panel awarded Peterson $188,007 in damages on his cross-complaint. In a corrected award in November 1981, the panel made specific findings, including one that Peterson committed no acts of fraud or misrepresentation to induce his employment. The trial court confirmed the corrected award and Tri-Tool paid the judgment.

2. Peterson v. Tri-Tool, Inc. (Sacramento Superior Court No. 295169)

After initially filing a premature complaint, Peterson filed his first amended complaint for malicious prosecution against Tri-Tool and its officers on December 7, 1981. Tri-Tool's defense was tendered to and accepted by Home. On February 25, 1983, Home contacted Zurich and American to inform them of their potential liability and request their participation in the defense. Zurich had been aware of the Tri-Tool v. Peterson litigation and in 1980 had refused to defend Tri-Tool against Peterson's cross-complaint because their policies became effective after the purported loss date. Zurich and American refused to defend, contending the act of malicious prosecution occurred on the date Tri-Tool filed its complaint against Peterson in October 1979, which was prior to the effective date of their policies. Letters and telephone calls were exchanged between the insurance carriers. Home informed Zurich and American that the trial judge estimated Peterson's potential judgment could be as high as $1.5 million. Home also conveyed Peterson's settlement demands to Zurich and American. Both companies refused to participate in settlement discussions.

On June 10, 1983, the day of trial, the parties stipulated that Peterson could file an amended complaint to allege a second cause of action for negligent infliction of emotional distress. The court was informed Peterson and the individual directors had reached a settlement and that Peterson was dismissing his complaint against the directors and proceeding only against Tri-Tool. The settlement provided in part for a payment of $250,000 to Peterson and an assignment to Peterson of Tri-Tool's rights against appellants. Peterson agreed not to execute any judgment he might receive against Tri-Tool. The parties waived a jury trial and tried the matter before the court. Judgment against Tri-Tool was entered September 8, 1983, under which Peterson was awarded (1) $200,000 for lost wages, (2) $1.975 million for emotional distress and damage to his reputation, (3) $100,000 for exemplary damages and (4) $87,500 for attorney fees in the underlying action.

On October 4, 1983, Peterson made a demand on Zurich and American for approximately $2.1 million in satisfaction of the balance of the malicious prosecution judgment. Zurich and American rejected Peterson's demand and filed an action for declaratory relief, the action at issue in the present appeal.

3. Zurich Insurance Co. and American Guarantee and Liability Insurance Co. v. Peterson; Tri-Tool, Inc.; and Home Insurance Co. (Sacramento County Superior Court No. 315626)

Appellants first filed their complaint for declaratory relief on October 31, 1983. The In January 1984, Peterson filed a motion for summary judgment in which Home and Tri-Tool subsequently joined. In February 1984, Zurich and Home also moved for summary judgment.

complaint, as subsequently amended, raised the contentions now urged on appeal. Peterson filed a cross-complaint which (1) sought payment of the unsatisfied portion of the Peterson v. Tri-Tool judgment under an assignment to Peterson of Tri-Tool's bad faith claim against appellants; (2) sought payment of the judgment based on appellants' failure to defend Tri-Tool; (3) alleged that if appellants' policies did not provide coverage for malicious prosecution, appellants were negligent in failing to provide such coverage; and (4) alleged a bad faith refusal to pay the judgment after Peterson's demand for payment, pursuant to Insurance Code section 790.03. Peterson also sought $50 million in punitive damages.

The court held, inter alia, that malicious prosecution is a continuing...

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