Judge: William D. Claster, Case: 20-01135752, Date: 2022-10-07 Tentative Ruling
Defendants Soss & Churton Insurance Services dba Pacific Partners Insurance Agency; Kathy Zall; and Brianne Band ESA Brianne Bann's Motion for Summary Judgment or in the Alternative, Summary Adjudication on the First, Second, and Third Causes of Action ROA 250
Defendants Soss & Churston Insurance Services dba Pacific Partners Insurance Agency, Kathy Zail, and Brianne Band (erroneously sued as “Brianne Bann”) move for summary judgment or adjudication on the complaint of plaintiffs Matthew Manning, Jr., Kaeyln Manning, Julia Manning, and Paige Manning (through her guardian ad litem, Erica Mitchell). The Court rules as follows:
Defendants’ request for judicial notice, which is unopposed, is DENIED as to Exhibits 4 and 5 and GRANTED in all other respects. Exhibits 4 and 5 are deposition transcripts, but there is no proof they were filed in court such that they may be noticed as court records. However, Defendants’ counsel otherwise authenticates them in his declaration, so the Court has considered them.
The Court SUSTAINS Defendants’ evidentiary objections 1 and 8 to the extent Plaintiffs rely on the arbitration award for the truth of the matter asserted there in rather than its existence. The Court SUSTAINS Defendants’ evidentiary objections 3-6. The Court OVERRULES Defendants’ evidentiary objections 2 and 8.
I. Factual and Procedural Background
This case arises from an automobile accident in 2014 that resulted in the death of Matthew Manning, the father of the plaintiffs. In 2015, the Mannings filed suit (the “Underlying Action”) against Marcello’s Pizza and Pasta, its owner Joseph Muirhead (who did business as Marcello’s), and Marcello’s employee Kylie Stevenson. They alleged that Stevenson, while delivering food for Marcello’s, struck and killed Matthew Manning. (UMF 38-39.)
At the time of the accident, Marcello’s was covered by a business insurance policy issued by Mercury Casualty Company to “Joseph Muirhead dba Marcello’s Pizza and Pasta.” (UMF 40.) Muirhead tendered defense of the Underlying Action to Mercury. Mercury determined the accident was not covered by the policy due to a specific exclusion. While it agreed to pay for defense of the Underlying Action, it expressly refused to indemnify Muirhead for any resulting award. (UMF 71-72.)
In September 2016, the Mannings’ counsel in the Underlying Action (the same counsel who represent them here) proposed that Muirhead assign his right to sue Mercury and his insurance agents (the moving Defendants here) for damages caused by the denial of coverage. (UMF 74-75.) The Mannings’ counsel and Muirhead’s counsel in the Underlying Action had further discussions about such an assignment in May 2017. (UMF 76-77.) In August 2017, the Mannings and Muirhead agreed to have the Underlying Action sent to binding arbitration, with Muirhead assigning his rights to sue Mercury and Defendants to the Mannings in exchange for the Mannings executing a covenant not to execute on any award entered by the arbitrator. (UMF 78-79.)
At some point prior to the arbitration, the Mannings settled with Stevenson for $100,000. (Serrano Decl. ¶ 5.) The Underlying Action was then arbitrated. In December 2019, the arbitrator entered an award in favor of the Mannings for $2,164,470.38. (UMF 80.) The Mannings, as Muirhead’s assignees, filed this suit in June 2020. (UMF 81.)
The Mannings originally filed suit in Riverside County. The action was transferred to this Court, where it was consolidated with Mercury’s declaratory coverage action against Muirhead.
II. Discussion
As noted above, the Mannings do not oppose summary adjudication of their first two causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing. All that remains is the third cause of action, for professional negligence. Defendants are the insurance brokers who procured the subject insurance policy for Muirhead. The Mannings, as Muirhead’s assignees, allege that Defendants negligently failed to procure the coverage Muirhead requested, i.e., a policy that would cover damages from the underlying accident.
For purposes of this motion, Defendants’ sole argument concerns the statute of limitations, which is two years. (See CCP § 339; Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154.) They contend that the limitations period ran long before the Mannings filed suit in June 2020. The Mannings, on the other hand, contend Muirhead’s assigned negligence claim didn’t accrue until entry of the arbitration award in December 2019.
“[T]he statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her.” (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110.) This motion centers on when Muirhead suffered injury.
A. Fees Associated With Coverage Counsel
The Mannings concede that if Muirhead paid attorney’s fees out of his own pocket, he suffered injury at that time. (Opp. at p. 14.) Defendants point out that when an insured retains coverage counsel as part of a coverage dispute, those fees are recoverable. (See Brandt v. Superior Court (1985) 27 Cal.3d 813, 817.) They argue that if Muirhead paid fees to coverage counsel, his claims accrued at that time regardless of the amount paid. (Reply at p. 7)
The evidence shows that in July 2015 Mercury sent a letter to an attorney named Daniel Tripathi stating that it would defend Muirhead in the Underlying Action, but would not indemnify him. (Defs.’ Ex. 12.) The evidence also shows that Tripathi represented Muirhead at this time. (Defs.’ Ex. 4, at Depo. pp. 94:21-95:2.) But missing from the record before the Court is any evidence that Muirhead paid Tripathi. As the parties moving for summary adjudication, Defendants “bear[] an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) Absent evidence that Muirhead paid Tripathi, Defendants do not meet their initial burden on this point.
B. “Judicial Admission” of Fees Incurred
In their complaint, the Mannings allege Muirhead “has incurred attorney’s fees and costs in defending the underlying action.” (Compl. ¶ 19.) Defendants contend this is a judicial admission that cannot be contradicted at summary judgment. It is a “conclusive concession[] of the truth of a matter.” (See Castillo v. Barrera (2007) 146 Cal.App.4th 1317, 1324.) As a result, whatever evidence might exist that Mercury paid for Muirhead’s defense, it cannot overcome this purported admission. Defendants ignore other allegations of the complaint. For example, at ¶ 11, the Mannings allege: “Pursuant to its obligations under defendant’s insurance policy as issued to [Muirhead], MERCURY CASUALTY CO. defended MUIRHEAD in the underlying action.” Accordingly, the complaint alleges both that Mercury covered Muirhead’s defense and that Muirhead was forced to cover his own defense.
Because the complaint equivocates on whether Muirhead incurred any attorney’s fees in defense of the underlying action, ¶ 19 is not a clean judicial admission that can serve as a basis for summary adjudication.
C. No Evidence of Defense by Mercury
As a companion to the judicial admission argument, Defendants contend there is no admissible evidence that Mercury actually covered Muirhead’s defense. This argument is impossible to reconcile with Defendants’ own Exhibit 12, a letter from Mercury to Muirhead regarding the denial of indemnity. In language highlighted by Defendants in the copy of Exhibit 12 filed with the Court, Mercury states, “Even though we are defending the suit, we will not indemnify for any damages awarded or settlement reached in this lawsuit.”
In their reply, Defendants contend the letter “is hearsay for that fact.” (Reply at p. 9 [emphasis original].) The Court is puzzled by this argument. The letter’s statement that Mercury won’t indemnify Muirhead is repeatedly cited by Defendants in their papers. If the statement that Mercury is defending Manning is inadmissible hearsay, isn’t the statement that Mercury won’t indemnify Muirhead equally inadmissible? In any event, Defendants themselves introduced Exhibit 12 into evidence and specifically highlighted language evidencing Mercury’s defense of Manning. Plaintiffs did not object to Exhibit 12. Defendants cite no authority for the proposition that they can object to their own evidence. Therefore, Exhibit 12 is properly before the Court. At the very least, it creates a triable fact issue as to whether Mercury covered Muirhead’s defense.
D. Accrual Upon Assignment
Defendants next contend the claim accrued by no later than August 2017, when Muirhead assigned his rights to the Mannings. Alternatively, they contend that the Mannings’ counsel knew by no later than August 2017 that Muirhead’s cause of action existed, and this knowledge can be imputed to the Mannings under principles of agency law. The Court disagrees. The assignment evidences a potential cause of action, one that obviously had some settlement value for the Mannings. But the assignment itself says nothing about whether Muirhead had in fact been injured by August 2017.
E. Accrual Upon Entry of Arbitration Award
Finally, the Mannings argue the result is controlled by Williams v. Hilb, Rogal & Hobbs Ins. Services of California, Inc. (2009) 177 Cal.App.4th 624. In Williams, the insured asked the broker to procure all necessary insurance for his business, including worker’s compensation coverage. The broker procured a $1,000,000 general liability policy, but failed to procure worker’s compensation coverage. An employee was injured. Because there was no worker’s compensation policy, the worker’s compensation bar was inapplicable, and the employee could sue the insured in court. The insurer covered the insured’s defense. Eventually, the employee won a judgment in excess of the policy limits.
The Court of Appeal held that only upon entry of judgment did the claim against the broker accrue. The insured’s potential exposure to uncovered liability wasn’t enough to give rise to a cause of action. Only actual uncovered liability could do that. As the Court of Appeal put it: “Until judgment was entered against him in excess of that amount, other litigation results were possible: a settlement or verdict under the $1 million policy limit, greater comparative liability on codefendant Rhino USA, or a defense verdict. Thus, until the judgment was entered, Williams sustained no appreciable harm from the lack of workers compensation insurance coverage, and the trial court so found.” (Id., at p. 642.)
The Court agrees that Williams controls here. As in Williams, the insurer covered the insured’s defense costs in the underlying action, so the insured incurred no fees in its defense. (More properly, there are material fact questions on this point, as noted above.) As in Williams, until entry of the arbitration award of roughly $2 million, other litigation results were possible. For example, the arbitrator could have issued an award less than the $100,000 Stevenson had already paid the Mannings, meaning Muirhead owed nothing. Or the arbitrator could have ruled entirely in Muirhead’s favor. Until the award in excess of Stevenson’s settlement was handed down, Muirhead suffered no appreciable harm from the lack of coverage.
Defendants argue Williams is directly contrary to multiple California Supreme Court opinions, and as such should be disregarded. The Court disagrees. In Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, the defendant attorneys were sued for transactional malpractice. The client was forced to hire counsel at its own expense to handle litigation with third parties that resulted from the malpractice. The client sued the attorneys more than one year after it discovered the malpractice, but less than one year after it settled the litigation. The client argued the statute of limitations should run from settlement of the litigation, not its discovery of the malpractice. The Supreme Court disagreed, recognizing “the established rule that attorney fees incurred as a direct result of another’s tort are recoverable damages.” (Id., at p. 751.) Because the client incurred legal fees as a result of its attorneys’ alleged malpractice, the claim accrued well before the litigation settled.
In Williams, unlike in Jordache, the insured incurred no legal expenses in the underlying litigation because the insurer paid for its defense. The same is true here, or at least fact questions exist. Williams does not contradict Jordache.
Nor does Williams contradict Laird v. Blacker (1992) 2 Cal.4th 606. In that case, the client retained attorneys to prosecute an underlying lawsuit on her behalf. Through the attorneys’ negligence, the case was dismissed for failure to prosecute. The client then filed an appeal in propria persona. She eventually settled with the underlying defendant and dismissed her appeal. She then filed a malpractice suit against the attorneys, arguing the statute of limitations began to run when her appeal was dismissed, contending her damages before that point “were only speculative.” (Id., at p. 615.) The Supreme Court disagreed. It explained that the client confused “the fact and knowledge of damage, and the amount of damage.” (Ibid. [emphasis original].) The fact of damage was established “on entry of adverse judgment or final order of dismissal,” i.e., “when the trial court dismissed her underlying action.” (Id., at p. 615.)
Defendants contend the client’s argument in Laird is “the same argument MANNING makes here.” (Opp. at p. 12 [emphasis original].) Not so. Here, as in Williams, the Mannings contend Muirhead’s claim didn’t accrue until entry of the arbitration award, the equivalent of entry of judgment. This is exactly when the claim accrued in Laird: entry of the order of dismissal established the fact of damage, even if the amount of damage was uncertain. But in Williams, and here, the fact of damage wasn’t established until entry of a judgment (or arbitration award) in excess of the policy limits (or Stevenson’s settlement amount).
For these reasons, summary adjudication of the third cause of action is improper.