good morning may please the court oben trailer on behalf of tice a construction corporation i'd like to save three minutes for this is an appeal arising from two orders of the district court one granting a motion for partial summary judgment against tyson and one gr a payment of substantial amount of money but it's it is now over that that is a matter of public record actually in the ok but so i'm just trying to remember your client was the defendant in the underlying suit my client was tice a was the general contractor on a very large construction company case there were multiple defendants multiple sub contractor defendants look as well as tie say all right but bottom line your client has been through the settlement you have to pay some money to the point us my client paid money through its insurance carriers that's also a matter of public record ok but that's what i was just trying to figure out are you trying to get them to now cover the cost of the settlement or does it just now a fight over who's going to have footed the bill foot the bill for the time to cost the fight in avoid their equitable reimbursement claim other carriers would have an equitable contribution claim which is also an important issue against travelers for their failure to step up and pay a pro rata share or to have met their independent obligation to defend but do you remember this was a case that was brought in the pendency of that case so tice a was concerned that it was not being defended adequately by travelers appointed counsel and then therefore asked travelers appointed counsel to withdraw travellers and promptly within a week filed its declaratory relief action in the in the federal district court ok and then travelers didn't pay another dime toward the defense costs and the underline action i guess that's correcting the record shows a travelers was doing two things paying for a point of defense counsel and pain a pro rata share of the costs in a huge construction case the record doesn't reflect this but there were over thirty million dollars an offense these in cos half of those were cos i mostly expert cos it's a t and therefore should get its money back that's the hundred twenty something thousand dollars that's the money that we stipulated to yes your honor for purpose of trying to get this appeal for right and that that's money that they paid for this law firm that you all fired that is correct your honor why would you why would they be entitled to any of that money back i didn't i don't understand why you agreed to give them under twenty thousand if you lose this appeal what was that money represents that money to travelers we'll have to direct that question better to travelers which will you all agree to it but we agreed to it only to move independent defense and part of the issue is were they providing that independent defense because as the record reflects they had ninety two thousand dollar tourney fee budget they weren't providing status reports they weren't attending a key case management conference they weren't showing up at depositions things like that and so the argument here from tyson is perspective was if you're going to provide a separate defense outside this group of carriers you actually have to defend and factually i say said you w at least on the if i remember but tell me if i'm getting the facts wrong you never complained throughout a twenty month representation about anything the first thing the lead from gets is this letter saying you haven't given us the reports that you all promised in this e mail you know a year and a half ago or whatever it was and we're not happy about that so please sign the enclosed to withdraw form and that's the first they ever hear that you all are unhappy with their representation i guess that to me does not suggest that you had a sound basis for discharging the counsel that the insurance company had provided so i kind of just get off on the wrong foot with your position right there so help me understand what i'm missing i think the key your honor you may be right you may be wrong it's a fact question and this was decided on a rule fifty six motion well hang on that's that's where i get some sort of jump in but it's not a fact question in the sense that the historical facts that i just described there's no dispute that that's how it went down and i'm i guess i'm saying even if i'm in the insureds position and i'm not happy with counsel they're not doing whatever you know i think they should be doing i don't think i just get a lot unilaterally discharge them at the first moment that i decide that i'm not happy don't i have to engage in some kind of dialogue with the firm with the insurance company say hey you have an obligation to provide me with adequate defense i don't think that's being done for the following reasons and you have i don't know months to fix this or this needs to happen but not just well we just woke up today and we decided to fire this law firm and then that's the end of it i i understand what i think turns sure it's going to be said well no you don't just get to pick which law firm you want that is not part of our agreement and you you can't just fire out of the blue the firm we've provided and kind of impact that i don't think i say was trying to pick its law firm there's no evidence of that the record they did allow the lead firm to defend for twenty months which i think provides very important context three i don't think there's any duty of sort of a complaint at that point in time in for again i go back to the context is the facts especially point you to the broader declaration which is that you are one fifty one to sixty six showing all the things that the leaf firm did not do apparently and i think it's reasonable conclude as a reasonable inference that travelers behest they didn't do those things and so the question is were they justified in doing that and i don't think that there has to be kind of a serial sort of set of protest going forward but but am i right though that the letter discharging the firm only complained about the failure to get status reports on a certain that's what i remember that it wasn't anything about the substance of the representation it was simply like you didn't give us a summary of the separate issue or you didn't you know it was some very kind of trivial thing that could have been fixed if that was really your complaint about the nature of the representation well let me pick up on the notion of the could have been fixed the other issue that would be did travelers an exercise reasonable diligence to try to procure the cooperation of its insured another fact question instead of coming back to tyson said wait a second this is the first we've heard about this you didn't get this what can we do about this let's try to work this out we aren't going to allow you to fire counsel we're not we're going to tell our counsel not can't stop you from discharging look at the law firm if you you're you're the client if you  delegated down completely after that there is no duty upon the insurer i would suggest that there isn't a lot of support that to there what is this twelve thousand and thirteen agreement which sort of elevator at least specified some of the duties of the lead firm would do but that's between  and the other council did not involve travelers it did involve travelers your honor because that twelve thousand and thirteen agreement was set down was c c to the travelers not just form a contract finding on travel but i think that's a silly argument i understand why you make it i of this agreement about the contours of the duty that tyson was expecting the conditions under which they were willing to accept they clearly ratified that is the record was stablish so i don't think it's a silly argument your honor i do yeah but whatever let me ask you this  the strongest argument seem to me in your favor was the principal in california insurance law that an insurer at least in the posture of the case went back when we were in the district court before the underlying litigation has been resolved  that the insurer really is can't litigate even this declaratory judgment action until the underlying litigation because only then could we know if there had been substantial prejudice to the insurers rights that seem to me to be the strongest argument in your client's favor as to why maybe the the district court you know jumped the gun in resolving this against you but i guess i don't understand how that works when the main fight is over the duty to defend in an ongoing action as opposed to the duty to indemnify you know after some bad result has has occurred because from traveller standpoint i think when they go to the district court they need to know right now that are we excused from our duty to defend it's not we can't may not believe they have a duty to defend so what they do is they reserve the right so they continue to defend that situation and then come back at the end of the day and say we reserved our rights we didn't actually have it sent i don't think this is any different in reality in this situation day expose were they exposed any further even their obligation maybe they had to pay more in the settlement and ordered to pay anything that's not in the record your honor and i actually don't know the answer as to whether what they paid they certainly did not pay anything on behalf of confirms your honor that there was no prejudice that you couldn't determine prejudice at the time that the end of the day in fact not refuted there was no present because i think i think that analysis is resulted in substantial prejudice to them it has never happened so shouldn't it matter maybe remained it for that issue i think the answer in this case it's just needs to happen is it doesn't mean that i frankly think they have the opportunity on give you a minute for rebuttal but let's hear from travers counsel good morning your honor raymond brown from the idler a law group on behalf of plaintiff an appellant early travelers property casualty company of america may please the court one thing that i wanted to make clear at the outset because there was discussion about the judgment four hundred twenty thousand three hundred sixty four dollars the fifty nine cents and traveler's equitable reimbursement claim the travelers in its complaint had claims for declaratory relief breach of contract and equitable reimbursement the equitable reimbursement claim was not tied directly to the breach of contract the equitable reimbursement claim was pursuant to the california supreme court's ruling in bus versus superior court it was that somewhere all of the monies we paid for for uncovered claims and we are therefore entitled to reimbursement the the person to the stipulation of the parties the court awarded judgment one hundred twenty thousand dollars i wasn't differentiated whether that was breach of contract or equitable reimbursement but its judgment one hundred twenty thousand dollars and tyson did not appeal the equitable reimbursement decision so as far as i'm concerned the hundred twenty thousand stands regardless of what this court does it is how i would interpret it i think they actually argued albeit in passing in their brief that you don't even your client doesn't even have that claim that claim is not a thing under california law to begin with and so i guess if you know they were successful in this appeal and we agreed with them on that then that would be twenty thousand would be wiped out i mean the the bus versus superior court specifically says we do have a claim  the i personally have tried a bus case in the ok well you just need to get sidetracked on this this point but you're saying one hundred twenty thousand represents what defense costs your client extended to cover the defense of uncovered claims is that the notion correct the let me give you a an example so in i'm going to do it by way of example because it's not in the record but it in one case the traveller's pays the defense fees that the firm charges including their costs those costs but travelers travellers obligation it's contractual obligation is limited to claims arising out of the work of it's named insured tice a was not travelers named insured so in a hypothetical case let's say the travelers named insured is a landscaper the landscaper works on twenty homes in a residential development but there are one hundred  twenty homes at issue in the litigation the the defense firm for the developer sense travelers a bill for the inspection of all hundred twenty four homes travelers under bus has a has a prophylactic obligation to defend the entire case and then to come back after to seek fees that were not covered by its policy so travelers pays for the inspection of all hundred twenty homes but then later travelers sues under bus for reimbursement and says you one hundred of those homes aren't sure didn't even work for work on so those are not claims potentially covered by our policy ok so i take back what i said before what i what i thought one hundred twenty thousand was fo was money essentially that your client was owed because of the breach of the cooperation cause and i gather you're saying that is not what the money represents the the judgment was not clear on what it represents it's a judgment pursu to both the breach of contract and the equitable reimbursement the equitable reimbursement claim is under bus ok the it i did want to briefly address counsel's statement that there is no law to support the the claim that a carrier just delegates its obligation to provide a defense a under marriage versus reserve insurance company that we cited and other california authorities and a carrier satisfies its duty to defend by appointing competent counsel and funding the defense that's the carriers obligation the the insurer is not vicariously liable for the actions of counsel because the insurer is not and they're not practicing law so at that point if the appointed counsel commits malpractise the claim by the insured is going to is against the attorney not against the insurer as long as comp as an excuse me as long or under california law i don't know that the carrier has a a specific duty or not just say no you can't do that that i mean i would think a good practice by the carrier would be to say well what is your problem with belief or let's try to facilitate what your problem is if you want them to report more frequently that that's what we can ask them to report more frequently i don't think there's any client who had independent counsel they and the first notice we had was we don't want this attorney he resigns we file our action at no point including during the pendency the district court action  a ever say well wait a minute let's cooperate we're not necessarily opposed to having lee we just need these issues addressed let me tell you when you go to the movies which is something entirely different all right no of under the cooperate if the failure to cooperate is the insured doesn't show up for a deposition then you have to wait until the case is over because maybe that doesn't make any difference if the failure to cooperate is the insured fails to verify iraq's tori's you gotta wait until the case is over because maybe that doesn't affect the outcome of the case but here the failure to cooperate is more fundamental it's we're not going to allow you to provide a defense so at that point under the contract travelers has t monetary obligations to the insured to provide a defense and to provide an indemnity where we can't provide a defense because they're refusing to allow us to well hang on but their responses to say well no yeah we discharged the firm of your choice but that didn't that doesn't absolve you of the obligation to provide a defense restore and world in those massive litigation that's ongoing you've got to work with us to come up with either you know start payments we've already got or find some new firm and then find you can assert under reservation of rights that we're going to get back all of this money from you bastards because you've got no right to fire the first firm but you don't just get to walk away which is what your client did and just run to court and say we're done and not pay another penny so why why is he not under the policy and under california law travelers has the right the absolute right to control the defense it can't be that the insured can say we don't want this attorney you have to pay for it either this  attorney or some other attorney you don't get to choose that if this is this is a contract we have the right to defend if i'm in an in a car auto accident and mine sure assigns an attorney i cannot say either i don't like that guy use a different guy or use this specific guy my rights under the policy are defined by the policy and california law and my rights are a defense to that they control so travelers had the right to assign counsel which it did now if they don't want that council that's fine as your honor pointed out that's their right and they can they can fire that council but then they're on their own they've said we don't want these policy benefits the defense that you are obligated to provide we don't want and at that point travelers i think the case was pretty clear that because travelers has the right to control the defense once you once you refuse to allow us to do that whatever happens after that if there is an ultimate judgment against you or a settlement pursuant to the defense that you chose we're not on the hook for that well let me put the question a little different or what because they refuse the defense we we provided they forfeited all right to benefits under the policy well substantial prejudice would have to show that the outcome would have been different if you're like if you council had continued to represent the insured how are you going to show that but that's the thing the i mean if it's a if it's a discrete refusal to cooperate like a refusal to show up at a deposition or respond in a raga tori's then that i agree with you that is the analysis you have to see did that cause a different result but here where you just refuse to allow us to provide a defense then we cannot be held liable for the judgment or settlement that results when we weren't allowed the opportunity to provide what to share what's your best california case for the proposition that there's kind of this exception to the substantial precious requirement has all the cases that we're on the hook up pursuant to the policy for whatever results with the settlement or judgment but if we're not given the opportunity to provide a defense we cannot be held liable for the judgment or settlement the result you're saying that prohibited you from doing that or would you have had an opportunity to replace the leaf erm or to reach some kind of agreement with the insured subject to a restoration of   i mean we have published appellate decisions that we cited to the mitchell in his own decisions that are that are also along those same lines where in those cases it was centex who again it was the say they fire the leaf firm and said no employ our counsel they don't have the right to do that and it's not on us to say well let's find somebody else that is acceptable these this is the counsel that we chose the qualified you of they're qualified you don't have the right to request somebody else just because you want to under the policy and under california law that's not your right the i think the case law district courts is in a published decision but it is it is some authority where the court said it exactly what we're saying here that the refusal to accept a defense is so fundamental that prejudice is assumed it's inherent in that decision once they reject our defense we are prejudiced substantially thank you don thank you very much we'll give you a couple minutes for about if you got some additional points th five points over and through one substantial prejudice the law in california is very clear that requires agree just misconduct and party ensured i don't think the facts here rise anywhere to levels not appearing for trial over a period of seventeen months not appearing for depositions think is the worst trying to use fire the lawyer you are again but this is a factual issue because we allowed this this lawyer to it being the case and defend for twenty months this is not an instance where we said we just are going to take your counsel refused to take your twenty months you know relationship with this law firm before you fire because it shows that tice a met its obligations to accept appointed counsel and was willing to allow travelers to control the defense so counsel to withdraw and travelers as i think the questions indicated could have done other things in response that was a factual dispute about what was the appropriate course of action at that point in time one question would be does it insured have to accept a defense even by who's not doing its job imagine the public policy implications the perverse incentives that would create so it's a factual question as to what was the right course it was a sense in the sense you know you don't have well you know unless a lot less than two hours in the outcome travellers actually had a limited stake it was only libel up to the limits of its policy tyson was exposed to a demand for one hundred sixty eight million dollars well but how much coverage did you have if you had to pull the substantial prejudice i don't think the insured has to come in and say we have alternative coverage these duties are independent that's very clear in california law tysons has an independent d d separate apart from all the other carriers to defend and to  constricted defense three you asked about what does constitute if you look at the state farm there if you look at state farm v miller it talks about reasonable diligence it sets the standard says shows in that situation they made strong efforts to locate the insured bring i'm sure again obtain the cooperation of that insured after there was initial not appearances three there is nothing in the record i know that the district court said this but there is nothing in the records as ty say was refusing the defense it was saying to this defense counsel if you aren't really defending us we want you to withdraw but it wasn't refusing a defense nor the nor was tice a insisting that travelers appoint its own favorite counsel there's nothing in the record to support that but you were insisting that they pay for another lawyer because you fired the one they provided you say definitely was insisting that there was a duty to defend and wanted to be defended fully and completely as required by california by a different law firm because you do charge the one that they had provided you didn't try to work out the differences that's what i guess that's the the problem i see on your end but your time your way over time let me just ask the one question i really want to know the answer to what's your response to your opponent's argument that substantial the substantial pressures requirement yet applies in ninety nine percent of cases but not in a case where the breach of the cooperation causes as fundamental as basically discharging the lawyer that the insurer chose what's your response to the well i'll take issue with that this was a fundamental again a point to the fact that there was twenty months of cooperation but accepted let's just assume that we disagree with your view that you all did not fire the lawyer and basically just refuse a defense i understand your contesting but let's say that that's the view of the facts that we took here his position is that under california law when the breach of the cooperation causes that fundamental we're not talking about not showing up for the deposition or you didn't help with it in iraq or tories you refused to accept the the lawyer that we provided to you to provide a defense that we don't have to show substantial pressures in that context that has some intuitive appeal to me and i just want to know what is your response i think the responses and that's that position has no support in california law the substantial prejudice requirement as an element of a breach of cooperation is well established and there is no exception to that rule you know if it has the support  in any other state i do not know your honor it has been wholly litigated in a california law so i don't think there is any support for that notion there are cases that say if you don't accept it in the very first instance then that might be  a problem but not if you accept a defense and there's a problem there after so i don't think it's even follow falls into the one small exception that might exist out there ok thank you counsel thank you case just argued is submitted