Source: http://scocal.stanford.edu/opinion/tomerlin-v-canadian-indemnity-co-29968
Timestamp: 2013-05-25 10:29:57
Document Index: 85379816

Matched Legal Cases: ['§ 2316', '§ 26', '§ 2300', '§ 8', '§ 1668', '§ 533', '§ 90', '§ 90', '§ 90']

Tomerlin v. Canadian Indemnity Co. - 61 Cal.2d 638 - Thu, 08/13/1964 | California Supreme Court Resources	Stanford Law School - Robert Crown Law Library
Home > Opinions > Tomerlin v. Canadian Indemnity Co.	Citation 61 Cal.2d 638
Tomerlin v. Canadian Indemnity Co. , 61 Cal.2d 638
This case involves four issues which emanate from the representations of an attorney retained by an insurance company to defend an insured under a personal liability insurance policy. First, we hold that substantial evidence supports the trial court's findings that the attorney possessed the authority to bind the insurer by his representations respecting the coverage of the policy; second, we believe that the attorney's representations estop the insurer from denying such coverage; third, we find no dictate in public policy that prevents an estoppel from imposing liability found upon an intentional tort; finally, the damages, predicated upon estoppel, must comprise the promised coverage. [61 Cal.2d 641]
On November 15, 1960, while Friend and Best were discussing the Villines case, Friend referred to the decision in Walters v. American Insurance Co. (1960) 185 Cal.App.2d 776 [8 Cal.Rptr. 665], fn. 1 giving his views of its effect. Best [61 Cal.2d 642] testified that Friend "advised me that in his opinion the decision ... would do away with the reservation of rights agreement, and [defendant] would have to afford coverage." On December 5, 1960, Best received a copy of a letter from Friend to defendant, in which Friend advised defendant that "If the [Walters] opinion 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."
In March 1961, the jury returned a verdict of $15,000 against plaintiff. When a juror attempted to console Mrs. Tomerlin, by telling her that "it was all insurance money," Friend, who was present, did not deny coverage but stated only that it was a staggering amount. A short time later Friend again assured Mrs. Tomerlin that under the Walters decision the insurance company remained liable. In April 1961, however, Friend notified plaintiff that defendant disclaimed any liability to pay the Villines judgment. [61 Cal.2d 643]
Initially we point out that defendant's contention on appeal that Friend lacked such authority constitutes a challenge to the sufficiency of the evidence; we need therefore determine only whether the record contains any substantial evidence to support the findings of the trial court. (Nichols v. Mitchell (1948) 32 Cal.2d 598 [197 P.2d 550]; Kazanteno v. California-Western etc. Ins. Co. (1955) 137 Cal.App.2d 361 [290 P.2d 332]; Correa v. Quality Motor Co. (1953) 118 Cal.App.2d 246 [257 P.2d 738].)
[1] Actual authority arises as a consequence of conduct of the principal which causes an agent reasonably to believe that the principal consents to the agent's execution of an act on behalf of the principal. (Civ. Code, § 2316; County etc. First Nat. Bank v. Coast Dairies & Land Co. (1941) 46 Cal.App.2d 355, 364 [115 P.2d 988]; Correa v. Quality Motor Co., supra, 118 Cal.App.2d 246, 251; Gaine v. Austin (1943) 58 Cal.App.2d 250, 260 [136 P.2d 584]; 1 Rest. 2d Agency (1957) § 26.) [2] Similarly, ostensible authority arises as a result of conduct of the principal which causes the third party reasonably to believe that the agent possesses the authority to act on the principal's behalf. (Civ. Code, §§ 2300, 2317; Donnelly v. San Francisco Bridge Co. (1897) 117 Cal. 417, 421 [49 P. 559]; County etc. First Nat. Bank v. Coast D. & L. Co., supra, 46 Cal.App.2d 355, 366; Kazanteno v. California-Western etc. Ins. Co., supra, 137 Cal.App.2d 361, 372; Rest. 2d Agency, supra, §§ 8, 27, 49.) [61 Cal.2d 644]
[3] To establish actual or ostensible authority the principal's consent need not be express. [4] "Agency may be implied from the facts of a particular case, and if a principal by his acts has led others to believe that he has conferred authority upon an agent, he cannot be heard to assert, as against third parties who have relied thereon in good faith, that he did not intend to confer such power .... [5] An agent's authority may be proved by circumstantial evidence. ..." (Gaine v. Austin, supra, 58 Cal.App.2d 250, 260-261.)
As to ostensible authority, defendant's conduct in retaining Friend and in remaining silent in the face of actual knowledge of Friend's participation in coverage problems [61 Cal.2d 645] constitutes sufficient evidence to sustain a finding of ostensible authority. Defendant could not reasonably expect that Friend, thrust into the close relationship of attorney and client with plaintiff, would exercise absolute reticence concerning matters of insurance coverage.
Finally, defendant, rather than plaintiff, must bear the burden of blame for any misconstruction that plaintiff may have placed upon the precise scope of Friend's authority. Defendant created, as between plaintiff and Friend, a relationship of the highest confidence.plaintiff necessarily reposed his absolute trust in Friend. Such trust, by its very nature, precludes the drawing of delicate distinctions as to the exact extent of Friend's authority. The situation is similar to that which occurred in Kazanteno v. California-Western etc. Ins. Co., supra, 137 Cal.App.2d 361, 374, in which the court found that an insurer's agent exercised ostensible authority despite the policy's express denial of such authority. The court quoted from Raulet v. Northwestern etc. Ins. Co. (1910) 157 Cal. 213, 230 [107 P. 292], to the effect that "The insured usually confides implicitly in the agent securing the insurance, and it is only just and equitable that the company should be required to call specifically to the attention of the policy-holder [limitations upon the agent's authority]."
Defendant would rebut the above showing of Friend's actual and ostensible agency by the citation of cases which hold that an attorney in an adversary proceeding lacks the authority to surrender his client's rights. (Bice v. Stevens (1958) 160 Cal.App.2d 222, 231 [325 P.2d 244]; People v. Davis (1957) 48 Cal.2d 241, 256 [309 P.2d 1]; Britschgi v. McCall (1953) 41 Cal.2d 138, 142 [257 P.2d 977]; Fresno City High School Dist. v. Dillon (1939) 34 Cal.App.2d 636, 646 [94 [61 Cal.2d 646] P.2d 86]; but see Gagnon Co., Inc. v. Nevada Desert Inn, Inc. (1955) 45 Cal.2d 448, 461 [289 P.2d 466] ["[T]here is a rebuttable presumption that [the attorney] had such authority"]; Pacific Tel. & Tel. Co. v. Fink (1956) 141 Cal.App.2d 332, 338 [296 P.2d 843].) Yet these cases, distinguishable from the instant one, involved the attorney's consent to the virtual destruction of the very subject matter of the litigation.
Such detriment inheres in the denial of personal representation [61 Cal.2d 647] at the moment when the posture of the case calls for the protection of plaintiff's rights. Because of the unique nature of Friend's double agency the relationship between plaintiff and Friend bristled with the difficulties of potential diverging interests. Thus, frequently the insured's interests lie in the settlement of a claim prior to trial since he loses nothing thereby, while the insurer's advantage may inure in risking a larger liability in the hope of winning a judgment of non-liability or of liability upon a ground outside the coverage of the policy. fn. 2 (See Keeton, Liability Insurance & Responsibility for Settlement (1954) 67 Harv.L.Rev. 1136, 1142; cf. Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 659 [328 P.2d 198].)
Similarly, in cases involving multiple claims against the insured, some of which fall within the policy coverage and some of which do not, the insurer may be subject to substantial temptation to shape its defense so as to place the risk of loss entirely upon the insured. fn. 3 (Cf. O'Morrow v. Borad (1946) 27 Cal.2d 794, 798 [167 P.2d 483, 163 A.L.R. 894].) Moreover, since defendant here had previously denied all liability under the policy, its sole economic motive for prosecuting a vigorous defense had been eliminated.
Customarily, insurers, in cases involving tort claims in excess of policy limits, notify the insured that he may employ his own attorney to participate in the defense. (Id at p. 1169.) A like duty must arise in the instant case in which potential conflict stemmed not only from the multiple theories of the Villines complaint and the propriety of settlement, but from the total absence in defendant of any economic interest in the outcome of the suit. Here defendant not only failed to discharge its duty to notify plaintiff of the threat to his interests presented by Friend's dual agency, but actually [61 Cal.2d 648] precipitated the withdrawal of plaintiff's personal counsel from participation in the case.
Defendant argues, however, that Best's withdrawal caused plaintiff no detriment because in any event defendant retained the right, under the policy, to conduct the defense. Defendant's contention rests upon the erroneous assumption that it could exclusively control the case even though it lacked an economic interest in its outcome. [8] In actions in which the insurer lacks an economic motive for a vigorous defense of the insured, or in which the insurer and insured have conflicting interests, the insurer may not compel the insured to surrender control of the litigation. (See O'Morrow v. Borad, supra, 27 Cal.2d 794, 799; Fidelity & Casualty Co. of N.Y. v. Stewart Dry Goods Co. (1925) 208 Ky. 429 [271 S.W. 444, 43 A.L.R. 318]; Compton Heights Laundry Co. v. General Accident, Fire & Life Assur. Corp. (1917) 195 Mo.App. 313 [190 S.W. 382]; 7A Appleman, Insurance Law & Practice (1962) p. 425.)
[9] Concluding that Friend's representations estop defendant from denying liability under the policy, we turn to defendant's contention that the instant judgment violates public policy because it compels performance of a promise to extend coverage for liability based upon an intentional tort. Although an insurer may not indemnify against liability caused by the insured's wilful wrong (Civ. Code, § 1668; Ins. Code, § 533; see, e.g., Abbott v. Western Nat. Indem. Co. (1958) 165 Cal.App.2d 302, 305 [331 P.2d 997]), defendant's liability here does not arise from a contract executed prior to plaintiff's wilful misconduct, but from an estoppel which arose after it. Section 1668 of the Civil Code and section 533 of the Insurance Code establish a public policy to prevent insurance coverage from encouragement of wilful tort. (See New Amsterdam Casualty Co. v. Jones (6th Cir. 1943) 135 F.2d 191, 193- 194; Northwestern National Casualty Co. v. McNulty (5th Cir. 1962) 307 F.2d 432, 440.) Recovery under a subsequent estoppel does not offend such public policy. "It [does] not tend to encourage unlawful conduct. It [does] not arouse an illegal temptation." (New Amsterdam Casualty Co. v. Jones, supra, 135 F.2d 191, 195.) fn. 4 [61 Cal.2d 649]
Nor do the cases cited by defendant holding that "estoppel cannot operate as against positive law or public policy" (e.g., Industrial Loan & Inv. Co. v. Superior Court (1922) 189 Cal. 546 [209 P. 360]; Panzer-Hamilton Co. v. Bray (1929) 96 Cal.App. 460, 464 [274 P. 769]), fn. 5 control the instant situation. All of these cases rest upon the assumption, which is inapplicable to this case, that reliance upon an estoppel contravenes some public policy. As we have indicated above, the estoppel in this case in no way frustrates the policy served by the rule precluding coverage for wilful wrongs.
[10] Finally, we turn to the question of the proper measure of plaintiff's recovery.plaintiff's cause of action is essentially one of promissory estoppel. (See Claverie v. American Casualty Co. of Reading, Pa. (4th Cir. 1935) 76 F.2d 570, 572.) And, as frequently happens in promissory estoppel cases, the value of the plaintiff's detrimental reliance need not be identical with, or equated to, the value of the defendant's promise. The cases hold that the appropriate remedy lies in the enforcement of the defendant's promise. The promise here, of course, consisted of defendant's commitment that it stood liable under the policy for the amount of the judgment against plaintiff. The measure of damages must therefore be the amount of the judgment. (West v. Hunt Foods, Inc. (1951) 101 Cal.App.2d 597, 604 [225 P.2d 978]; Hunter v. Sparling (1948) 87 Cal.App.2d 711, 726 [197 P.2d 807]; Rest., Contracts (1938) § 90.) fn. 6 The detrimental reliance serves as the substitute for consideration, giving rise to a contract right in the plaintiff. (Rest., Contracts, supra, § 90.)
In any event, application of a different approach, based upon a theory of "tort," rather than contract, would, inequitably, [61 Cal.2d 650] frustrate plaintiff's recovery. It would impose upon plaintiff the impossible burden of proving, on remand, the precise extent of the loss caused by the withdrawal of his attorney. The only remedy appropriate to the instant case is the enforcement of the defendant's promise of extension of coverage by means of a judgment that defendant pay the amount of the award in the Villines action.
I dissent. I would reverse the judgment for the reasons expressed by Mr. Justice Brown (R.M.) in the opinion prepared by him for the District Court of Appeal in Tomerlin v. Canadian Indemnity Co. (Cal.App.) 37 Cal.Rptr. 15. [61 Cal.2d 651]
­FN 1. In Walters v. American Insurance Co., supra, the District Court of Appeal held the insurer liable to the extent of a settlement made by the insured with a third person who had threatened to sue the insured for injuries allegedly sustained through an assault and battery by the insured. The insurer's liability was apparently premised upon the theory that in view of the insured's claim of self-defense, the insurer owed a contractual duty to defend the threatened action. By failing to notify the insured whether or not it would defend him in event of a suit by the third party, the insurer breached its contract to defend.
­FN 2. The record contains Mr. Best's testimony that he would have entered into settlement negotiations "long before the trial date ... had I still been representing [plaintiff] in this action."
­FN 3. The amended complaint in the Villines action contained multiple causes of action, some of which were included in the policy coverage and some of which were not.
­FN 4. Defendant's reliance upon Northwestern National Casualty Co. v. McNulty, supra, 307 F.2d 432, is misplaced. That case held that public policy precluded coverage of liability for an intentional tort upon the basis of an estoppel. The court's reasoning is unclear, however, since it acknowledged that the rationale of the rule preventing coverage was to discourage wrongdoing. (Id at p. 440.) Moreover, the court noted that because of the insurer's failure to give the insured advance notice of its intention not to indemnify against punitive damages, the insured would have an action for damages against the insurer.
­FN 5. But see Mutual Life Insurance Co. v. Margolis (1936) 11 Cal.App.2d 382, 384 [53 P.2d 1017]; Dibble v. Reliance Life Ins. Co. (1915) 170 Cal. 199, 208-209 [149 P. 171, Ann.Cas. 1917E 34] [upholding provision in insurance policy barring company from contesting validity of policy for fraud in procurement after expiration of one year, despite contention that provision violated public policy].
­FN 6. A general analysis of the various modes of measuring the plaintiff's recovery in promissory estoppel cases occurs in Note, Promissory Estoppel in California (1953) 5 Stan.L.Rev. 783, 794. (See also Rest., Contracts, supra, § 90; Seavey, Reliance Upon Gratuitous Promises or Other Conduct (1951) 64 Harv.L.Rev. 913; 2 Corbin, Contracts (1963) p. 221.)
Date:Citation:Category:Status:	Thu, 08/13/196461 Cal.2d 638Review - Criminal AppealOpinion issued	Disposition
Aug 13 1964Opinion: Affirmed	Cite This Case
SCOCAL, Tomerlin v. Canadian Indemnity Co. , 61 Cal.2d 638 available at: (http://scocal.stanford.edu/opinion/tomerlin-v-canadian-indemnity-co-29968) (last visited Saturday May 25, 2013).