Opinion ID: 1136158
Heading Depth: 1
Heading Rank: 3

Heading: The insurance company was obligated to defend the second suit because the facts underlying the action indicated the company's potential liability.

Text: (7a) Defendant contends further, however, that even if the policy were in effect in September, it was not obligated to defend the suit because Giubbini's second claim was excluded from coverage by paragraph 3(d) of the policy. Paragraph 3(d) excludes coverage for [d]efects ... known to the Insured either at the date of this policy or at the date such Insured acquired an ... interest insured by this policy.... [6] Since the second Giubbini lawsuit rested in part on an allegation that Paramount accepted the payment of debt by Giubbini at a time when it knew or should have known that its title was defective, the title company maintains that this guilty knowledge of Paramount brings the Giubbini claim within the exception of paragraph 3(d) and excuses the insurer from its duty to defend. We set forth our reasons for rejecting this defense. (8) As we stated in Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 276-277 [54 Cal. Rptr. 104, 419 P.2d 168], we do not, in analyzing the insurer's duty to defend, look merely to the language of the complaint filed against the insured. Defendant cannot construct a formal fortress of the third party's pleadings and retreat behind its walls.... Since modern procedural rules focus on the facts of a case rather than the theory of recovery in the complaint, the duty to defend should be fixed by the facts which the insurer learns from the complaint, the insured, or other sources. An insurer, therefore, bears a duty to defend its insured whenever it ascertains facts which give rise to the potential of liability under the policy. (Italics added.) (See also Davidson v. Welch (1969) 270 Cal. App.2d 220, 233-234 [75 Cal. Rptr. 676].) (7b) The facts disclosed by the second Giubbini complaint clearly created the possibility that the insurer would be liable for the claim. Paragraph 3(d) of the insurance policy applies only to plaintiff's actual knowledge as of December 12, 1963, when Paramount received the trust deed, or as of December 19, 1963, when the title insurance policies were issued. The second Giubbini suit put in issue only what Paramount knew or should have known on July 14, 1964, when it continued to assert its interest in the property and accepted the payment alleged to have been made under duress. (See Leeper v. Beltrami (1959) 53 Cal.2d 195, 204, 206 [1 Cal. Rptr. 12, 347 P.2d 12]; McNichols v. Nelson Valley Bldg. Co. (1950) 97 Cal. App.2d 721, 722-723 [218 P.2d 789].) Paramount naturally knew more in July 1964 than in December 1963, having been served in April 1964 with the complaint in the quiet title action which alleged in detail a defect in Holmberg's title. By the terms of paragraph 3(d), knowledge acquired by the insured after the issuance of the policy clearly would not preclude coverage. Thus the title company would have been liable for damages accruing under this second action if (1) Holmberg's title was defective, (2) plaintiff did not know of this defect at the time the title insurance policy was issued and (3) Giubbini's payment was determined to have been made under duress and Paramount was required to return it  factual circumstances clearly consistent with the facts underlying the second Giubbini lawsuit. Defendant therefore bore a clear duty to defend the lawsuit as requested. [7] Since defendant failed to defend the suit, it is liable for the resulting litigation expenses properly incurred by the insured. (See, e.g., Arenson v. National Auto. & Cas. Ins. Co. (1955) 45 Cal.2d 81, 84 [286 P.2d 816].) At the nonjury trial of this action all relevant facts except the amount of plaintiff's legal expenses were submitted on stipulation by the parties. From these stipulated facts incorporated into the trial court's findings, we conclude that the defendant's liability has been established. (See Industrial Indem. Co. v. General Ins. Co. (1962) 210 Cal. App.2d 352, 362 [26 Cal. Rptr. 568].) The trial court specifically found that the expenses incurred by plaintiff in defending the second Giubbini suit were proximately caused by defendant's refusal to undertake the defense. (9) Plaintiff's attorney introduced evidence, uncontested by defendant, that on November 17, 1966, he sent a statement to defendant requesting payment for fees and costs in the amount of $13,928, and on January 9, 1967, he sent a further statement for additional fees in the amount of $225. Although the trial judge, in light of his decision awarding judgment to defendant, did not render an explicit finding on the amount of recoverable damages, defendant has conceded on appeal that the amount of costs and fees incurred by plaintiff was not unreasonable. Under Civil Code section 3287 [8] a prevailing party is entitled to interest from the date a debt owed him becomes certain. Since the insurance policy does not fix the date that litigation expenses are payable, the amount of the legal obligation became fixed in the instant case when liability was incurred by Paramount. (See Overholtzer v. Northern Counties Title Ins. Co. (1953) 116 Cal. App.2d 113 [253 P.2d 116].) We need not decide whether that date was when defendant contracted for the services or when the attorney sent his statement, because plaintiff only claims interest from the latter date, the time of billing, and defendant obviously cannot complain of injury from the designation of this later date. The judgment is reversed with directions to enter judgment for plaintiff in the amount of $14,153 with interest on $13,928 accrued from November 17, 1966, and interest on $225 accrued from January 9, 1967.