Opinion ID: 720918
Heading Depth: 2
Heading Rank: 2

Heading: Adams, Duque & Hazeltine's Motion for Summary Judgment

Text: 25 We review a grant of summary judgment de novo. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995), cert. denied, 116 S.Ct. 1261 (1996). In granting summary judgment, the district court rejected Generali's claims that ADH committed malpractice by its advice regarding the insurers' (a) coverage of the Simon Malpractice Action, (b) estoppel from withdrawing coverage for Siler before trial and waiver of withdrawal rights, and (c) liability in the Simon/Siler Bad Faith Action. The court also rejected a fourth claim that ADH committed malpractice by defending Generali despite a conflict of interest in the Bad Faith Action. 26 (a) Coverage 27 ADH advised Generali that the 1989 policy did not cover Simon's 1990 Malpractice Action against Siler. ADH's advice was correct as a matter of law because (1) prior acts coverage was limited to acts occurring after March 10, 1986 and the Malpractice Claim related to advice Siler gave in 1982, and (2) Siler's firm failed to reveal the possibility of such a claim when applying for the 1989 policy. 28 Siler gave incorrect advice on Simon's liability under the aircraft lease agreement in 1982. The fact that, contrary to Siler's advice, Simon's exposure would exceed his pro rata share was established by Simon executing the guaranty in 1982. The sublessee's 1985 default on the aircraft lease triggered Simon's liability. While the exact amount of that liability was not determined until the Trevillian Action settled in 1989, Simon's liability for damages was irremediable no later than the 1985 default, too early for prior acts coverage under the policy. Moreover after 1985 Siler was not Simon's counsel but was being sued by Siler! 29 For coverage Simon had to make the claim within the period covered by the policy and Siler had to report it in that period. Simon filed his Malpractice Action in March 1990 and Siler reported it to PLCM on March 8, 1990, two days before the 1989 policy expired. In January 1989, when Mayman had applied for the 1990 policy for the Mayman & Siler firm, Siler and Mayman knew about the ongoing Trevillian action and Simon cross-claim, and Siler knew about the 1988 deposition exchange. Yet Mayman failed to report those matters in the application. This failure alone is sufficient grounds to deny coverage. Under California law an insurer may rescind an insurance policy if the insured conceals material facts. Rallod Transp. Co. v. Continental Ins. Co., 727 F.2d 851, 853 (9th Cir.1984). 30 Even though the 1988 deposition exchange (on which the district court relied in granting summary judgment in this case) probably did not amount to a claim, Mayman should have reported it on the 1989 application. Siler's discussion at the 1988 deposition about his 1982 advice to Simon reveals at least that Siler was aware of the potentially legal character of the advice on which Simon later sued. Also, any notification the insurers received in 1986 of the initial Trevillian Action did not preclude the need to reference that action or the Simon Cross-claim in the 1989 policy application. 31 (b) Waiver and Estoppel 32 The district court concluded that ADH was correct in advising Generali that waiver and estoppel did not prevent Generali from withdrawing defense and in noting that a court might find otherwise. We agree. Under California law waiver is a question of fact. Intel Corp. v. Hartford Acc. & Indem. Co., 952 F.2d 1551, 1559 (9th Cir.1991). In the insurance context California courts have blurred the distinction between waiver and estoppel. Id., Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 900 P.2d 619, 637 (1995). Waller quotes Intel for the proposition: 33 California courts will find waiver when a party intentionally relinquishes a right or when that party's acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished. 34 Id. (quoting Intel ). Whether a waiver has occurred depends solely on the intention of the waiving party. Waller, 900 P.2d at 636 (citations omitted). Generali had the obligation to point to facts showing that it had no intention to waive non-coverage. Generali failed to identify such facts. 35 (c) Bad Faith 36 The district court properly concluded that ADH correctly advised Generali it was not liable in the Bad Faith case because no duty to defend existed. The court relies on the clear trend in California appellate decisions to this effect. After the district court issued its opinion, the California Supreme Court provided specific guidance: 37 It is clear that if there is no potential for coverage and, hence, no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationship between the insured and the insurer. 38 Waller, 11 Cal.4th at 36 (citations omitted). This court also recognizes that under California law when coverage does not exist ... [the insurer] is not liable for breach of contract nor for breach of the covenant of good faith and fair dealing. State Farm Mutual Auto. Ins. Co. v. Davis, 7 F.3d 180, 184 (9th Cir.1995). 39 (d) Conflict of Interest Damages 40 The district court correctly concluded that Generali was not damaged by ADH's violation of Rule 3-310(c) of the California Rules of Professional Conduct by failing to advise Generali of conflicts of interest before undertaking to represent Generali and other insurers in the Bad Faith Action. Any damages for this violation were purely speculative. 41 This court recognizes the California Supreme Court's requirement for a finding of malpractice that appreciable and actual harm must flow from the negligent conduct. United States v. Gutterman, 701 F.2d 104, 105 (9th Cir.1983), citing Budd v. Nixen, 6 Cal.3d 195, 200 (1971). The Budd court said that the mere breach of a professional duty causing only nominal damages, speculative harm, or the threat of future harm--not yet realized--does not suffice to create a cause of action for negligence. Id. 6 Cal.3d at 200. 42 To establish damages Generali relies only on the declaration of its assistant claims manager, who speculated on the basis of hearsay from counsel that Generali could have settled [the Bad Faith Action] for substantially less money than it ultimately paid in settlement. In fact, even after Generali hired new counsel it failed to respond to a $600,000 settlement offer in the Bad Faith case, far less than the $1.25 million Generali actually paid in settlement. By failing to show that the damages were anything more than speculative Generali has failed to raise a genuine issue of material fact as to an essential element of its claim for ADH's conflict of interest. 43 The district court properly granted ADH's motion for summary judgment on each of the four alleged acts of malpractice. 44 AFFIRMED.