Opinion ID: 1352735
Heading Depth: 2
Heading Rank: 1

Heading: Effect of the underlying judgment against the insured

Text: J.C. Penney defended the underlying action against R.H. pursuant to a reservation of the right to deny or disclaim coverage. Defendants in the present action (the mother and child) do not dispute that the reservation of rights was timely and adequate to preserve the issue of whether coverage is precluded under the intentional acts exclusions of Insurance Code section 533 and the homeowner's policy issued to R.H. (2a) The Court of Appeal correctly held that J.C. Penney is not collaterally estopped by the underlying judgment from asserting that R.H.'s conduct was intentional rather than negligent. [I]f the insurer adequately reserves its right to assert the noncoverage defense later, it will not be bound by the judgment. If the injured party prevails, that party or the insured will assert his claim against the insurer. [Footnote omitted.] At this time the insurer can raise the noncoverage defense previously reserved. ( Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 279 [54 Cal. Rptr. 104, 419 P.2d 168].) As the Court of Appeal noted, the quoted statement in Gray, although dictum, has long been the established law of California. ( Insurance Co. of the West v. Haralambos Beverage Co. (1987) 195 Cal. App.3d 1308, 1319 [241 Cal. Rptr. 427]; Val's Painting & Drywall, Inc. v. Allstate Ins. Co. (1975) 53 Cal. App.3d 576, 585-586 [126 Cal. Rptr. 267].) (3) To overcome the rule that an insurer does not waive its right to deny coverage, an insured must show that, after the insurer reserved its rights, ... the insurer either intentionally relinquished a known right, or acted in such a manner as to cause the insured reasonably to believe the insurer had relinquished such right, and that the insured relied upon such conduct to his detriment. ( Val's Painting & Drywall, Inc. v. Allstate Ins. Co., supra, 53 Cal. App.3d at p. 587.) (2b) Defendants do not assert, and the record does not support, a relinquishment by J.C. Penney. There is no evidence J.C. Penney even suggested to R.H. that it was retracting or limiting its reservation of rights. (4) Defendants attempt to avoid the no-estoppel rule by arguing that J.C. Penney wrongfully interfered with R.H.'s right to control his defense of the underlying action, in particular, with his Cumis counsel's attempt to settle that action. ( San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal. App.3d 358 [208 Cal. Rptr. 494, 50 A.L.R.4th 913].) [4] An alleged dispute between an insurer and its insured as to proper litigation strategy provides no basis for a third party to assert that the insurer waived its reserved right to deny coverage. The purpose of requiring Cumis counsel is to protect an insured's interest. If J.C. Penney breached a duty to its insured by interfering with or discharging Cumis counsel, the insured is the proper party to seek redress. (R.H., who cross-complained against J.C. Penney in this declaratory relief action, did not seek to recover damages based on the alleged mishandling of Cumis counsel.) R.H. did not assign to defendants any rights he might have with regard to Cumis counsel. [5] We have repeatedly held that [I]n the absence of an assignment a third party claimant cannot bring an action upon a duty owed to the insured by the insurer. ( Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 889 [151 Cal. Rptr. 285, 587 P.2d 1098]; Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 943-944 [132 Cal. Rptr. 424, 553 P.2d 584].) (2c) We reiterate the rule that an insurer that timely and adequately reserves its right to deny coverage and that does not subsequently intentionally waive its reservation of rights is not collaterally estopped by a judgment in favor of a third party against its insured. J.C. Penney is not collaterally estopped to deny coverage in this action for declaratory relief.