Court Opinion

ID: 9577122
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:31:56.603265+00
Date Added: 2024-06-11T13:20:00.272369
License: Public Domain

KENNARD, J., Dissenting.
The majority holds that under a comprehensive general liability (CGL) policy, an insurance carrier that has defended its insured in a third party action seeking damages potentially within the policy’s indemnity coverage may thereafter require the insured to reimburse the carrier for some of its defense costs despite the absence of any agreement between the carrier and the insured permitting such reimbursement. To justify this result, the majority, without attempting to analyze the relevant policy language, simply asserts that the carrier’s contractual obligation to defend extends only to the defense of particular claims, not to the defense of entire actions, and therefore the insurer may obtain reimbursement for the cost of defending claims that are outside the defense obligation. Because this reasoning is irreconcilable with clear and explicit policy language obligating the insurer to defend suits, rather than individual claims, and because it is settled law that clear and explicit provisions of insurance policies should be enforced as written, I dissent.
This court recently used these words to explain how courts are to go about the interpretation of insurance policies: “Insurance policies are contracts and, therefore, are governed in the first instance by the rules of construction applicable to contracts. Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs its interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The ‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular sense,’ controls judicial interpretation unless ‘used by the parties in a technical sense, or unless a special meaning is given to them by usage.’ (Id., §§ 1638, 1644.) If the meaning a layperson would ascribe to the language of a contract of insurance is clear and unambiguous, a court will apply that meaning. [Citations.]” (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 666-667 [42 Cal.Rptr.2d 324, 913 P.2d 878].)
Under a standard form CGL policy, the insurer undertakes two obligations in exchange for the insured’s premium payments: an obligation to indemnify the insured against liability for specific types of covered damages and an obligation to defend the insured in any “suit” seeking such damages. To discharge its defense obligation, “the carrier must defend a suit which potentially seeks damages within the [indemnity] coverage of the policy.” *63(Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275 [54 Cal.Rptr. 104, 419 P.2d 168], original italics.) Thus, the defense and indemnification obligations are related, but the duty to defend is “independent of the indemnification coverage” (Gray v. Zurich Insurance Co., supra, at p. 274), and “the duty to defend is broader than the duty to indemnify” (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1081 [17 Cal.Rptr.2d 210, 846 P.2d 792]).
The language of the two CGL policies at issue here is typical. In both, the insurance carrier’s indemnity obligation extends to liability for personal injury and advertising injury. Under the earlier policy, the carrier assumed the “duty to defend any suit against [the insured] seeking damages on account of such injury.” (Italics added.) Under the later policy, the carrier assumed the “duty to defend any ‘suit’ seeking those damages” (italics added), and the policy defined “suit” as a “civil proceeding.” By using the words “suit” and “civil proceeding” the policy clearly and explicitly extends the defense obligation to the defense of entire actions, and not individual claims. Under the rules of insurance policy construction recited above, this clear and explicit meaning must be given effect.
As the Attorney General points out in his amicus curiae brief for the State of California, provisions in a standard form CGL policy obligating the insurer to defend the entirety of a suit seeking any covered damages are not the product of happenstance. Rather, they are a logical reflection of insurance carriers’ pursuit of their own interests. If the policy obligated the insurer to defend only against “claims” seeking potentially covered damages, rather than against “suits” seeking such damages, then the carrier and the insured would have to undertake defense of the suit jointly, with each represented by a different attorney. Division of the defense in this manner would compromise the insurer’s control over the third party litigation, and consequently its control over its own indemnity exposure. To avoid this result, CGL carriers have sought complete control over any litigation against the insured that potentially seeks damages covered by the indemnity provision. To prevent the insured from retaining counsel who might interfere with the insurer’s control of the defense of third party actions against the insured, insurers have phrased the defense obligation in terms of “suits” seeking potentially covered damages rather than in terms of individual claims for such damages. Thus, the obligation to defend the entirety of any suit seeking potentially covered damages represents a logical quid pro quo. In exchange for the added expense of defending claims not potentially covered, the insurer acquires a freer hand and enhanced control in the defense of those claims that are potentially covered.
*64Although California case and statutory law have imposed limits on the ability of liability insurers to control third party litigation against the insured (see, e.g., Civ. Code, § 2860; San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 369 [208 Cal.Rptr. 494, 50 A.L.R.4th 913]), CGL carriers have not responded to this changed legal climate by altering the scope of their defense obligation. Redrafting the standard policy language to narrow the defense obligation would not be particularly difficult. A model for such a restriction could be found in the standard title insurance policy, which describes the insurer’s defense obligation this way: “[T]he Company, at its own cost and without unreasonable delay, shall provide for the defense of such insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. . . . The company will not pay any fees, costs or expenses incurred by an insured in the defense of those causes of action which allege matters not insured against by this policy.” (Cal. Title Insurance Practice (Cont.Ed.Bar 2d ed. 1997) p. 533, appendix E, quoting California Land Title Association Standard Coverage Policy (1990) pt. ¶, 1 4(a).) By stating their defense obligation in terms of defending particular causes of action, rather than entire suits, title insurers have done what insurers issuing standard CGL policies have not done—limited their contractual defense obligation to the defense of potentially covered claims.
The majority pays lip service to the general rules of construing insurance policies (maj. opn., ante, at pp. 44-45), but makes no attempt to apply these general principles to the policies at issue in this case. Instead, the majority repeatedly states that an insurer merely has a duty to defend any “claim" that potentially falls within the obligation to indemnify. (Maj. opn., ante, at pp. 46, 47, 48, 49, 50, 51.) It ignores the explicit language of the policies here, under which the insurer agreed to defend not merely any claim but any suit in which there is a potential for indemnity coverage.
That the defense obligation under the policies expressly extends to “suits” rather than “claims” is not even mentioned in the majority’s discussion of the scope of the insurer’s duty to defend. Instead, the majority relies on a “ ‘general rule’ that ‘[w]hen a complaint in an action . . . states different causes of action . . . against the insured, one of which is within . . . coverage. . . and others of which may not be, the insurer is bound to defend with respect to those which, if proved, would be within . . . coverage.' ” (Maj. opn., ante, at p. 48, italics in maj. opn.)
The majority’s reliance on this “general rule” is misplaced for at least three reasons. First, the “general rule” as quoted states only that insurers *65must defend with respect to claims that are potentially within the indemnity coverage; it does not state that insurers need not defend with respect to other claims in the same action. As the majority acknowledges, an insurer indeed must defend all claims in the action. Second, the quotation is not from a statute, constitutional provision, or appellate decision having precedential value, but from a 1955 annotation in the American Law Reports. The majority never explains what chain of reasoning or source of legal authority justifies this court’s adoption of this “general rule” it has found in a legal commentary. Third, and most important, whatever validity this “general rule” may have in construing an insurance policy that does not describe the scope of the insurer’s duty to defend, general rules of construction cannot override express policy language to the contrary. Here, the insurer expressly agreed to defend not merely individual covered claims, but any suit seeking damages covered by the policies. Once an insurer has made such an agreement, it is obligated to honor it, regardless of how costly this may prove in a particular instance. (See Butler v. Nepple (1960) 54 Cal.2d 589, 599 [6 Cal.Rptr. 767, 354 P.2d 239] [stating that it is no excuse to a claim for breach of contract that performance would have been more expensive than anticipated].) This court should not adopt “general rules” that permit an insurer to avoid its contractually imposed obligations or to shift the cost of performance to the insured.
The majority also makes this assertion: “We cannot justify the insurer’s duty to defend the entire ‘mixed’ action contractually, as an obligation arising out of the policy, and have never even attempted to do so.” (Maj. opn., ante, at p. 48.) With this one extraordinary sentence, the majority summarily dispenses with any consideration of the policy language at issue here or the rules this court has previously established for construing contracts in general and insurance policies in particular. Applying those rules to the policy language at issue leads to but one conclusion, as I have explained above: The insurer must, at its own expense and without any claim for reimbursement, defend the whole of what the majority chooses to call a “mixed action.” Had the majority made, rather than declined, the attempt to interpret the contract of insurance, it could have reached no other conclusion.
Insurance policies are written contracts governed by the rules of contract law, not equity or quasi-contract. “The rules governing policy interpretation require us to look first to the language of the contract in order to ascertain its plain meaning or the meaning a layperson would ordinarily attach to it.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18 [44 Cal.Rptr.2d 370, 900 P.2d 619].) When a CGL policy uses language obligating *66the insurer to defend “any suit” seeking potentially covered damages, without reserving a right to reimbursement from the insured, the insurer at its own cost must defend the entirety of any action against the insured seeking potentially covered damages. Because the majority holds otherwise, I dissent.