Opinion
No. C-01-2236 EDL
September 11, 2002
JUDGMENT
This action came before the Court for hearing, Magistrate Judge Elizabeth D. Laporte presiding, and the issues have been considered and a decision having been fully rendered.
IT IS ORDERED AND ADJUDGED that in accordance with the Court's order of September 11, 2002, Defendant Hartford Fire Insurance Company's Motion for Summary Judgment is GRANTED.
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
In this insurance dispute between plaintiff Environment and Land Management Inc. ("ELMI") and defendant Hartford Fire Insurance Company ("Hartford"), Hartford now moves for summary judgment, or, alternatively, for partial summary judgment. For the reasons set forth below, Hartford's motion for summary judgment is granted in its entirety.
1. Background
ELMI alleges that Hartford breached an insurance contract to defend it in two prior cases involving an injury to one of ELMI's employees, Diana Adams-Cohoon ("Adams-Cohoon"). The underlying facts are complex.
A. The Adams-Cohoon action
On July 31, 1998, Adams-Cohoon filed a personal injury suit against Sanact, Inc. and Roto-Rooter in the Superior Court for the County of Alameda. (Defendant's Evidence in Support of Motion for Summary Judgment ("Def Ev."), Ex. 1.) Adams-Cohoon alleged that she was injured on August 6, 1997 when Sanact and Roto Rooter conducted smoke testing of sewer lines in the city of San Leandro, which caused a noxious gas to flow into the air supply of the office building at 433 Callan Ave. in San Leandro. (Id. at 4.) Adams-Cohoon was working in Suite 303 of that building and alleged that she suffered injury from inhaling the gas. (Id.)
On October 13, 1998, Sanact filed a cross-complaint for indemnity against 433 Callan Partnership. (Id., Ex. 2.) On February 17, 1999, Sanact amended that cross-complaint to add, as additional cross-defendants, "Environment Land Management, a California Corporation," "Richard E. Thomas, dba Environmental Land Management," William Kerry, Delores M. Kelly, and Edwin Alvarez. (Id. Ex. 3.)
On March 30, 1999, 433 Callan Partnership, Kerry, Kelly, and Alvarez filed a cross-complaint against "Richard Thomas dba Environmental Land Management" for indemnity, comparative indemnity, contribution and declaratory relief. (Id., Ex. 4.) Notably, ELMI was not listed as a defendant in that cross-complaint, and the cross-complaint specifically noted that "Richard Thomas dba Environmental Land Management" was an individual. (Id. ¶ 1.)
On October 19, 1999, Sanact amended its cross-complaint. (Id., Ex. 5.) The only cause of action alleged against "Environment Land Management" and "Richard E. Thomas dba Environmental Land Management" was for declaratory relief. (Id. at 4.) "Environment Land Management" was alleged to be a California corporation. (Id. ¶ 13.) "Richard E. Thomas dba Environmental Land Management" was alleged to be an individual. (Id. ¶ 14.) Sanact alleged that ELMI and Thomas leased, maintained, managed, controlled, and were operating the office at 433 Callan, and that their negligence in maintaining the plumbing in that building caused Adams-Cohoon's injuries. (Id. ¶¶ 16-17.) Sanact sought a declaration of the comparative liability of Sanact, ELMI, and Thomas for the damages claimed in Adams-Cohoon's complaint. (Id. ¶ 19.)
On October 12, 2000, the jury reached a verdict, and found Adams-Cohoon, 433 Callan, and Thomas negligent, and found Sanact not negligent. (Id., Ex. 8.) The jury found that Adams-Cohoon's total amount of damages was $384,583, and found Thomas to be 35% liable for those damages. (Id.) The jury found 433 Callan to be 45% liable. (Id.) On December 7, 2000, the court entered a judgment on the special verdict awarding Adams-Cohoon $272,666.40 against 433 Callan Partnership, Kerry, Kelly, and Alvarez, plus costs of $11,476.43. (Id. Ex. 9.) The sum of $272,666.40 is approximately 71% of the jury verdict, and it is unclear how the court came to that figure.
Also on December 7, 2000, the court issued a "Judgment on Cross Complaint" in which the Court found in favor of 433 Callan Partnership, Kerry, Kelly, and Alvarez on their cross-complaint against Thomas. (Id., Ex. 10.) The Court ordered, adjudged, and decreed that 433 Callan Partnership, Kerry, Kelly, and Alvarez recover from Thomas $284,142.83, plus post-judgment interest, costs, and attorneys fees. (Id.)
B. The Hartford subrogation action
On January 25, 2000, Hartford filed a complaint for subrogation against 433 Callan Partnership and John G. Palmer, DDS, in the Superior Court for the County of Alameda. (Id., Ex. 11.) Hartford alleged that, "pursuant to an insurance contract, plaintiff has become obligated to, and has provided benefits for injury to Diana Adams-Cohoon, as a direct and proximate result of defendants' conduct, and is subrogated to the rights of its insured." (Id.) Hartford also alleged that "[d]efendants caused and permitted noxious odors to spread through the building, creating a dangerous condition which caused illness to persons inside the building." (Id.) In addition, "[d]efendant John G. Palmer, DDS caused and permitted noxious odors to spread in violation of his lease." (Id.)
According to Thomas, "In 1999 Cohoon sustained another pulmonary injury when she was exposed to fumes from a fish which Dr. Palmer was frying in Suite 301 of 433 Callan, San Leandro." (Thomas Decl. ¶ 4.) According to Arlene Lee, Adams-Cohoon claimed to suffer aggravation of her previously-injured respiratory tract from breathing fumes from "some duck that was being cooked in a microwave in a dentist office in the building where she worked." (Moss Decl., Lee Dep. 27:17-21.)
On April 7, 2000, Palmer filed a cross-complaint against "Richard E. Thomas, individually and doing business as Environmental Land Management Co." for equitable indemnity or contribution. (Id., Ex. 12.) The cross-complaint alleges that "[c]ross defendants, and each of them, are individuals and/or unincorporated associations or corporations doing business within the state of California." (Id. ¶ 3.) On June 7, 2000, Thomas answered Palmer's cross-complaint, as an individual. (Id., Ex. 13.)
On March 29, 2001, Hartford filed a request for dismissal of its subrogation action, which was granted. (Id., Ex. 14.) On September 20, 2001, Palmer filed a request for dismissal of his cross-complaint, which also was granted. (Id., Ex. 15.)
C. The insurance policies
Hartford issued a workers compensation and employers liability policy to ELMI, policy number 57 WEC CU8457 ("Policy"). (Id., Exs. 21 and 22.) Defendant's Exhibit 21 is the policy in effect from September 23, 1996 to September 23, 1997, while Exhibit 22 is the policy in effect from September 23, 1998 to September 23, 1999. As there is no significant difference between the two policies for purposes of this litigation, the Court will limit its citations to Exhibit 21.
The Policy contains two parts: (1) a workers compensation insurance policy, and (2) an employers liability insurance policy. The relevant portions of the workers compensation insurance policy provide:
B. We Will Pay
We will pay promptly when due the benefits required of you by the workers compensation law.
C. We Will Defend
We have the right and duty to defend at our expense any claim, proceeding or suit against you for benefits payable by this insurance. We have the right to investigate and settle these claims, proceedings or suits.
We have no duty to defend a claim, proceeding or suit that is not covered by this insurance.
(Id. at POL 100023.)
The relevant portions of the employers liability insurance policy provide:
B. We Will Pay
We will pay all sums you legally must pay as damages because of bodily injury to your employees, provided the bodily injury is covered by this Employers Liability Insurance
The damages we will pay, where recovery is permitted by law, include damages:
1. for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of injury to your employee . . .
* * *
D. We Will Defend
We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance. We have the right to investigate and settle these claims, proceedings and suits.
We have no duty to defend a claim, proceeding or suit that is not covered by this insurance. We have no duty to defend or continue defending after we have paid our applicable limit of liability under this insurance.
(Id. at POL 100024-25 (emphases added).) The employers liability insurance policy also provides:
C. Exclusions
This insurance does not cover:
* * *
3. any obligation imposed by a workers' compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law[.]
(Id. at POL 100013.) It also imposes the following relevant duties on the insured:
Tell us at once if injury occurs that may be covered by this policy. Your other duties are listed here.
* * *
6. Do not voluntarily make payments, assume obligations or incur expenses, except at your own cost.
(Id. at POL100026.)
The policy explicitly excludes coverage for the following officers of ELMI: Richard E. Thomas and Pauline Cooper. (Id., Ex. 21 at POL 10004.) ELMI concedes in its opposition brief that the Policy excludes coverage for Thomas. (Opposition To Summary Judgment Partial Summary Judgment Motions 2:18-20.)
D. The current complaint
The complaint in this action was originally filed on behalf of ELMI and Thomas. Thomas dismissed all of his claims in this action on July 23, 2002. ELMI asserts five claims against Hartford in its second amended complaint: (1) breach of contract; (2) declaratory relief; (3) breach of the covenant of good faith and fair dealing; (4) constructive fraud; and (5) negligence.
ELMI contends that Hartford breached the Policy by refusing to provide a defense to the cross-complaints that made ELMI a party to the Adams-Cohoon complaint and the Hartford subrogation complaint. (Second Amended Complaint ("SAC") ¶ 5.) ELMI contends that Hartford did send an attorney, Arlene Lee, to the deposition of Richard Thomas in the Adams-Cohoon lawsuit, which led it to believe that Hartford was defending it in that lawsuit. (Id.) Hartford did not, however, provide an attorney to defend ELMI at the trial of the Adams-Cohoon action. (Id. ¶ 7.) ELMI further contends that Hartford also breached the Policy by refusing to provide a defense for ELMI against the Palmer cross-complaint in the Hartford subrogation action. (Id. ¶ 8.)
ELMI's claim for declaratory relief seeks a declaration that it properly tendered the disputes which arose from Adams-Cohoon's injury. (Id. ¶ 20.) ELMI also seeks a declaration that Hartford owed him a defense against the cross-complaints in the Adams-Cohoon action and the Hartford subrogation action, and now must pay the judgment in the Adams-Cohoon action. (Id.)
ELMI's claim for breach of the covenant of good faith and fair dealing is based on the same allegations. (Id. ¶¶ 21-22.) ELMI also contends that Hartford breached the covenant of good faith and fair dealing by deceiving it into believing that Hartford was providing a defense, which it relied on to its detriment. (Id. ¶ 22.)
ELMI's claim for constructive fraud is also based on the allegation that Hartford deceived ELMI into believing that it was providing a defense in the Adams-Cohoon action, which it relied upon to its detriment. (Id. ¶ 28.)
Finally, ELMI's negligence claim is, in essence, an attorney malpractice claim alleging that Hartford's employee, Arlene Lee, failed to represent ELMI adequately. (Id. ¶¶ 37-41.)
II. Discussion
A. Summary judgment standard
Rule 56(c) of the Federal Rule of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Material facts are those that may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is "genuine" if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See Id. The court may not weigh the evidence.See id. at 255. Rather, the nonmoving party's evidence must be believed and "all justifiable inferences must be drawn in [the nonmovant's] favor." United Steelworkers of Am. v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir. 1989) (en banc) (citing Liberty Lobby, 477 U.S. at 255).
The moving party bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the pleadings, depositions, interrogatory answers, admissions and affidavits, if any, that it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the nonmoving party will bear the burden of proof at trial, the moving party's burden is discharged when it shows the court that there is an absence of evidence to support the nonmoving party's case. See id. at 325. Where the moving party "bears the burden of proof at trial, he must come forward with evidence which would entitle him to a directed verdict if the evidence went uncontroverted at trial." Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992) (citations omitted); see also Fontenot v. Upjohn, 780 F.2d 1190, 1194 (5th Cir. 1986) (when plaintiff moves for summary judgment on an issue upon which he bears the burden of proof, "he must establish beyond peradventure all of the essential elements of the claim . . . to warrant judgment in his favor.").
A party opposing a properly supported motion for summary judgment "may not rest upon the mere allegations or denials of [that] party's pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); Liberty Lobby, 477 U.S. at 250. The opposing party, however, need not produce evidence in a form that would be admissible at trial in order to avoid a summary judgment.See Celotex, 477 U.S. at 324. Nor must the opposing party show that the issue will be resolved conclusively in its favor. See Liberty Lobby, 477 U.S. at 248-49. All that is necessary is sufficient evidence supporting the asserted factual dispute and requiring a jury or judge to resolve the parties' differing versions of the truth at trial. See id.
B. Objections to Evidence
1. Objection to all evidence
Hartford objects to all of ELMI's evidence, on the ground that none of it is properly cited in ELMI's opposition brief. ELMI's opposition brief rarely cites to any evidence, and when it does, it typically cites to a declaration or a deposition without citing to any particular portion of those documents. By doing so, ELMI fails to comply with Rule 56(e) of the Federal Rules of Civil Procedure, which provides that "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial."
The Ninth Circuit has repeatedly held that the district court is not required to search the record sue sponte for genuine issues of material fact; rather, the burden is on the parties to identify those facts with reasonable particularity in their briefs so that the Court can easily locate them in the supporting evidence. "The district court need not examine the entire file for evidence establishing a genuine issue of fact, where the evidence is not set forth in the opposing papers with adequate references so that it could conveniently be found." Carmen v. San Francisco Unified School District, 237 F.3d 1026, 1031 (9th Cir. 2001); see also Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996) ("It is not our task, or that of the district court to scour the record in search of a genuine issue of triable fact. We rely on the nonmoving party to identify with reasonable particularity the evidence that precludes summary judgment.") "A lawyer drafting an opposition to a summary judgment motion may easily show a judge, in the opposition, the evidence that the lawyer wants to read. It is absurdly difficult for a judge to perform a search, unassisted by counsel, through the entire record, to look for such evidence." Carmen, 237 F.3d at 1030.
Here, however, the evidence submitted by ELMI is not voluminous. The Court will exercise its discretion to review that evidence, despite ELMI's failure to provide adequate citations in its opposition papers. Accordingly, Hartford's objection to all evidence submitted by ELMI is overruled.
The Court also overrules Hartford's objection that ELMI's opposition brief was served on Hartford one day late. Hartford concedes that it received a fax copy of ELMI's opposition brief the day it was due and received the supporting documents the following day. Hartford has not shown that it suffered any prejudice from this minor delay. Accordingly, while the Court does not condone ELMI's failure to provide the supporting documents to Hartford on the due date, the Court declines Hartford's invitation to strike ELMI's opposition brief.
2. Objections to Dunbar Declaration
Hartford also objects to the declaration of William Dunbar on the ground that ELMI did not serve Hartford with a copy of that declaration. Although the opposition brief refers to a declaration of William Dunbar, no such declaration was filed with the Court. Accordingly, Hartford's objections to that declaration are sustained.
3. Other objections
Hartford also asserts numerous other objections to various portions of the declarations of Glen Moss, Richard Thomas, and to the deposition of James Beck. Where any of this material appears to be relevant to the Court's decision on Hartford's motion for summary judgment, the Court will rule on those objections during its discussion of the relevant issues.
C. Contract claim
"An insurance policy is a contract between an insurer and an insured, the insurer making promises, and the insured making premiums, the one in consideration for the other, against the risk of loss." Buss v. Superior Court, 16 Cal. 4th 35, 44, 65 Cal.Rptr.2d 366, 372 (1997) (citations omitted). The provisions of a policy must be considered in their full context. Id. at 45, 65 Cal.Rptr.2d at 372. The mutual intention of the parties at the time the policy is entered into governs the policy's interpretation, and such intent is to be inferred, if possible, solely from the written provisions of the policy. AIU Ins. Co. v. Superior Court, 51 Cal.3d 807, 821-22, 274 Cal.Rptr. 820, 831 (1990) (citing Cal. Civ. Code §§ 1636 and 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. at 822, 274 Cal.Rptr. at 833 (citing Cal. Civ. Code §§ 1638 and 1644). If the meaning a layperson would ascribe to the language of a contract of insurance is not ambiguous, the court will apply that meaning. Id. If there is ambiguity, it is resolved by interpreting the ambiguous provisions in the sense the insurer believed the insured understood them at the time of formation. Id. (citing Cal. Civ. Code § 1649). If application of this rule does not eliminate the ambiguity, ambiguous language is construed against the party who caused the uncertainty to exist. Id. (citing Cal. Civ. Code § 1654.) Ambiguities are generally resolved in favor of coverage. Id. Coverage clauses are interpreted broadly, protecting the objectively reasonable expectations of the insured. Id.
"An insurer has a duty to defend when the policy is ambiguous and the insured would reasonably expect the insurer to defend him or her against the suit based on the nature and kind of risk covered by the policy, or when the underlying suit potentially seeks damages within the coverage of the policy." Foster-Gardner, Inc. v. National Union Fire Insurance Co., 18 Cal. 4th 857, 869, 77 Cal.Rptr.2d 107, 115 (1998) (emphases added). When at least one of the claims is at least potentially covered, the insurer must defend the entire action. Aerojet-General Corporation v. Transport Indemnity Co., 17 Cal. 4th 38, 59-60, 70 Cal.Rptr.2d 118, 130-31 (1997). As to claims that are not even potentially covered, however, the insurer may seek reimbursement for defense costs that can be allocated solely to the claims that are not even potentially covered.Buss, 16 Cal.4th at 50, 52, 65 Cal.Rptr.2d at 376, 378.
The duty to defend is a continuing one, arising on tender of defense and lasting until the underlying lawsuit is concluded or until it has been shown that there is no potential for coverage. Foster-Gardner, 18 Cal. 4th at 869, 77 Cal.Rptr.2d at 115. "[T]he duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages are ultimately awarded."Montrose Chemical Corp. of California v. Superior Court, 6 Cal. 4th 287, 295, 24 Cal.Rptr.2d 467, 471 (1993).
The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy and all facts known to the insurer from any source. Foster-Gardner, 18 Cal. 4th at 878, 77 Cal.Rptr.2d at 122. "Facts extrinsic to the complaint give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy." Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 19, 44 Cal.Rptr.2d 370, 378 (1995). "Conversely, where the extrinsic facts eliminate the potential for coverage, the insurer may decline to defend even when the bare allegations in the complaint suggest potential liability." Id. at 19, 44 Cal.Rptr.2d at 379.
ELMI suggests that Hartford had a duty to file a court action seeking a declaratory judgment that no coverage existed under the Policy for any of the claims against ELMI or Thomas, and thus it had no duty to defend against those claims. There is no such requirement under the law. Ringler Assoc. Inc. v. Maryland Cas. Co., 80 Cal.App. 4th 1165, 1192, 96 Cal.Rptr.2d 136, 157-58 (2000). "Because it could cost as much for an insurer to prosecute a declaratory relief action on the question of coverage as to pursue the underlying litigation to completion, adoption of such a rule would as a practical matter lock virtually all liability insurers into a duty to defend regardless of the actual terms of their policies." Id. "The law does not require this." Id.
ELMI also suggests that Hartford had a duty under the Policy to remove the civil actions to the Workers' Compensation Appeals Board ("WCAB"). ELMI cites no authority for this remarkable proposition. The Court is unaware of any procedure for "removing" a civil lawsuit to the WCAB.
1. The Adams-Cohoon action
a. The 433 Callan cross-complaint
The 433 Callan cross-complaint in the Adams-Cohoon action was filed against Richard Thomas dba Environmental Land Management, not ELMI. As the Policy excludes all coverage for Thomas, Hartford had no duty to defend against this cross-complaint. See Earl W. Schott, Inc. v. Kalar, 20 Cal.App. 4th 943, 24 Cal.Rptr.2d 580 (1994) (holding that complaint against "Gary Kalar, individually and dba Kalar Construction Co." did not assert a claim against Kalar Construction Co., Inc.).; Meller Snyder v. RT Properties, Inc., 62 Cal.App. 4th 1303, 1310-11, 73 Cal.Rptr.2d 740, 745 (1998) (holding that complaint against "Robert Tieger, individually and doing business as RT Properties" did not assert claim against RT Properties, Inc.).
ELMI's argument that there is a dispute about whether this claim was actually against ELMI is meritless. The cross-complaint was filed against Thomas, not against ELMI. It was based on the allegation that the 433 Callan and Thomas entered into a lease in which Thomas agreed to indemnify 433 Callan from liability to any third party. (Def. Ev. Ex. 4 ¶ 7.) The lease that was attached to the cross-complaint lists the tenant as "Richard E. Thomas dba Environmental Land Management." (Id., attachment to cross-complaint.) Thus, the 433 Callan cross-complaint was unquestionably filed against Thomas, not ELMI, as was the judgment that was ultimately entered against Thomas. (Def. Ev., Ex. 10.)
ELMI's citation to section 317 of the California Corporation Code does not enhance its argument. That code section sets forth the power of a corporation to indemnify its agents under certain circumstances. Even if ELMI voluntarily indemnified Thomas, that has nothing to do with Hartford's obligations under the Policy. The Policy excludes Thomas from coverage, and thus Hartford had no duty under the Policy to defend against any claims against Thomas, regardless of whether a separate indemnification agreement existed between ELMI and Thomas.
Thus, Hartford's motion for summary judgment on ELMI's claim for breach of contract is granted with respect to Hartford's duty to defend ELMI against the 433 Callan cross-complaint.
b. The Sanact cross-complaint
Sanact's cross-complaint in the Adams-Cohoon action did assert a claim against ELMI. Hartford presents several arguments why it had no duty to defend ELMI against that claim.
i. Did Sanact assert a claim for damages against ELMI?
First, Hartford argues that the Sanact claim against ELMI was not for damages, and thus was not covered by the Policy. The Policy provides: "We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance." (Def. Ev., Ex.21 at POL100024.)
ELMI did not tender to Hartford the defense of the Sanact cross-complaint until at least March 7, 2000, according to its answers to interrogatories. (Def. Ev., Ex. 25 at 11:9-21.) Hartford thus had no duty to defend ELMI prior to that date. Foster-Gardner, 18 Cal.4th at 869, 77 Cal.Rptr.2d at 115 (duty to defend does not arise until tender of defense). On March 7, 2000, the operative cross-complaint was Sanact's October 19, 1999 First Amended Cross-Complaint For Indemnity and Declaratory Relief. (Def. Ev., Ex. 5.)
In that cross-complaint, the only claim asserted against ELMI was for declaratory relief. (Id. ¶ 12-20.) Sanact alleged that if Adams-Cohoon "sustained damages as alleged in her complaint, these damages were caused entirely or in part, by Cross-defendants as set forth herein." (Id. ¶ 15.)
Cross-complainant seeks a judicial determination of the respective rights and duties of Cross-complainant and Cross-defendants with respect to the damages claimed in the complaint of Plaintiff herein. In particular, Cross-complainant desires a declaration of the comparative liability of Cross-complainant and Cross-defendants for these damages.
(Id. ¶ 19.) Hartford argues that even though this action sought a declaration of ELMI's liability for Adams-Cohoon's damages, it was not an action for damages, but was solely an action for declaratory relief. Thus, according to Hartford, it had no duty under the Policy to defend ELMI against the Sanact cross-complaint.
Hartford has cited no cases in which an action seeking a declaration of comparative liability for damages was considered not to be an action for damages for purposes of insurance coverage. Its argument is not supported by the case law it cites.
In AIU an issue was whether "damages" in a comprehensive general liability was broad enough to include cleanup and response costs incurred under various environmental laws. AIU 51 Cal.3d at 814, 274 Cal.Rptr. at 825. The Court construed the term "damages" broadly to include the costs of reimbursing government agencies and complying with injunctions ordering cleanup under the environmental laws. Id. The Court applied the "plain and ordinary" meaning of "damages" found in section 3281 of the California Civil Code: "Every person who suffers detriment from the unlawful act or omission of another, may recover from the person in fault a compensation therefor in money, which is called damages." Id. at 825, 274 Cal.Rptr. at 834. The Court also rejected the insurer's argument that a restitution award could not be considered "damages" within the meaning of the policy: "Whatever technical distinctions we and other courts have drawn between restitution and compensatory damages in other contexts, in ordinary terms both concepts are within the definition of `damages.' For the purposes of interpretation, this fact is dispositive." Id. at 836, 274 Cal.Rptr. at 841. The Court also found that the costs of complying with injunctive orders requiring cleanup of environmental sites also were within the scope of "damages," for purposes of coverage, even though those costs did not fall within the ordinary definition of damages because they were paid to contractors rather than to the aggrieved party and thus did not compensate the aggrieved party for a loss. Id. at 838, 274 Cal.Rptr. at 843. The Court found that a reasonable insured would expect those costs to be covered by the policy. Id. at 840, 274 Cal.Rptr. at 844. AIU thus stands for a broad definition of "damages," rather than the technical definition Hartford seeks to apply here.
Hartford also relies on Bank of the West v. Superior Court, 2 Cal. 4th 1254, 10 Cal.Rptr.2d 538 (1992). In that case, the California Supreme Court held that a comprehensive general liability policy that covered damages arising out of unfair competition occurring during the course of advertising activities, only covered the common law tort of unfair competition and not conduct prohibited by unfair business practices statutes. Thus, the policy did not cover the costs of disgorgement under section 17203 of the California Business and Professions Code. "[T]he Unfair Business Practices Act does not authorize an award of damages, and a definition of `unfair competition' that cannot support an award of damages cannot reflect the objectively reasonable expectations of the insured." Id. at 1272, 10 Cal.Rptr.2d at 550. Bank of the West says nothing about whether a declaratory relief action seeking a declaration of liability of damages can be considered an action for damages within the meaning of the Policy at issue here. Bank of the West explained thatAIU held that "damages" include monetary awards that compensate for harm to the plaintiffs, whereas public policy precludes insurance coverage of disgorgement of ill gotten gains obtained in violation of a statute, the basis for restitution under § 17200.
In AIU, the California Supreme Court strongly suggests that the hyper-technical distinction asserted here by Hartford is not the law. The Court noted that when a policy covers damages that insured is "legally obligated" to pay, the insured reasonably would assume that it also covers expenses and costs ordered under the Court's equitable jurisdiction. Id. at 825, 274 Cal.Rptr. at 833-34. "It would come as an unexpected, if not incomprehensible shock to the insureds to discover that their insurance coverage was being denied because the plaintiff chose to frame his complaint in equity rather than in law." Id. at 825, 274 Cal.Rptr. at 833 (quoting Aerojet-General Corp. v. Superior Court, 211 Cal.App.3d 216, 228, 257 Cal.Rptr.621 (1989)). Similarly, here, a reasonable insured would be shocked to learn that Hartford would not defend against the Sanact cross-complaint because it is framed as an action for declaratory relief seeking to establish the amount of damages owed by the insured, rather than as an action seeking an award of damages, particularly since it was being litigated in the same action where those damages were being sought by Adams-Cohoon. Accordingly, the Court denies Hartford's motion for summary judgment with respect to the argument that there was no duty to defend ELMI against the Sanact cross-complaint because it was not an action for damages.
ii. Is the Sanact cross-complaint against ELMI covered under the Hartford employers liability insurance policy?
Hartford's second argument is that, even assuming that the Sanact cross-complaint against ELMI is an action for damages, there is still no coverage under the Policy because the employers liability insurance section of a workers' compensation policy has very limited application.
"[E]mployers' liability insurance is traditionally written in conjunction with workers' compensation policies, and is intended to serve as a `gap-filler,' providing protection to the employer in those situations where the employee has a right to bring a tort action despite the provisions of the workers' compensation statute or the employee is not subject to the workers' compensation law." Producers Dairy Delivery Co., Inc. v. Sentry Ins. Co., 41 Cal.3d 903, 927, 226 Cal.Rptr. 558, 565 (1986). "Most employers' liability policies limit coverage to liability for which the insured is held liable as an employer." Id. The Policy at issue here appears be typical in that it covers bodily injury, by accident or by disease, to an employee arising out of and in the course of the injured employee's employment by the insured. (Def. Ev. Ex. 21 at POL100013.) Its intent to serve as a gap filler for workers' compensation coverage is demonstrated by its exclusion for "any obligation imposed by a workers' compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law." (Id.)
At first glance, the Policy language appears to cover the Sanact cross-complaint against ELMI. The Policy provides:
The damages we will pay, where recovery is permitted by law, include damages:
1. for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of injury to your employee[.]
(Def. Ev., Ex. 21 at POL100024.) Adams-Cohoon sued Sanact for damages she suffered at work, while working for ELMI, and Sanact filed a cross-complaint against ELMI alleging that Adams-Cohoon's injuries were caused because ELMI was "negligent in the maintenance, management, control and operation the office [sic], specifically the building's plumbing, so as to cause fumes, gases and smoke to invade part of the office, thereby causing Plaintiff's injuries as alleged in the complaint, if Plaintiff has, in fact, been so injured." (Def. Ev., Ex. 5 ¶ 17.) Thus, Sanact's cross-complaint against ELMI is an action "to recover the damages claimed against such third party as a result of injury to [ELMI's] employee."
Hartford does not argue that Sanact's cross-complaint against ELMI is not covered by that Policy language. Instead, Hartford argues that there was no duty to defend that action because Sanact could not recover those damages against ELMI, as a matter of law. Under the Policy, Hartford was required to pay those damages only "where recovery is permitted by law." (Def. Ev., Ex. 21 at POL100024.) Under the Policy, it was required to defend any suit against the insured "for damages payable by this insurance." (Id.) Hartford argues that because of a statutory ban on the damages sought by Sanact, they were not "damages payable by this insurance," and thus Hartford had no duty to defend the action.
Under the California Labor Code, an employee's workers' compensation claim "does not affect his or her claim or right of action for all damages proximately resulting from the injury or death against any person other than the employer." Cal. Lab. Code § 3852. There is evidence that Adams-Cohoon did file workers' compensation claims against ELMI, although the outcome of those claims is not before the Court. (See Def. Ev., Exs. 33-36.) Under section 3852, Adams-Cohoon's workers' compensation claim against ELMI did not preclude her from also filing suit against Sanact, which she did. See, e.g., Privette v. Superior Court, 5 Cal. 4th 689, 697, 21 Cal.Rptr.2d 72, 77 (1993) (citing Cal. Lab. Code § 3852) (workers' compensation exclusivity clause "does not preclude the employee from suing anyone else whose conduct was a proximate cause of the injury.")
Section 3864 precluded Sanact from obtaining indemnity from ELMI, however. That section provides:
If an action as provided in this chapter prosecuted by the employee . . . against the third person results in judgment against such third person, or settlement by such third person, the employer shall have no liability to reimburse or hold such third person harmless on such judgment or settlement in absence of a written agreement so to do executed prior to the injury.
Cal. Lab. Code § 3864. Sanact's cross-complaint against ELMI does not allege that it had a prior written indemnity agreement with ELMI. Thus, Sanact could not obtain indemnity from ELMI, as a matter of law.
Accordingly, to the extent Sanact's cross-complaint against ELMI is construed as an action for damages, it sought damages that are barred by section 3864 of the California Labor Code. (This is undoubtedly why the complaint sought only declaratory relief.) As those damages cannot be recovered as a matter of law, the Sanact cross-complaint was not a "suit against [ELMI] for damages payable by this insurance." (Def. Ev., Ex. 21 at POL1000214.) As Hartford had the duty to defend only a "suit against [ELMI] for damages payable by this insurance" (Id.), Hartford had no duty to defend ELMI against the Sanact cross-complaint.
Thus, Hartford's motion for summary judgment on ELMI's claim for breach of contract is granted, with respect to Hartford's duty to defend ELMI against the Sanact cross-complaint.
Hartford also argues, in a footnote, that ELMI's damages are too unsubstantiated and too uncertain to support any award of damages. Having granted summary judgment on the ground that Hartford had no duty to defend, the Court need not consider this argument.
2. The Hartford subrogation action
The Palmer cross-complaint in the Hartford subrogation action was filed against Richard Thomas, individually and doing business as Environmental Land Management Co. (Def. Ev., Ex. 12.) As the Policy excludes all coverage for Thomas, Hartford had no duty to defend ELMI against this cross-complaint. See Earl W. Schott, Inc. v. Kalar, 20 Cal.App. 4th 943, 24 Cal.Rptr.2d 580 (1994) (holding that complaint against "Gary Kalar, individually and dba Kalar Construction Co." did not assert a claim against Kalar Construction Co., Inc.).; Meller Snyder v. RT Properties, Inc., 62 Cal.App. 4th 1303, 1310-11, 73 Cal.Rptr.2d 740, 745 (1998) (holding that complaint against "Robert Tieger, individually and doing business as RT Properties" did not assert claim against RT Properties, Inc.). Thus, Hartford's motion for summary judgment on ELMI's claim for breach of contract is granted, with respect to Hartford's duty to defend ELMI against the Palmer cross-complaint in the Hartford subrogation action.
3. Possible amendments to cross-complaints?
ELMI argues that Hartford had a duty to defend under the Policy because the cross-complaints in the Adams-Cohoon action and the Hartford subrogation action conceivably could have been amended to seek damages against ELMI. Under California law, however, "[a]n insured may not trigger the duty to defend by speculating about . . . ways in which the third party claimant might amend its complaint at some future date."Gunderson v. Fire Ins. Exch., 37 Cal.App. 4th 1106, 1114, 44 Cal.Rptr.2d 272, 277 (1995). "This approach misconstrues the principle of `potential liability' under an insurance policy." Id.
4. ELMI's liability for judgment
ELMI also argues that Hartford is liable for breach of contract because ELMI paid the judgment against Thomas, yet Hartford received a benefit from that payment. This argument is impossible to follow. Thomas attests in his declaration that:
ELM bylaws provide that it will indemnify me for all attorney fees, litigation costs, and judgments involving properties it manages for me, or involving claims against me related to my duties as President. Pursuant to this indemnity provision, all the Cohoon claims against me as an individual were the responsibility of ELM. In fact, it is ELM that sustained the loss arising from the judgment Cohoon secured.
(Thomas Decl. ¶ 9.) Even if ELMI paid the judgment on Thomas' behalf, that payment had nothing to do with the terms of the Hartford Policy. Hartford undertook no obligation to reimburse ELMI for payments ELMI was required to make to other parties pursuant to other agreements. Thus, ELMI's assumption of the judgment against Thomas has nothing to do with Hartford's duty to defend claims against ELMI that are covered under the Policy, and cannot be the basis of a claim for breach of contract.
D. Covenant of good faith and fair dealing
"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." Waller, 11 Cal. 4th at 36, 44 Cal.Rptr.2d at 390. As Hartford had no duty to defend ELMI against any of the cross-complaints in the Adams-Cohoon action, or the Hartford subrogation action, it cannot be liable for breaching the covenant of good faith and fair dealing. Summary judgment on this claim is also granted for Hartford on this claim.
E. Constructive Fraud
ELMI's claim for constructive fraud is based on a somewhat different theory. Essentially, ELMI contends that Hartford lured it into believing that Hartford was defending ELMI, to ELMI's detriment. This argument is based on Thomas' contention that he thought Hartford's in-house counsel, Arlene Lee, was representing him and ELMI in the Adams-Cohoon action.
Section 1573 of the California Civil Code defines constructive fraud. That section provides:
Constructive fraud consists:
1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him.
2. In any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.
Cal. Civ. Code § 1573. "Constructive fraud arises on a breach of duty by one in a confidential or fiduciary relationship to another whichinduces justifiable reliance by the latter to his prejudice. Wells Fargo Bank, N.A. v. Gump (In Re Estate of Gump), 1 Cal.App. 4th 582, 601, 2 Cal.Rptr.2d 269, 281 (1991).
This Court has already held that under California law, there is no fiduciary relationship between an insurer and its insured. (Order Denying in Part and Granting in Part Defendant's Motion to Dismiss and Denying Plaintiff's Motion for Preliminary Injunction, filed September 7, 2001, at 3-4.) The Court also found that a true fiduciary relationship between an insurer and insured was not a necessary element of a claim for constructive fraud because California courts have used the term "fiduciary relationship" synonymously with the term "confidential relationship." Id. (citing General American Life Ins. Co. v. Rana, 769 F. Supp. 1121, 1126 (N.D. Cal. 1991) and Byrum v. Brand, 219 Cal.App.3d 926, 937 (1990)). The Court dismissed ELMI's claim for constructive fraud, however, for failure to allege the claim with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure.
Hartford now argues that ELMI's claim for constructive fraud still fails to comply with Rule 9(b). Hartford also argues that the claim should be dismissed because ELMI failed to allege a breach of any duty owed to ELMI, reliance, and prejudice or injury. The time to raise these arguments, however, was after the claim was amended and before Hartford answered the complaint. As Hartford did not file a new motion to dismiss, but instead answered the complaint, the Court will not consider its arguments that the constructive fraud claim should be dismissed under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. Instead the Court will proceed to the merits of Hartford's constructive fraud claim.
ELMI's constructive fraud claim asserts a mishmash of conclusory allegations that are unsupported by the evidence it has submitted in opposition to Hartford's motion for summary judgment. ELMI alleges that Hartford deceived ELMI into believing that it was providing a defense to the Adams-Cohoon action, and that ELMI relied on that conduct and suffered a substantial judgment as a result of ELMI's failure to provide a defense. (SAC ¶ 28.) ELMI also appears to claim that Hartford filed the Hartford subrogation action knowing that it would result in cross-complaints being filed against ELMI, and then refused to provide ELMI with a defense, thus exposing him to potential liability in those cross-complaints. (Id. ¶ 29.)
The evidence does not support these allegations. On January 8, 2000, Thomas received a letter from Arlene Lee on behalf of Babbits Walter, attorneys at law. (Thomas Decl. ¶ 5, and Ex. F.) The letter is dated January 6, 2000, and is addressed to ELMI. (Id., Ex. F.) The letter references Hartford claim number 973 C 26010 and states, in relevant part:
The defense of this action has been referred to this law office. We are staff attorneys employed by your insurance carrier, The Hartford Insurance Group. This office will be defending your interests in the above referenced workers' compensation claim. Our office will file a Notice of Representation on your behalf with the Workers' Compensation Appeals Board (WCAB).
(Id. (emphasis added).) Thomas nonetheless interpreted this letter to mean that Hartford was representing ELMI in Adams-Cohoon's civil lawsuit, as well as her workers' compensation claim. (Thomas Decl. ¶ 6.) Thomas contends that the claim number would have included the letters "WC" rather than "C" if it covered only the workers' compensation claim. (Id.) There is no foundation for this statement, however, and the Court sustains Hartford's objection to it as speculative and lacking personal knowledge.
At some point after defaulting on the Sanact cross-complaint, Thomas contacted attorney Frank Debenedetto. (Moss Decl., Ex. E, Debenedetto Decl. in Support of Preliminary Injunction ¶ 5.) Debenedetto persuaded Sanact to set aside the default and permit an answer to be filed, but he and Thomas agreed that he would not have the continuing responsibility for defending Thomas, and that other counsel would be retained. (Id.) Debenedetto contacted Babbits Walter, counsel for Hartford, to advise them of the claim, and spoke to a female attorney, whose name he could not recall. (Id. ¶ 6.) During that telephone call, Debenedetto asked Hartford to provide someone to attend the deposition of William Kerry to represent Thomas' interests. (Id.) Debenedetto was uncertain of the full extent of the coverage in the Policy, and thus the tender of coverage was tentative. (Id.) Debenedetto is uncertain if anyone from Hartford attended the Kerry deposition. (Id.)
After further discussions with Thomas about the Policy, Debenedetto called Babbitts Walter again. (Id. ¶ 7.) He believes he clearly tendered the defense to Hartford. (Id.) Debenedetto spoke to Arlene Lee and told her about the upcoming deposition of Thomas. (Id.) He told her that James Beck would attend the deposition but that she should attend on behalf of the carrier. (Id.)
At deposition, Debenedetto was asked if he recalled "what response Arlene Lee gave to you when you told her that Environmental Land Management and Richard Thomas expected a defense to the extent it was appropriate?" (Id., Debenedetto Dep. 66:7-10.) Debenedetto did not have a specific recollection of her answer, but testified that "It is my understanding that if in fact it was appropriate that representation would be forthcoming." (Id. ¶ 19-21.) He had no recollection of ever receiving any letter from Arlene Lee or the law firm of Babbits Walter about anything connected with ELMI or Thomas. (Id. 67:3-10.)
Although the testimony is not precise, James Beck's deposition suggests that he had a one year contract with ELMI and Thomas to provide legal representation on their behalf from June 1999 to June 2000. (Moss Decl., Ex. D, Beck Dep. 9:11-10:3.) Beck testified that he never tendered the defense of ELMI to any insurance company, and never read the Policy that is issue in this lawsuit. (Id. 47:11-13.) Beck did not share Thomas' view of Lee's involvement in the Adams-Cohoon matter. (Id. 47:21-24.) In November 2000, Beck "learned from Mr. Thomas that he basically saw Ms. Lee coming to the rescue and taking up the defense of the civil matter." (Id. 48:5-7.) He did not recall Thomas making any prior comments directly saying that he believed Lee or Babbits Walter was his attorney in that matter. (Id. 48:17-20.)
Beck testified that he wrote a letter to Lee in November 2000. (Id. 48:12-16.) ELMI has not provided any of Beck's deposition testimony about that letter, but ELMI has attached a copy of a November 8, 2000 letter from Beck to Lee to the excerpts of Beck's deposition transcript that have been submitted to the Court. That letter provides, in its entirety:
Dear Ms. Lee:
I understand there is an issue of when this matter was tendered to Hartford. A recitation of events is perhaps in order.
You will recall Richard Thomas and I met you at his deposition in San Jose, which took place in this civil matter. It was not a worker's compensation deposition. Thus you and Hartford were clearly aware of the existence of this matter in which Mr. Thomas was a cross-defendant facing potential liability for the injury to his employee, Diana Adams-Cohoon.
At the deposition, Mr. Thomas introduced himself to you and expressed gratitude that Hartford had come to his defense in this matter. At no time did you disabuse Mr. Thomas of the notion that your presence represented anything other than Hartford's commitment to defending Mr. Thomas under his workers' compensation policy for any liability deriving from Ms. Adams-Cohoon's injuries. At no time did you inform Mr. Thomas or otherwise lead him to believe that a formal tender letter was required before Hartford's obligation to defend him would be triggered. Mr. Thomas and I both reasonably understood that Hartford was aware of and actively defending the Adams-Cohoon lawsuit and concomitant cross-complaints against Mr. Thomas.
I hope this helps clear the air on the issue of tender.
(Id.) Without any sworn testimony from Beck about the events described in this letter, the statements in the letter are all inadmissible hearsay and cannot be considered by the Court. Lee did attend Thomas' deposition, however, as there is testimony in Thomas' deposition in this lawsuit which refers to Thomas having met Lee in the courtyard outside of his deposition in the Adams-Cohoon case. (Def. Ev., Ex. 28, Thomas Dep. 57:5-9.) Lee also recalled that the main focus of Thomas' deposition had to do with the 1997 sewer gas incident and not the 1999 incident with the microwaved duck. (Moss Decl., Ex. C, Lee Dep. 45:10-13.) Exhibit B to the Second Amended Complaint consists of a few pages from the Thomas deposition in the Adams-Cohoon suit, which identifies Lee as counsel for Hartford only.
Lee testified at deposition that she represented Hartford, not ELMI. (Moss Decl., Ex. C, Lee Dep. 27:1-11.) Lee recalled receiving a telephone call from someone informing her about Thomas's deposition in a civil lawsuit on the day before the deposition was scheduled to take place. (Id. 35:11-27-16.) The person she spoke to did not tell her he wanted Hartford to provide a defense for either Thomas or ELMI in that lawsuit, but rather told her that he was representing Thomas. (Id. 35:17-25.)
At some point, Lee acknowledged that she sought to obtain copies of the third-party pleadings in the Adams-Cohoon action. (Id. 45:17-23.) Lee also recalled one conversation with Thomas in which she advised him how to obtain copies of the Policy, and "suggested he find out if he had Coverage B, and if he did, that he determine whether that would do anything for him[.]" (Id. 56:5-20.) She did not opine as to whether Coverage B would cover the third party claims in the Adams-Cohoon action. (Id. 58:7-16.) Lee also gave him the name and telephone number of someone in Hartford's civil claims department, because coverage issues were handled in the claims department, not the legal department. (Id. 56:22-57:6.) That conversation took place some time after Thomas' deposition. (Id. 57:7-17.)
Viewing the admissible evidence in the light most favorable to ELMI, Thomas received a letter from Lee which explicitly stated that "This office will be defending your interests in the above referenced workers' compensation claim." No reasonable person could interpret that letter to refer to the Adams-Cohoon civil action. At some point, Debenedetto tendered the defense of that action to Hartford, and was told that representation would be forthcoming if it was appropriate. Debenedetto asked Hartford to send someone to attend the Kerry and Thomas depositions, and Lee apparently attended the Thomas deposition. Lee asked for copies of the third party pleadings in the Adams-Cohoon action, and told Thomas how to obtain copies of his Policy and who to talk to at Hartford about coverage. There is no evidence of what Lee said to Thomas at his deposition, or why she attended it.
These innocuous facts cannot form the basis of a claim for constructive fraud. ELMI cannot show that Hartford violated any duty it had to ELMI. As already determined above, Hartford had no obligation to defend ELMI in the Adams-Cohoon action or the Hartford subrogation action. Without a breach of duty, there can be no recovery on ELMI's claim for constructive fraud. Moreover, no reasonable person could conclude from the evidence submitted to the Court that ELMI could reasonably believe that Lee was representing it in the Adams-Cohoon action. Accordingly, the Court grants Hartford's motion for summary judgment on ELMI's claim for constructive fraud.
F. Negligence
ELMI's claim for negligence is essentially a claim for professional malpractice. ELMI alleges that Hartford had a duty to represent ELMI in the Adams-CohoOn action and the Hartford subrogation action. (SAC ¶ 38.) ELMI alleges that Lee and Babbits Walter negligently represented ELMI by failing to keep it informed regarding the litigation, failing to appear in the litigation or to state in writing to ELMI the limits of their authority. (Id.) ELMI also alleges that Lee and Babbits Walter owed ELMI "a fiduciary duty of loyalty and the duty to advise plaintiffs they were mere employees of and a division of Hartford instead of independent attorneys, and the duty to fully advise plaintiffs regarding their rights, obligations and risks associated with all aspects of the Diana Adams-Cohoon claims." (SAC ¶ 41.)
The elements of a cause of action for attorney malpractice are: (1) the duty to use such skill, prudence, and diligence as other attorneys commonly possess and exercise; (2) a breach of the duty; (3) a proximate causal connection between the negligent conduct and the resulting injury; and (4) actual loss or damage resulting from the attorney's negligence. Daniels v. DeSimone, 13 Cal.App. 4th 600, 607, 16 Cal.Rptr.2d 615, 618 (1993) (citing Budd v. Nixen, 6 Cal.3d 195, 200, 98 Cal.Rptr. 849 (1971)). An attorney's duty to his or her client depends on the existence of an attorney-client relationship; if that relationship does not arise, the fiduciary duty to a client does not arise. Id. (quoting Fox v. Pollack, 181 Cal.App.3d 954, 959, 226 Cal.Rptr. 532 (1986)). Except for those situations where an attorney is appointed by the court, the attorney-client relationship is created by some form of contract, express or implied, formal or informal. Id.
Hartford had no duty to defend ELMI against the Adams-Cohoon action or the Hartford subrogation action. On the evidence submitted to the Court, no reasonable person could find that Hartford took on those obligations voluntarily or that Hartford engaged in actions that reasonably could have caused ELMI to believe that Hartford had provided an attorney to represent ELMI in those actions. Thus, ELMI has not shown that Hartford breached any duty to ELMI by failing to represent ELMI in those actions.
ELMI also contends that Lee violated the ethics rules of the State Bar California by using the name Babbits Walter on her letterhead, instead of identifying herself as an employee of Hartford. ELMI points to California State Bar Opinion No. 1987-91, in which the California State Bar Standing Committee on Professional Responsibility and Conduct stated that an insurance company's in-house counsel must use letterhead which indicates the relationship between the insurance company and the in-house law firm in order to avoid misleading insureds into believing that counsel were employed by a separate and independent law firm. This opinion was cited favorably by a California court of appeal in Gafcon, Inc. v. Ponsor Associates, 98 Cal.App. 4th 1388, 1412-13, 120 Cal.Rptr.2d 392, 410 (2002). Other courts have also found it improper for attorneys who are employed by insurance firms to use letterhead that does not clearly indicate that they are employees of the insurance firm.See, e.g., Cincinnati Ins. Co. v. Wills, 717 N.E.2d 151, 164-65 (Ind. 1999). The Court agrees with ELMI that the use of the "Babbits Walter" letterhead, which does not indicate any affiliation with Hartford, is improper and potentially misleading. Here, however, ELMI has not shown that it suffered any harm from this purported ethical violation, and no such injury can be shown. The very first paragraph of Lee's January 6, 2000 letter to ELMI states "We are staff attorneys employed by your insurance carrier, The Hartford Insurance Group." No reasonable person could read that letter without being aware that Babbits Walter were employees of Hartford. Thus, although the letterhead is misleading, the text of the letter eliminated any reasonable possibility of confusion on the point at issue — whether Hartford was providing a defense solely in the workers' compensation proceedings.
Finally, ELMI argues that Lee was negligent because she failed to file a notice of representation on its behalf in the WCAB. The actual notice of representation Lee filed with the WCAB identifies Lee as "Attorneys for Defendants," and the only listed defendants are ELMI and Hartford. (Def. Ev. ¶ 36.) Although the notice states that Babbits Walter has been retained as attorneys for Hartford, it also requests that the firm be entered on the records of the WCAB as "Attorneys for the indicated parties." (Def. Ev. ¶ 36.) It thus appears that Lee was representing both ELMI and Hartford in the WCAB proceedings. Even if she represented only Hartford, however, there is no evidence whatsoever that her representation in the WCAB proceedings injured ELMI in any way.
Accordingly, summary judgment is granted for Hartford on ELMI's claim for negligence.
G. Declaratory relief
Although Hartford does not move for summary judgment on ELMI's claim for declaratory relief, the Court also grants summary judgment for Hartford on that claim, sue sponte. ELMI's claim for declaratory relief seeks:
a declaration that there was a proper tender of the claims, cross complaints and disputes which arose form [sic] the workers compensation applications filed by Diana Cohoon and which are set forth in this Complaint. Also, [ELMI] requests a declaration that Hartford owed him a defense of these cross complaints and other actions, and now must pay the judgment that resulted form [sic] the failure to provide said defense, or otherwise investigate the claim, together with reasonable attorney fees and other damages as set froth [sic] herein.
(SAC ¶ 20.) This claim depends entirely on a finding that Hartford had a duty to defend ELMI against the cross-complaints in the Adams-Cohoon action and the Hartford subrogation action. The Court has already found that there was no such duty to defend. "Where there is no duty to defend, there cannot be a duty to indemnify." Certain Underwriters at Lloyd's v. Superior Court, 24 Cal. 4th 945, 958, 103 Cal.Rptr.2d 672, 681 (2001) (citing Buss, 16 Cal. 4th at 47 n. 10, 65 Cal.Rptr.2d at 373 n. 10). Thus, ELMI's claim for declaratory relief also fails, and summary judgment on that claim is granted for Hartford.
Even if Hartford had a duty to indemnify ELMI for any judgment against ELMI, there is no judgment against ELMI in either the Adams-Cohoon action or the Hartford subrogation action. The judgment against Thomas in the Adams-Cohoon action is not a judgment against ELMI. There is no judgment at all in the Hartford subrogation action, which was dismissed.
III. Conclusion
For the reasons set forth above, and for good cause shown, Hartford's motion for summary judgment is granted in its entirety.
IT IS SO ORDERED.