Opinion
Rehearing Denied March 12, 1964.
Hanna & Brophy, and Eugene A. Biglow, Fresno, George Brunn, San Francisco, for appellant.
McCormick, Barstow, Sheppard, Coyle & Best and Robert E. Coyle, Fresno, for respondent.
R. M. BROWN, Justice.
Plaintiff, David W. Tomerlin, hereinafter Tomerlin, one of the named insureds under a comprehensive bodily injury and property damage liability policy insuring plaintiff and the partnership of which he was a member for loss or liability occurring in the operation of a motel and restaurant business, issued by The Canadian Indemnity Company, hereinafter Canadian, brought this action for a declaration of his rights and a determination of defendant's liability under the policy. The trial court determined that defendant was liable; judgment was entered accordingly; and defendant appeals.
The policy was issued to Tomerlin and his partner doing business as Fresno Motel, a copartnership, and provided that Canadian agreed to pay all sums up to $200,000 which the named insureds became obligated to pay by reason of the liability for damage imposed upon them by law, including damages for bodily injury sustained by any person. In the event of suit founded on such injury, Canadian agreed to 'defend in his name and behalf any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent; the company shall have the exclusive right to settle any claim or suit at its own cost at any time, and irrespective of the amount of coverage hereunder, or the amount involved in any claim, suit or judgment, shall have the exclusive right of determination whether to settle or to litigate the same, and whether or not to appeal from an adverse judgment thereon.' Expressly excluded from coverage are the following: 'Bodily injury, sickness, disease, or death sustained by any person as a result of an assault committed by, or at the direction of, the insured.'
On August 28, 1959, Tomerlin personally assaulted and battered on Maurice Jack Villines, causing injuries to his person. On September 3, 1959, Tomerlin executed a reservation of rights agreement. In December 1959 Villines sued Tomerlin, charging assault and attack, alleging certain injuries, and praying for compensatory and punitive damages. Tomerlin engaged Hollis G. Best as his personal attorney. (Canadian at first refused to defend on the basis that there was no coverage, but a few days later determined to defend the Villines suit under the reservation of rights agreement. It engaged attorney Edward A. Friend under a general retainer to conduct the defense for Tomerlin and Canadian. Both Canadian, through its independent adjuster, and Friend were advised by Best that he represented Tomerlin personally in the litigation.
On September 14, 1960, Villines filed an amended complaint containing three counts. The first count was predicated on the theory of assault and battery; the second and third counts were predicated upon theories The answer filed in behalf of Tomerlin in the Villines suit raised as affirmative defenses the defense of self and defense of property.
About the middle of November 1960, Friend and Best discussed the effect of the decision in the case of Walters v. American Ins. Co., 185 Cal.App.2d 776, 8 Cal.Rptr. 665, which was decided on October 31, 1960. In the cited case an insurer was held liable to the extent of a settlement, without litigation, made by the insured with a third person who had threatened to sue the insured for damages for injuries claimed to have been sustained through an assault and battery at the hands of the insured. Liability of the insurer was predicated upon the theory that the trial court found the insured acted in self defense; that acts committed in self defense are not unlawful; that, in view of the defense, the insurer had a contractual obligation to defend the insured; that the duty to defend was breached in that the insurer was noncommittal as to whether it would conduct a defense in the event the insured was sued; and that, under contract principles, the measure of damages for such breach was an amount which would compensate the insured for all detriment proximately caused thereby, i. e., the amount of the settlement. In brief, the decision seems to hold that there is a distinction between the duty to defend and the duty to indemnify on the part of an insurer, and that the insurer must defend claims against the insured founded on assault and battery, despite noncoverage, in cases where the insured claims he acted in self-defense. However, Best testified that Friend stated that the decision in Walters 'would do away with the reservation of rights agreement, and they would have to afford coverage' in the Villines suit.
On December 2, 1960, Friend wrote to Canadian calling its attention to the Walters case, summarizing the facts, and then stating:
'The District Court of Appeal held that the insurer wrongfully declined the defense under those circumstances; and that the exclusion contemplates only wilful, wanton and aggressive assault, not a mere act of self-defense.
'The facts of the alleged injury in the Walters case are similar to the facts in our case. If the opinion cited becomes final, as it will unless the State Supreme Court grants a hearing this month, then our reservation of rights agreement will become a nullity.
'My belief, as indicated in earlier reports, is that the torts case can be defended on its merits with reference to both the alleged assault and the alleged negligence. Our company, unlike American, has accepted the defense all along in the highest degree of good faith and it was perfectly justified in requesting a reservation of rights agreement at the time it did, based upon the original complaint.'
Without the knowledge of Canadian, Friend sent a blind copy of the letter to Best.
The Supreme Court declined to hear Walters. Friend then told Best that the reservation of rights in this case was without effect and that Canadian was proceeding to defend without reservation. Best, in turn, informed Tomerlin that Canadian had accepted liability without reservation and that Tomerlin no longer needed personal representation. With Tomerlin's permission, Best then notified Friend that he had withdrawn from the Villines suit.
After a jury was selected in the Villines trial, Villines dismissed the two negligence Villines obtained judgment against Tomerlin and the copartnership for $15,000 which Canadian declined to pay on the ground that it was excluded from the coverage of the policy. The judgment was affirmed on appeal. (Villines v. Tomerlin, 206 Cal.App.2d 448, 23 Cal.Rptr. 617.)
Tomerlin filed this declaratory relief suit and obtained judgment decreeing that Canadian was obligated to pay the whole of the Villines judgment, together with Tomerlin's costs of suit. The Motel Fresno, a copartnership, is not a party.
The judgment is predicated upon two grounds. First, that by assuming the defense of the main suit, Canadian is estopped from setting up the defense of noncoverage and disclaiming liability; and, second, that Canadian is estopped from disclaiming liability by the conduct and representations of its attorney which are binding upon it. We have concluded that the judgment cannot be sustained on either ground.
The general rule is that, where an insurer, with full knowledge of the fact of noncoverage or a policy defense nevertheless defends an action brought against the insured, without notice of disclaimer of liability or a reservation of rights, it is thereafter estopped in an action upon the policy from asserting noncoverage or the policy defense. (J. Frank & Co. v. New Amsterdam Cas. Co., 175 Cal. 293, 295, 165 P. 927; McDanels v. General Ins. Co., 1 Cal.App.2d 454, 459, 36 P.2d 829; Rodgers v. Pacific Coast Casualty Co., 33 Cal.App. 70, 72, 164 P. 1115; Merchants Indemnity Corp. of N. Y. v. Eggleston, 68 N.J.Super. 235, 172 A.2d 206, 216; Claverie v. American Casualty Co. of Reading, Pa. (1935, 4th Cir.), 76 F.2d 570; William M. Moore Const. Co. v. United States F. & G. Co., 293 N.Y. 119, 56 N.E.2d 74, 75.) In McDanels it is said that the estoppel is that form of estoppel in pais known as quasi estoppel; and that it is based upon the equitable principle that one cannot blow both hot and cold. Thus, an insurer cannot treat a policy as operative by defending, without disclaimer, an action brought against the insured and subsequently, after an adverse judgment, assert noncoverage. However, the claim of estoppel is not available under several types of factual situations, two at least of which are present in this case. Estoppel may not be asserted where the insurer gives timely notice fairly informing the insured that, notwithstanding its defense of the action, it disclaims liability and does not waive the defenses available to it against the insured. (State Farm Mut. Auto. Ins. Co. v. Anderson, 104 Ga.App. 815, 123 S.E.2d 191.) Also, 'if there are multiple grounds for the claim against the insured, some grounds being within policy coverage and some not, the insurer, by defending the action on all grounds, is not estopped from asserting a defense under the policy against the insured if recovery against the insured is on a ground outside the policy coverage.' (29A Am.Jur., § 1465, p. 578; 38 A.L.R.2d 1179; United States Fidelity & Guaranty Co. v. Watson, 106 Ga.App. 748, 128 S.E.2d 515, 518-519; Zaslow v. Hartford Accident & Indemnity Co., Sup., 11 N.Y.S.2d 313.) In this case, within a few days after the assault and prior to the filing of the Villines suit, Tomerlin knowingly executed in favor of Canadian a reservation of rights agreement, in which all defenses under the policy were reserved. Tomerlin thus had timely notice that Canadian disclaimed liability and did not intend to waive the defense of noncoverage. Since Tomerlin asserted defenses Fireman's Fund Ins. Co. v. Chasson,
Firco, Inc. v. Fireman's Fund Ins. Co., Walters v. American Ins. Co., Mirich v. Underwriters at Lloyd's London, McDanels v. General Ins. Co., Walters v. American Ins. Co.,Tomerlin contends that Canadian is estopped to deny liability to pay the Villines judgment by reason of the representations of coverage made by Friend, as its attorney and agent. This case is unusual in that Friend represented the interests of both Canadian and Tomerlin in all phases of the defense of the Villines suit. In the typical case in which such point is raised the attorney represents one or more litigants on one side of the suit and his statements or conduct relate to the litigation at hand, affecting the rights of an adversary. Therefore, in determining this issue, the roles played by the respective parties to this controversy should be clearly defined. Friend is not an officer or a salaried employee of, or an agent authorized to transact insurance business for, Canadian. He was engaged, without special instructions, to defend the Villines suit. Under such circumstances an attorney has been characterized as 'an independent contractor retained to perform professional services.' (Otten v. San Francisco Hotel, etc., Ass'n., 74 Cal.App.2d 341, 343, 168 P.2d 739, 740; Associated Indem. Corp. v. Industrial Acc. Com., 56 Cal.App.2d 804, 808, 133 P.2d 698.) Generally it may be said that an attorney is at most a special agent whose duty is to diligently prosecute or defend in behalf of his client a particular case. His authority, unless actually conferred by his client, is limited to acts of a professional nature which are necessary for the conduct of the case he has been engaged to prosecute or defend. As to all matters directly relating to the defense of the Villines suit, Canadian, as insurer, and Tomerlin, as insured, were united in interest and each owed to the other a duty of the utmost good faith arising out of their contract (see Communale v. Traders & General Ins. Co., 50 Cal.2d 654, 658-659, 328 P.2d 198, 68 A.L.R.2d 883); but when their respective rights and liabilities under the policy are in question they face each other as adversaries. Thus, we have concluded that the familiar rules defining the scope of the implied authority of an attorney representing a client in adversary proceedings are applicable. The principle has been affirmed and reaffirmed in manifold cases that the authority of an attorney is limited to the management and conduct of the particular litigation for which he has been retained but he may not impair, compromise, surrender or destroy a substantial right without his client's knowledge and consent. (People v. Davis, 48 Cal.2d 241, 256-257, 309 P.2d 1; Gagnon Co., Inc. v. Nevada Desert Inn, 45 Cal.2d 448, 459-460, 289 P.2d 466; Britschgi v. McCall, 41 Cal.2d 138, 142, 257 P.2d 977; Wells Fargo & Co. v. City etc. of S. F., 25 Cal.2d 37, 42-43, 152 Spencer Kennelly, Ltd. v. Bank of America,
Zurich G. A. & L. Ins. Co., Ltd. v. Kinsler, Duffy v. Griffith Co., Hoagland v. Chargin, Redsted v. Weiss, Fresno City High School Dist. v. Dillon,It is clear that Friend was not vested with either actual or implied authority, by reason of a general retainer to defend Tomerlin in the Villines action, to bind Canadian by statements of fact that Canadian would provide coverage in the event of an adverse judgment, when he had nothing to do with the issuance of the policy containing the express exclusion clause, or the reservation of rights executed by Tomerlin prior to Friend's entry into the picture, and at no time had any authority or control over the policy and had neither duty nor power to determine rights and liabilities as between Canadian and Tomerlin. The statements attributed to Friend were not in the nature of waiver of some point of litigation procedure or practice in the Villines suit, which in some circumstances an attorney may make with binding effect upon his client, but were gratuitous statements as of fact with respect to a contractual status. That Mr. Friend was representing both Tomerlin and Canadian in defending the suit brought by Villines gave him no legal right to determine and settle a matter not then in issue between Tomerlin and Canadian and thereby bind Canadian.
It is difficult to follow Tomerlin's argument that, upon a collateral attack, the presumption of an attorney's authority is conclusive and that, since Canadian failed to attack the authority of its attorney in the Villines suit, it is too late to do so now. The issue involved in the Villines suit was the liability of Tomerlin and the Motel Fresno, a copartnership. The liability of Canadian on its policy was not relevant and was not in issue in that suit. Canadian was not a party therein. This is not a collateral attack but involves a primary determination of Canadian's liability to Tomerlin.
Tomerlin's contention that Canadian ratified or acquiesced in the representations of coverage is devoid of merit. In ordre to support such a theory, it must be shown that Canadian had full knowledge of the fact that such representations had been made. There is no evidence in the record that Canadian knew, or had any notice of circumstances sufficient to put it upon inquiry, that Friend made any representations to Tomerlin relating to Canadian's liability or coverage under the policy. It requires no citation of authority to state that one cannot acquiesce in, or ratify, that of which he has no knowledge.
Canadian next raises the serious contention that the judgment in this case is against the public policy of this state in that it obligates it to pay the Villines judgment which is based upon Tomerlin's assault and battery of Villines. In support of the contention it argues that it is illegal to insure a person against liability arising from his own wilful wrong; the principle applies to the tort of assault and battery; and, the rule being one of public policy, it may not be circumvented by waiver or estoppel.
It is provided by section 533 of the Insurance Code as follows:
'An insurer is not liable for a loss caused by the wilful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured's agents or others.' It has been said that section 'codifies the general rule that an insurance policy indemnifying the insured against liability due to his own wilful wrong is void as against public policy.' (Arenson v. Nat. Automobile & Cas. Ins. Co., 45 Cal.2d 81, 84, 286 P.2d 816, 818.) (See also Abbott v. Western Nat. Indem. Co., 165 Cal.App.2d 302, 305, 331 P.2d 997; Civ.Code, § 1668.) In the case of Russ-Field Corp. v. Underwriters at Lloyd's, 164 Cal.App.2d 83, at page 96, 330 P.2d 432, at page 439, it is said:
'A 'wilful act' as used in this statute connotes something more blameworthy than the sort of misconduct involved in ordinary negligence, and something more than the mere intentional doing of an act constituting such negligence. [Citations.]'
The tort of assault and battery connotes something more blameworthy than the intentional doing of an act constituting ordinary negligence. 'There is, properly speaking, no such thing as a negligent assault.' (Prosser on Torts, Assault, § 10, p. 37.)
In the case of Malanga v. Manufacturers Cas.Ins. Co., 28 N.J. 220, 146 A.2d 105, 108, it is said that,
'The reason the insurance policy denies coverage of an assault and battery committed by or at the direction of an insured is that it would be contrary to public policy to indemnify a person for a loss incurred as a result of his own willful wrongdoing.'
To the same effect are Abbott v. Western Nat. Indem. Co., supra, 165 Cal.App.2d 302, 305, 331 P.2d 997; Isenhart v. General Casualty Company of America, 233 Or. 49, 377 P.2d 26; and MacDonald v. United Pacific Ins. Co., 210 Or. 395, 311 P.2d 425.
Tomerlin again argues that Canadian is estopped to deny its liability to pay the Villines judgment because of its actions in defending that litigation coupled with the representations of coverage attributed to Friend. The same argument was made in Northwestern National Casualty Company v. McNulty, 5 Cir., 307 F.2d 432, and we are impressed with the answer of the court:
'This is an appealing argument. Consistency compels us to hold, however, that since public policy forbids an insurer and an insured to enter into an insurance contract covering punitive damages, public policy forbids the accomplishment of the result by an estoppel.' (307 F.2d p. 442.)
The decisional law of this state is in accord. In Panzer-Hamilton Co. v. Bray, 96 Cal.App. 460, at page 464, 274 P. 769, 771, the court said:
'It is equally clear that estoppel cannot operate as against positive law or public policy. 'The doctrines of estoppel and waiver do not in general apply in transactions that are forbidden by statute or that are contrary to public policy.' [Citation.] 'An estoppel can never be invoked in aid of a contract which is expressly prohibited by a constitutional or statutory provision.' [Citation.]'
(See also Industrial L. & I. Co. of San Francisco v. Sueprior Court, 189 Cal. 546, 209 P. 360; Griffith v. New York Life Ins. Co., 101 Cal. 627, 640, 36 P. 113; Ohran v. National Automobile Ins. Co., 82 Cal.App.2d 636, 644, 187 P.2d 66; Benane v. Internat. Harvester Co., 142 Cal.App.2d Supp. 874, 878, 299 P.2d 750.)
Tomerlin argues that he is not invoking the doctrines of estoppel and waiver in aid of the policy; that the defendant is merely estopped from denying liability to pay the judgment. The argument will not stand analysis. Estoppel and waiver must have a field of operation. A defendant must be estopped from asserting some right or he must have waived some right. In this case that right is noncoverage by reason of the exclusionary clause in the policy. Thus the effect of the judgment is to render the defendant liable, as an insurer, for a loss which it would have been precluded by law as a matter of public policy from covering under a direct contract. 'The law which prohibits the and Canadian makes certain charges of error in the court's rulings during and at the commencement of trial. In view of the conclusion we have reached, we do not deem discussion of those assignments of error necessary.
The judgment is reversed, with directions to the trial court to make and file its findings of fact and conclusions of law in accordance with the views herein expressed and to make and enter its judgment thereon in favor of defendant herein, with costs.
CONLEY, P.J., concurs.
STONE, Justice.
I concur in the result, but I reach the conclusion for reasons that differ from those expressed in the majority opinion. In my view the case does not turn on the question of ratification under the law of agency but, rather, upon appellant's violation of its contractual obligation to furnish adequate legal representation to its assured.
The trouble here arises from the dual role of an attorney duty-bound to represent the interests of the insurance company that hires him, while at the same time to defend the assured. As to the assured he assumes an attorney-client relationship which is no less exacting than may other attorney-client relationship, this even though he is hired by the insurance carrier. As principal, the insurance company is responsible for the acts of the attorney in carrying out the attorney-client relationship with the assured.
The attorney here misconstrued the import of Walters v. American Ins. Co., 185 Cal.App.2d 776, 8 Cal.Rptr. 665, and Firco Inc. v. Fireman's Fund Ins. Co., 173 Cal.App.2d 524, 343 P.2d 311, which cases require an insurance company to defend an assured against an action predicated upon an intentional tort such as assault and battery. During the course of the trial, the court dismissed the negligence causes of action and ordered that the case proceed on the cause of action for intentional tort. The attorney, having in mind the requirement to defend assured under the rationale of the above cited cases, and having misconstrued the full import of these cases, advised assured that he was still covered by the policy. Assured, relying upon that representation, did not consult with his personal attorney nor bring him back into the case. It is significant that in the early stages of the matter assured was represented by his own counsel, but released him because of insurance coverage and because the terms of the policy gave the company the right to select counsel of its own choosing to defend assured. His private counsel testified that had he remained in the action he would have either taken the deposition of the doctor who treated the injured person or called the doctor as a witness. He also testified that if he believed there was personal liability he would have attempted to negotiate a favorable settlement. The trial judge commented at one point in the trial that 'prejudice is implied' when a litigant is deprived of the right to be represented by counsel of his choice.
The majority opinion finds also that public policy as expressed in Civil Code section 1668 and Insurance Code section 533 bars respondent's recovery. The peculiar circumstances of this case make neither the statutes nor public policy applicable. The liability of the insurance carrier here arises after the fact. It was at the trial that the attorney hired by the insurance company to defend assured under the terms of the policy advised assured that he was covered by the policy. It was then that assured relied upon the representation, and that liability arose, liability based not upon insurance against an intentional tort but upon a breach of contract to furnish proper legal representation. Since liability rests on the contract clause relating to representation by counsel, and not upon the insuring provisions, respondent had the burden of proving damages. The judgment herein is predicated upon the insurance provision which presupposes that the amount of the judgment in the trial court fixes the amount of the damages. This does not follow. Respondent must prove that his damages or the amount thereof resulted from an inadequate presentation of his case in the trial of the action.