See CNA Casualty, 176 Cal. App. 3d at 607.
The Toyon complaint alleges more than a mere breach of an oral contract. In its claim for interference with economic relations, Toyon alleges that Foxfire misrepresented both its relationship with Toyon and the source of the revenue enhancement services Foxfire offered. The Toyon complaint further alleges "that as a result of said acts committed by defendants, defendants have interfered with plaintiff's economic relationship with its clients to the financial benefit of defendants and to the detriment and damage to plaintiff . . . ." Ex. 1.B at 9. The basis for Toyon's claims is the Sullivan letter. Accordingly the unfair competition injury alleged by Toyon allegedly arose from an advertising activity (the Sullivan letter). The unfair competition injury in the underlying action is therefore one which occurred "in the course of the named insured's advertising activity," Ex. 1.A, § II at 14, and which creates a duty to defend under the Policy.
II. Duty to Indemnify
An insurer's duty to indemnify is "determined, measured, and limited by the terms of the insurance contract and depends upon an ultimate adjudication of coverage." CNA Casualty, 176 Cal. App. 3d at 605, n.1 (citations omitted). The Policy under which Foxfire seeks indemnification contains language which states that "[NHICO] will pay on behalf of [Foxfire] all sums which the insured shall become legally obligated to pay as damages . . . because of . . . advertising injury caused by an occurrence to which this insurance applies." Ex. 1.A, § II at 11.
The alleged facts which trigger NHICO's duty to indemnify are found in the fifth cause of action of the Toyon complaint.
In the fifth cause of action, Toyon alleges that an economic relationship existed between Toyon and its clients. Toyon asserts that the relationship included, but was not limited to, revenue enhancement services, and that Toyon provided those services on a regular basis. Ex. 1.B at 8. Toyon further claims that Foxfire interfered with these economic relations, thereby disrupting the present and future economic benefit that Toyon would have gained from its customers. Id. at 9.
The underlying action settled in July 1991. Although there will necessarily be a dispute regarding how much money Foxfire should receive from NHICO, the basic question of whether NHICO has a duty to indemnify Foxfire is decided here. Based upon the potential for liability raised in the underlying action, the court finds that NHICO has a duty to indemnify Foxfire.
III. Covenant of Good Faith and Fair Dealing and Fiduciary Duty
Foxfire also moves for summary judgment on the second and third claims in its Complaint. Foxfire alleges that NHICO violated the implied covenant of good faith and fair dealing and breached the fiduciary duty it owed Foxfire when it undertook the defense of Toyon in the cross-complaint filed by Foxfire in the underlying action without revealing this purported conflict of interest to Foxfire. Moreover, Foxfire claims that NHICO took no action, such as immediately filing a declaratory judgment action or hiring separate coverage counsel, to alleviate this conflict.
California law does not recognize the existence of a fiduciary duty between an insurer and an insured. See Hassard, Bonnington, Roger & Huber v. Home Ins., 740 F. Supp. 789, 790-92 (S.D. Cal. 1990); Henry v. Associated Indemnity, 217 Cal. App. 3d 1405, 1418-19, 266 Cal. Rptr. 578 (1990). Although there is implied in every insurance policy a duty of good faith and fair dealing, and while this duty is "fiduciary in nature," Spindle v. Chubb/Pacific Indemnity, 89 Cal. App. 3d 706, 712, 152 Cal. Rptr. 776 (1979), it does not create a fiduciary relationship. See Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136, 1148-49, 271 Cal. Rptr. 246 , review denied, 1990 Cal. LEXIS 4195 (1990) (noting that a fiduciary must put the interests of its trust above its own, whereas an insurer may give its own interests consideration equal to that it gives the interests of its insured). Accordingly, as a matter of law, Foxfire may not maintain an action for breach of fiduciary duty and therefore the court dismisses the third cause of action for breach of fiduciary duty.
A duty of good faith and fair dealing is implied in all California contracts, especially in those involving insurance. Hassard, 740 F. Supp. at 791. There are two requirements to establish breach of the implied covenant: (1) benefits due under the policy must have been withheld, and (2) the reason for withholding benefits must have been unreasonable, in bad faith, or without proper cause. Love, 221 Cal. App. 3d at 1151.
The threshold requirement is met in this case, for as the court has explained at some length, NHICO's narrow reading of the Toyon complaint resulted in a breach of its duty to defend Foxfire. However, NHICO based its denial of coverage on its interpretation of California law as applied to the facts known at the time Foxfire tendered the defense; nothing in the record establishes that, as a matter of law, NHICO acted in bad faith. Foxfire argues that NHICO's bad faith denial of coverage is evidenced by their accepting the defense of Toyon on the cross-claim and their attendant failure to either disclose this conflict to Foxfire or to have separate counsel decide whether NHICO had an obligation under the policy to defend Foxfire. NHICO maintains that as often happens, two of its insureds were on the opposite sides of a lawsuit, but that the tenders by Toyon and Foxfire were assigned to different adjustors and different coverage counsel. Hegen Dec. P 2. Since a genuine dispute over a material fact is extant, the matter cannot be resolved summarily. Accordingly, Foxfire's motion for summary judgment on its second claim for relief -- that NHICO breached the implied covenant of good faith and fair dealing -- is denied.
For the foregoing reasons, the court HEREBY ORDERS that:
(1) NHICO's motion for summary judgment is DENIED;
(2) Foxfire's motion for summary judgement is GRANTED as to the breach of insurance contract claim and DENIED as to the claims for breach of implied covenant of good faith and fair dealing and breach of fiduciary duty; and
(3) In view of the above, Foxfire's claim for breach of fiduciary duty is dismissed sua sponte.
IT IS SO ORDERED.
Dated: APR 1 - 1993
MARILYN HALL PATEL
United States District Judge