APPEAL from a judgment of the Superior Court of San Diego County, Steven R. Denton, Judge. Reversed. (Super. Ct. No. 37-2007-00075550).
The opinion of the court was delivered by: Aaron, J.
CERTIFIED FOR PUBLICATION
The trial court granted an insurer's motion for summary judgment on the ground that, as a matter of law, the insurer's refusal to defend and indemnify its insured against an injured party's claim of false imprisonment had not caused the insured to suffer any damages. The trial court concluded that the insurer's refusal to defend the claim under a homeowner's policy was "of no consequence" to the insured because the insurer provided the insured a defense pursuant to a separate automobile policy.
We conclude that the mere fact that the insurer provided its insured with a defense under one policy does not necessarily insulate the insurer from liability for its alleged breach of the duty to defend and settle under a second policy. In this case, the insurer has not established that its refusal to defend under the homeowner's policy was of "no consequence" to the insured, as the trial court found. On the contrary, the insurers' refusal to defend under the homeowner's policy potentially increased the insured's exposure to personal liability. The trial court therefore erred in concluding that, as a matter of law, the insured suffered no damages from the insurer's refusal to defend. Accordingly, we reverse the judgment.
II. FACTUAL AND PROCEDURAL BACKGROUND
In May 2008, Lisa Risely filed a three-count third amended complaint against Interinsurance Exchange of the Automobile Club (Auto Club), in which she claimed breach of contract and breach of the covenant of good faith and fair dealing, and sought to recover the proceeds of an insurance policy as a judgment creditor, pursuant to Insurance Code section 11580.*fn1 The complaint alleged that on or about August 6, 2003, Auto Club's insured, Sean Turner, offered Risely a ride home in his car. After Risely got into the car, Turner began to drive erratically and negligently. Risely asked Turner to take her home immediately several times, but he refused to do so. Risely also asked Turner to stop driving erratically, but he refused this request, as well. Risely alleged that Turner wrongfully held her against her will, and that she suffered severe, debilitating injuries as a result of his conduct.*fn2
Risely also alleged that Turner was insured under two insurance policies issued by Auto Club an automobile policy with policy limits of $50,000, and a homeowner's policy with policy limits of $300,000. Risely further alleged that the homeowner's policy provided coverage for personal injury arising from false imprisonment, and that the automobile policy did not provide such coverage. Risely also claimed that the homeowner's policy provided that Auto Club would defend any suit seeking covered damages, and that this policy contained an implied covenant that Auto Club would "settle liability matters at or within policy limits."
Risely alleged that in August 2005, she filed a lawsuit against Turner for motor vehicle negligence, negligence per se, and false imprisonment, among other claims. Auto Club provided Turner with counsel to defend the action. In December 2005, Risely offered to settle the action against Turner for $300,000 the policy limits of the homeowner's policy. In January 2006, Auto Club, through its coverage counsel, sent a letter to Turner declining to defend or indemnify him under the homeowner's policy,*fn3 and stating that Auto Club would defend all of Risely's claims under Turner's automobile policy, including the false imprisonment claim. Auto Club subsequently declined Risely's $300,000 demand on the ground that the demand was in excess of the policy limits of the automobile policy, and there was no other applicable coverage.
In her complaint against Auto Club, Risely alleged that after Auto Club declined to defend or indemnify Turner under the homeowner's policy, Turner agreed to the entry of a stipulated judgment against him in Risely's lawsuit. Turner also agreed to assign to Risely any and all claims that Turner might have against Auto Club for breach of contract and breach of the covenant of good faith and fair dealing, based on Auto Club's refusal to defend or indemnify Turner under the homeowner's policy. In September 2006, pursuant to the stipulation, the trial court entered a final judgment in the amount of $434,000 in Risely's lawsuit against Turner, on her false imprisonment claim.*fn4 Risely alleged in this lawsuit that Auto Club repeatedly refused her requests to pay the judgment.
In her first cause of action for breach of contract, Risely claimed that Auto Club breached its duty to defend and indemnify Turner against Risely's false imprisonment claim. Risely further alleged that Auto Club breached its duty to accept her reasonable settlement offer, thereby exposing Turner to the possibility that he would incur personal liability, despite the fact that Risely's claim was covered under the homeowner's policy. Risely alleged that Auto Club's breaches caused Turner to enter into a stipulated judgment against him for $434,000, and that she was entitled to recover $434,000 from Auto Club, since Turner had assigned to her his breach of contract claim against Auto Club. Risely repeated these allegations in her claim for breach of the covenant of good faith and fair dealing.
In a third cause of action, Risely alleged that upon the entry of judgment in her action against Turner, she became a third party beneficiary of Turner's homeowner's policy with Auto Club, pursuant to section 11580. Risely alleged that she was entitled to recover the $300,000 policy limits, as well as punitive damages, pursuant to this claim.
B. Auto Club's Motion for Summary Judgment
Auto Club filed a motion for summary judgment and/or adjudication in which it claimed that Risely could not establish any of her claims because a "judicial determination of liability in the underlying case sufficient to establish damages resulting from a refusal to settle," was an essential element of each of Risely's claims, and there had been no such determination. Auto Club contended that, as a matter of law, the stipulated judgment entered in the underlying action was not binding against it because Auto Club had provided a defense to all of Risely's claims in that action. Auto Club did not dispute that it had refused to defend or indemnify Turner under the homeowner's policy, but maintained that it had fulfilled its duty to defend Turner by providing him a defense under the automobile policy.
Auto Club acknowledged that, "[w]here an insurer refuses to defend its insured against a third party claim, the insured may enter a noncollusive settlement with the claimant, without the insurer's consent," and also acknowledged that under those circumstances, the "settlement raises a presumption that the claim was worth the amount paid." However, citing Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718 (Hamilton), Auto Club argued that "where the insurer provides a defense to the third party claim or action, any settlement between the insured and the claimant, without the insurer's consent, cannot establish the insured's liability or the amount thereof in a subsequent action against the insurer."
Auto Club asserted that it had provided Turner with a "defense to the entire lawsuit, including the false imprisonment cause of action, even though there was no indemnity coverage under the automobile policy for the alleged false imprisonment." Auto Club claimed that Turner had received a "complete defense," and that it did "not matter under which policy Turner was receiving [such] defense." Citing Ceresino v. Fire Ins. Exch. (1989) 215 Cal.App.3d 814, 823 (Ceresino), Auto Club argued, "Where there is a duty to defend, a failure to defend under one policy is of no consequence where a defense is being provided under another policy." Auto Club maintained that because it had provided Turner with a full defense, Risely could not establish that Turner had been damaged by Auto Club's alleged bad faith refusal to settle Risely's claims, which she would have to do in order to prove both her breach of contract claim and her claim for breach of the covenant of good faith and fair dealing. Thus, Auto Club argued, the stipulated judgment was not binding on it, under Hamilton, supra, 27 Cal.4th at page 726.
With respect to Risely's section 11580 claim, Auto Club acknowledged that once a plaintiff has obtained a judgment against an insured defendant, the plaintiff, as a judgment creditor, may seek to enforce the judgment, up to the policy limits, against the insurance company. However, Auto Club claimed that Risely could not enforce the stipulated judgment in light of a provision in the homeowner's policy that provided that no action could be brought to recover policy benefits until the insured's obligation to pay had been determined either by a judgment after trial, or by the written consent of both the Auto Club and the insured. Auto Club argued that in cases in which a "defense has been provided," courts have determined that such a "no action" clause precludes recovery based on a stipulated judgment.
In Risely's opposition to Auto Club's motion for summary judgment, Risely argued that under well established case law, Auto Club had forfeited its right to object to its insured's settlement of the false imprisonment claim when it breached its duty to defend. With respect to her section 11580 claim, Risely maintained that Auto Club had forfeited its right to assert the "no action" provision of the policy by declining to defend or indemnify Turner under that policy.*fn5
Risely distinguished Hamilton, and several other similar cases on which Auto Club relied in its motion, noting that in all of these cases, the insurer had fully defended the claim under the policy at risk, and thus, that no breach of the duty to defend was at issue. Risely argued that the present case was distinguishable from the cases that Auto Club cited because Auto Club had breached both its duty to defend and its duty to settle under the homeowner's policy.
Risely distinguished Ceresino on the ground that in that case, there had been a prior judicial determination that the non-defending insurer's policy did not cover the claim, while in this case, there had been no judicial determination that Risely's false imprisonment claim was not covered under the homeowner's policy. Risely further noted that the Ceresino court had suggested that an insurer may be bound by a stipulated judgment for a covered claim where the insurer breaches its duty to defend, notwithstanding the fact that another insurer defended the claim.
Risely contended that the fact that Auto Club had defended Turner against the false imprisonment claim under the automobile policy did not excuse its failure to defend him under the homeowner's policy. Noting that the automobile policy had policy limits of $25,000 per person and $50,000 per occurrence, and did not include coverage for false imprisonment, while the homeowner's policy had a $300,000 policy limit and provided coverage for false imprisonment, Risely maintained that Auto Club's defense of her false imprisonment claim under the automobile policy was not equivalent to a defense under the homeowner's policy because, "[t]he defense provided under the automobile policy exposed [Auto Club] to ...